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Cicutti: Should an IFA offer advice on will dispute?

Forgive me if, for once I ask your opinion rather than tell you mine. I have been on a quick holiday, having been made an honest man of, but while I was away my mind could not help wandering to a query raised by some friends just before I left.

All too often, problems you read about tend to focus solely on money. This one is subtly different. It concerns, indirectly, independent financial advice received over a potentially contested will. The rest of the family is wrestling with decisions they need to make about the IFA in question.

Here is the problem – an elderly gay couple lived together in a stable but unmarried relationship for 18 years until one of them, who had three children she loved dearly, was diagnosed with lung cancer. The couple then entered into a civil partnership and the person suffering from cancer died a few months later, aged 73.

During their time together, the couple jointly bought a property as tenants in common. But the civil partnership changed all that, as did the fact that the dying partner wrote a will in her final days allowing the survivor, who is 70, to live in the property until her own death.

In addition, the will stipulates that if the home should be sold, the surviving partner can draw an income from the deceased person’s share of the proceeds until her own death. The capital sum, which must be protected in its entirety, then passes over to the deceased person’s three children, aged between 42 and 52.

The difficulty for the children is that while they accept the terms of the will, it has no provision on whether the capital sum to be returned to them when the second partner dies should be protected against inflation. Unless it is, they risk a significant cut in the value of the capital sum over the next 10-15 years.

My first question is – can they insist on an element of capital protection even if the will does not stipulate this? How can an adviser guarantee this?

What about an adviser’s annual management fees? Should they be taken from the income paid to the survivor or from the capital sum itself, which the will stipulates must be protected?

My second question concerns financial advice. The surviving spouse has engaged the services of an independent financial adviser when the property, now on the market, is finally sold. It looks as if the total proceeds of her deceased partner’s assets will be about £240,000.

The children, understandably, would like to access the money now rather than wait until the survivor dies. One of the three children is physically and mentally handicapped and while they respect the surviving partner’s legal rights, the immediate needs of their sibling should – not must, just should – be considered. They have suggested a deed of variation in the will to allow them to get a share of their mum’s assets. Not all the assets, just a fair amount.

The key issue is what constitutes fair. The IFA in question has written to the surviving partner suggesting the deed of variation should involve a payment of £15,000 to each of the three and she keep the rest of the money for her own use in perpetuity.

I have seen this letter and it does not appear to be based on any legal opinion, only the IFA’s desire to side with his client and, presumably, manage the vast bulk of the remaining assets she would become the sole owner of.

My second question is – should an IFA become involved in advising how much, or how little, ought to be offered in relation to a possible contested part of a will between several parties involved in a trust? Is this professionally acceptable behaviour?

The surviving spouse has made an offer to the children that is significantly more generous than the one suggested by her IFA, although it is still not considered acceptable to the children for reasons that are too complicated to go into here.

My third question concerns what kind of advice might be given in any event in terms of managing that money. Say, the children decide they do not want to accept the offer from the surviving partner. Under the terms of the trust as set out in the will, they are jointly responsible with her for managing the assets to ensure the security of the capital sum while paying an income at the same time. What investment strategy might be suitable?

My final question concerns the adviser and his relationship with the children. On the one hand, he has a relationship with the surviving spouse to whom he has offered initial advice. But if the joint trustees of these assets – who are the surviving spouse and the children – were to need further advice on how to manage them, should they go to the same adviser?

If they were to hold a beauty parade of local IFAs, should he expect them to invite him to tender his services to represent them, as well as his existing client? Would you hire him to give you advice if he did?

Let me know your views.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 19 comments at the moment, we would love to hear your opinion too.

  1. Nic

    re Your specific questions.

    In fact there are a lot of issues surrounding this case, which you have not raised but which the Capital Taxes Office may be interested, but leaving those to the side for fear of over complication

    Question 1 No they cannot insist on capital value protection, unless the Will stipulates it.

    Question 2. The fees should be levied against the capital. If the Will protects the capital then this will reduce the income that can be drawn.

