HM Insights

Legal Advice for Individuals & Families - August Update

Private client news August 2020 - by Leigh Beirne and Lindsay MacEwen


5 Private Client updates for Individuals and Families

Income shortfalls: what should trustees do?

Trustees are constantly required to balance the needs of the beneficiaries and the investment of the trust funds. With some forecasters predicting a 25% drop in dividend income over the next year, this will clearly impact on beneficiaries who are entitled to the trust income and many charitable trusts where grants are made out of the trust income. 

In such circumstances, the trustees may wish to consider whether the trust deed gives them power to make up the income shortfall from the capital of the trust, but also whether this is prudent in the circumstances. 

In the first instance, it should be remembered that just because the beneficiaries are entitled to their share of the trust, the trust assets do not have to be immediately sold. In most cases, the trustees will have the option of transferring the investments in specie to the beneficiaries, who can then hold the investments in the hope of a recovery. Trustees should, therefore, be liaising closely with any beneficiaries who are in this position to ascertain whether the beneficiaries wish to take over the shareholdings, with their inherent risk, or whether they would wish the trustees to sell now to guard against the risk of further falls in the market. 

First and foremost, trustees should be seeking investment advice on an ongoing basis. Trustees should maintain a record of the reports issued by the advisers, the recommendations made, the consideration of those recommendations and the actions taken by the trustees as a result. 


Tax planning in a pandemic: the time to act?

In the midst of a volatile and ever changing environment due to the uncertainty caused by the coronavirus pandemic, there may be things that can be done from a tax planning perspective to protect people's estates for the future.

Gifting of assets

If you had been considering tax planning pre-pandemic, but were restricted due to the values involved from an inheritance tax (IHT) planning perspective or the capital gains tax implications of a disposal at market value, it is possible that you could now find yourself in quite a different position bearing in mind the movement in markets over the last six to eight weeks. 

Inheritance tax 

With many having witnessed a fall in value of their investment portfolios and other assets, an opportunity to gift away some of these assets in life, either by way of a gift to a trust, to hold the assets for future generations, or directly, to family members or others may well have presented itself. The gift would allow the uplift on recovery of the markets and all future growth to be accrued outside your personal estate.

Capital gains tax

With many assets now sitting with significantly reduced gains or in a capital loss position, the gifting of these assets may be able to be done without significant impact from a capital gains tax perspective. The amount of gains a person can realise in the current tax year 2020-21 has risen slightly to £12,300. Realised losses which are not offset against gains in the current tax year can be carried forward and offset against gains in future years as required.

Now may well be the perfect time for people to consider tax planning opportunities in order to protect the future growth of their estate from taxes.


Can an Instagram account be an asset in a will?

Despite the unsettling uncertainty surrounding the current situation, lockdown has afforded many people the luxury of time: time to spend with their families; time to invest in a new or existing hobby; or perhaps time consider and grow a new business venture. 

Social media platforms, such as Instagram, have seen a surge in activity as people use them to keep in touch with loved ones and maintain their physical and mental wellbeing, but could these accounts also become your most valuable asset?

A recent article claimed that each follower is worth £0.0033 and therefore popular accounts could be worth thousands of pounds. 

It does pose the question, in this day and age, whether a person who has built up a “digital” business online, and made a career out of brand sponsorship and collaborations, should be afforded the same treatment as is allowed to those who build a “traditional” business, allowing them to leave their most valued asset to those closest to them?

Articles in the media have indicated that influencers are able to transfer their lucrative accounts to their friends and families in their will. Instagram has, however, commented that this is against its policy, stating that the account of a deceased person cannot be transferred and used for profit. This process has not yet been tested and it is unclear how the transfer would be facilitated to implement the legacy in the will.

Read our recent article online here - Can I leave someone my instagram account in my Will?


Further research promised on succession reform

The Scottish Government has recently issued its response to the consultation on the law of succession from 2019. The consultation focused on who should inherit a person's estate on intestacy. One of the key issues is deciding who should inherit where the deceased is survived by a surviving spouse/civil partner and children. The consultation also considered the position of cohabitants and whether or not they should be given greater rights when a partner dies without making a will.

The initial response to the consultation was overwhelmingly in favour of reform – the law should “reflect generally expected outcomes” and not the unexpected consequence that can happen for families if a loved one dies today without having made a will. There was not, however, a clear consensus on what the reformed law should be.

Ministers are committing to completing further research and evidence. This is to include gathering information from the public on reforming the law of succession in Scotland. This will also link in with the reform that is currently being undertaken in connection with family law and cohabitants, as it is vital that these two reform projects are in tune with one another and are not dealt with in isolation.


Cohabitant v spouse: succession issues continue

The Scottish Law Commission has recently examined statutory financial rights for cohabitants and the distinction that should be made between spouses and civil partners, if any. In response, the Faculty of Advocates noted that although welcome, there are omissions from the paper.

Whilst the response of the Faculty of Advocates focuses largely on financial provision when cohabitants cease to be in a relationship by reasons other than death, one issue identified also brings into stark focus the treatment of a cohabitant versus a spouse for succession. A person who is still married but separated, may also be in a cohabiting relationship. In death as in life, this may give rise to a need to prioritise between the two claims. 

What are the succession rights of cohabitants in Scotland?

A cohabitant's claim can only be brought on intestacy (where there is no will), and it must be within six months of death. Conversely, a spouse may make a claim for legal rights when their spouse has died without making a will, and they are also entitled to the same legal rights when there is a will. A legal rights claim subsists for 20 years following the death. 

If the spouse is intestate, the surviving spouse is also entitled to financial provision known as prior rights – the wording itself provides an indication of where the priority for the law currently lies. In addition, a cohabitant will not receive more than a spouse would be entitled to, which gives little consideration to the facets of the relationship such as the duration – it may have lasted longer than the marriage or civil partnership – and the extent of the financial interdependence.

Get in touch

Edinburgh: 0131 247 2500                          Inverness & Highlands: 01463 795 035

Glasgow: 0141 227 9344                            Shetland01595 695 583 

Elgin: 01343 542623

We have solicitors and offices across the country and are ready to help. 

We can provide the assistance you need to protect your assets and your loved ones. This will allow you to put your mind at ease, knowing everything is in hand.

Useful Links