A recent Scottish court decision issued just after Christmas has shown that tensions can arise following a death when there is no documentation in place to clarify the nature of a lifetime payment made by a deceased.
Molly Mailer died on 5 June 2017. Molly’s will dated 25 February 2015 specified as follows:-
- Children, Suzanne and Michael to be executors.
- Michael to receive a legacy of £15,000.
- Suzanne to inherit the residue.
The house was held in trust under the will of Molly’s husband and Michael and Suzanne’s father. The house did not form part of Molly’s estate and so Molly’s estate essentially consisted of cash at bank. There is also another child entitled to ‘legal rights’ (more on what that is here) notwithstanding he is not included in the will.
On 5 December 2016, Molly made a payment of £9,950 to an account in the name of Michael’s partner. This was to help with house build project that had been affected by the insolvency of the main contractor.
Following Molly’s death, the nub of the issue was an argument over the correct nature of the £9,950 payment. There are some options on the table as to how it should be treated:-
- A loan by Molly? That would then be repaid to the estate by Michael / his partner.
- An advance against Michael’s legacy? That would be deducted from the £15,000 legacy on the basis of some form of agreement or promise binding Michael to accept that.
- An outright gift? That would have no effect on the estate as such but it would reduce the size of the residue available for Suzanne.
There was no document setting out how the payment should be treated. There was no codicil to Molly’s will or new will prepared. Molly did apparently say to Suzanne that she would “sort” out the position of the payment.
Following the death, there were various discussions between Suzanne and Michael about a possible resolution. Those discussions did not end matters and the case ended up in court to determine how the £9,950 should be treated.
The court decided that the £9,950 payment should be treated as an outright gift.
While Molly might have said she would “sort” it, the court noted there was no paperwork to support that it was to be repaid or otherwise to be taken into account when distributing the estate after Molly’s death. The court highlighted that Molly could have made it clear in a number of ways that the payment was to be taken into account. A short agreement or a minor adjustment to Molly’s will could have clarified things.
The court also discussed what is known as the ‘presumption against donation’. Ordinarily, someone would expect repayment when giving someone money. That is the starting point or ‘presumption’… that would need to be rebutted by someone arguing that it was not to be repaid. The court in Molly’s estate discussed this presumption. It said that there is such a presumption but when a payment is made “from natural affection and duty” it can be taken to be an outright gift that need not be repaid or otherwise taken into account. The court outlined that Molly was making a payment to help her son out “in an hour of need” and “out of a sense of natural obligation”. The court pointed out that age would not prevent this conclusion being reached. While the issue of the presumption was not strictly part of the decision, it is an interesting legal point (that might be examined further in the future) that underlines the practical steps to be taken to avoid a dispute following a bereavement. Let’s look at the practical steps.
Practical points to note… making the nature of a payment as clear as possible
There are important points to take from the case. These include:-
- The first is try to avoid an estate ending up in court… and the remaining points should help with that.
- Make the nature of a payment, and the effect of it on death, clear.
- If the payment is to be repaid, a short loan document will make that clear. That could even be in the form a letter that is acknowledged, so that the terms are agreed and understood. This creates a binding arrangement.
- If it is to be treated as an advance, this could also be set out in a document to show the agreed position. This creates a binding arrangement.
- If the payment is to be deducted from an entitlement under the will or otherwise change the terms of the will, then a codicil or updated will should be made. It should be noted that the will itself cannot place obligations on beneficiaries. Rather than will can be used to balance or alter the respective entitlements of beneficiaries. An out-of-date will can be problematic.
- If the payment is indeed an outright gift with no repayment or other consequences, then it is best to state that in writing. That can be a very short document to record that fact.
There was no inheritance tax at stake in Molly Mailer’s estate and no mention of other sources of wealth (e.g. pensions or life policies), but when making payments these are also factors to consider to arrive at the best, and most clear, outcome.
As we have said before (which happened to be inspired by ITV2 hit, Love Island), putting things “on paper” can be crucial for smooth estate planning without contention. Writing is the best way to “sort” how family members will inherit. If you need help to make it clear how your estate should be passed on during life and after death, get in touch with the Brodies personal law team. If matters ever do become contentious or you are a disappointed beneficiary, our market leading litigation team can help.
On January 3, 2020