    Question 3 I have to duck this as it would require a full fact find and risk assessment with equal attention given to all beneficiaries i.e. the income recipient and the remainderme entitled to the protected capital and we don;t have that information. But given there is no stipulation regarding the level of income to be provided, the capital protection issue will override any risks the income recipient may wish to accept in search of a higher income.

    Final Question They can and perhaps should go to the same adviser. The adviser has a duty of care to all trustees. He cannot act for one trustee or one beneficiary alone in respect of the Trust, so it would make sense to have joint trustee meetings with all in attendance and agree an investment strategy which all parties which treats all beneficiaries with the same duty of care and with full consideration of all provisionss of the trust.

    There would be other aspects to discuss and comment on, but this is off the top of my head and in answer to those points you specifically raise.

    Ian Coley
    Partner
    Medical Investment Services

  2. Sorry Nic. There’s no such thing as FREE advice any more. I will send you my terms of business and perhaps we can meet up to discuss.

  3. These situations tend to be highly complex. However there a two issues that I feel warrent comment:
    1. To obtain growth on the capital in line with inflation whilst providing an income is an unrealistic expectation. It could only possibly be achieved if risk was introduced which contradicts the investment remit.
    2. The IFA could/should point out to his client that she does not need to make any payment to the children as this is the legal position. To suggest a figure that could be passed to them seems a bit random.
    The IFA is obviously in a situation where he is trying to help the client through a very difficult moral dilemma. However, if the children also become his clients he has to treat all of them fairly and almost act as an aribtrator in trying to find an acceptable solution to all – with the back stop that his existing client is legally entitled to an income from all of the capital provided that the capital is secure (level protection not RPI linked).
    Not an easy position to be in for any IFA.

  4. Nic

    A complicated case and I have a complicated answer – your fee will be ………

  5. Sorry Nic Fee only
    you should appreciate that.
    Otherwise check out the MAS website, its free.

  6. An interesting case indeed. I assume that the couple in question are based in England. In Scotland the legal position is slightly different as children have no legal rights claims to heritable property but they can claim legal rights on the moveable.
    From what you describe it would appear to be a life rent trust is in operation. I assume it was correctly drawn up by a qualified solicitor to ensure the terms were worded correctly within the will. Typically a life rent trust would preserve the right of the life renter to reside in the property or, if the property was sold, to reside in a property bought with the proceeds, with any residual proceeds being used to generate an income for the life renter but no capital would normally be available for the remainder men. (Unless advances of capital were expressly permitted by the will trust deed. The interests of each class of beneficiary should be treated fairly and equally, so that one class of beneficiary is not favoured against another. For example, if investing in risk based investments, a yield of say 3% gives a reasonable income and the prospect of some capital growth for the remainder men. Does the capital guarantee relate to the notional value or the house or is there a need to have it keep pace with inflation otherwise there is a deflationary risk. The adviser must establish the investment powers given to the trustees, (they are the clients) establish their attitude to risk and make appropriate recommendations ensuring they match the trust objectives.
    The trustees are those that the adviser should be taking direction from as they control the assets. If they are also beneficiaries this can represent a problem as there is a conflict of interest. It is their duty to act in accordance with the terms of the trust. Using a corporate trustee or non family member as trustee can help avoid family disputes such as these.

    The ideal position is to ensure that the will is drawn up correctly in the first place. The adviser should not be giving legal advice but instead should refer the case to a solicitor so the advice and recommendation is seen to be fair and impartial. The management of the assets may need to be outsourced to ensure complete impartiality with the adviser acting as the overseer for the whole family unit requirements and arrangements.

    Throughout this case, the adviser should be treading a careful line and ensuring all parties involved understand the extent of his services and remit. If there is any potential for conflict of interest he should take a step back and seek advice from a suitably qualified professional.

    Just my pennies worth (I work for a major legal in Scotland so it is not an unusual problem – this not me touting for business either!)

  7. All parties should take the advice of the IFA and after acting on the advice should immediately complain to the Ombudsman who would find in favour of everybody except the IFA and award outlandish damages against said IFA and we all then pick up the tab in our fees. No-brainer from the clients various points of view.

