The importance of disclosing lifetime gifts – a lesson for executors and beneficiaries
Written by Cindy-Marie Leicester on April 25, 2016.
As I have touched on before, accepting the role of executor of a will is not something to be done lightly. It comes with certain responsibilities and it is important that they are carried out diligently, as a recent case I read about proves.
The case involves a wealthy businessman and farmer, Robert Hutchings, who died in 2009 leaving a sizeable estate of around £3million. He had five children but two were excluded from the will, two were given specific legacies and the remainder of the estate was left to one son, Clayton Hutchings.
As is essential with all legacies, the executors of the will asked the beneficiaries if they had received gifts from their father in the seven years leading up to his death. Under UK law, any gifts made within seven years of an individual’s death is known as a Potentially Exempt Transfer (PET) and will be liable to inheritance tax. In this case the executors were a solicitor and a land agent and well aware of the importance of their role. They not only asked the beneficiaries to disclose any gifts in a meeting, at which the family declared that there had been none, but also followed up in writing for confirmation. Only one family member responded to the letter saying she was unaware of any gifts, and with no other information forthcoming the executors prepared probate accordingly and filed the documents with HMRC.
Somebody somewhere clearly had an axe to grind as two years later an anonymous tip-off notified the tax authorities of an offshore bank account held by Robert Hutchings in Switzerland which had not been included in the estate. In the March before his death Robert had transferred the not insignificant sum of £443,669 to Clayton’s offshore account with the same bank. HMRC subsequently claimed £47,000 in additional inheritance tax from Clayton as well as £87,533 for the potential loss in revenue linked to the gift.
Clayton paid the former sum but appealed against HMRC’s claim for loss of revenue. He laid the blame for the error firmly at the feet of the executors maintaining that they had failed to adequately search his father’s home for documents which would have revealed the Swiss account and had not made it clear to him that lifetime gifts from offshore accounts were part of the estate. A carpenter by trade, he said the ‘legalese’ in the correspondence from the executors had baffled him so he ignored it although one has to wonder when the letter apparently said ‘Please can you let me know about any gifts whether to you or to your family. It may well be that the gifts are not taxable but we still need to know about them.’!!
Luckily for the executors, as professionals they had kept detailed notes of all meetings and copies of all paperwork which enabled them to prove that they had made significant efforts to obtain the correct information relating to the legacy. The tribunal ruled that they could not be expected to search the house of the deceased for documentation and that it was reasonable for them to rely on the information provided by beneficiaries. It was ruled that Clayton Hutchings should pay the penalty of £87,533.
There is a lesson here for both executors and beneficiaries. Executors need to be clear in their information requests and be sure to keep a record of all correspondence and notes of all meetings with beneficiaries and what was discussed in them. Beneficiaries have a duty to respond honestly to all questions posed by executors and to request clarification on anything that they don’t understand.
It is also worth noting that you should keep a personal record of all monetary gifts as part of your own personal budgeting.
If you are unsure of anything to do with a will whether you are writing one, executing one or are a beneficiary of one, it is wise to take expert advice. As this case demonstrates,
the consequences of an error, even an unintentional one, can be severe!
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