  8. Hi Nic. Ask Hector Sants, because he has stated he’s never been responsible for anything untoward whilst he’s been in charge. Therefore, even if he’s wrong, he won’t be…

    2. Or, the MAS because their advice is free of course.

  9. hugh jeego @2.23pm

    Thank you for that, hilarious.

    If I was confronted with this I would refer it to a specialist solicitor. It has the capacity to go horribly wrong. If I handled it myself, my fee would account for most of the estate anyway.

  10. Nic
    Where there’s a will there’s a family.
    The situation is always difficult in complex cases like this.
    The couple are a couple now matter how short a period of time before the sad death of one after the marriage/civil partnership occured.
    With regard fees from the trust this is usually form the capital as the trust assets are being used to provide distribution of income to the life tenant.
    As Ian A has commented the surviving spouse does not have to or need to make a payment nor look to have a deed of variation.
    The fact that a deed of variation is being considered then sound advice to the “solicitor” who is acting for the client about his clients needs would be called for. A decent financial planning exercise to assess exisitng resources and future needs would help the client and the solicitor if any payments were to be made. Consideration of future IHT and any past lifetime gifts may preclude. However where you detail one of the children is mentally handicapped therefore due consideration of a protected trust in this instance, or have the facility to offer loans, there is too little information to make a difinitive answer.
    With regard the investment strategy it is set out in the trustees act “Trustees must consider the scope of their investment powers under the Trustee Act 2000 or the trust deed and how these are best exercised to achieve the objectives of the trust.”
    And again I agree with Ian, the trustees will be well served by one financial adviser so long as the terms of the trust, the security of the life tenant and the outcome for the remaindermen are all considered.
    The issue of the IFA giving legal advice is NO. But to give properly considered financial advice regarding his client to the solicitor to consider YES.
    But I return to my opening comment “where there’s a will there’s a family!”. The will is the will and intentions of the deceased, their much loved mother, who indeed loved and lived with her now surviving spouse for over eighteen years.
    I wish her and her family well.

  11. Nic Your funny guy. If all you were thinking about on holiday (Marriage Eh?) was the answer to this problem, you definitely need to chill out.
    I did’nt think IFA’s were qualified to give legal advice, so excuse me for not reading the lengthy tex t. Is this a trick to see who responses and get them struck off?

  12. I fear some of the flippant comments to this article indicate the quality of readership….

    In short I would involve a Solicitor, one that is used to dealing with ‘dispute resolution’ but aim to have a joint meeting with the two parties, the Solicitor and myself. That way everything is open and transparent with firstly the legal position explained and then each side commenting on what they would feel as fair if agreeing to deviate from legal only entitlements.

    I would charge a time based fee for any follow up meetings and likely investment advice that would follow, but would not charge for the first joint meeting and possibly a factfind meeting each if both parties agreed they were happy to work with me for capital management.

    I would expect the Solicitor to draw up any legal agreements and/or Deed of Variation and bill for their time as normal.

    Simples really….

  13. I read all the comments and was about to add my two penny’s worth whe I got to the last comment. Julian Sunley has said exactly what I was going to say. Basically involve a trained mediator/under collaborative law and proceed as Julian has outlined. Ww have one in our building now.
    If an agreeable path cannot be found, then the law applies as it stands.
    This is how t should be with ANY disagreement and is why I believe the FOS system is flawed as it is not true ADR, it is just political correct cheap opiniated judgement with no respect for the law or eqaulity.

  14. As you are now an “honest man” – YOU tell us.
    p.s let me have your invoice address

  15. Stay clear.

    Refer all the legal and moral wrangling to the solicitor who drew up the Will. When the Trustees are in a position to hand over a lump of money with a clear remit then the IFA can do what he’s qualified to do.

  16. Where there’s a will there’s a way? Personally I would steer clear of that case without a decent lawyer involved. IFAs whould stick to what they are qualified to do rather than what they think they are capable of, read Herbert Smith’s papers in the FSCS recovery attempt. Er… come to think of it the papers are flawed so why bother with lawyers?

  17. @ Phil.

    Julian’s first sentence was the more relevant. If the “adviser” community is to ever persuade Nic that we have more substance than he believes and frequently publishes then sound, valued and intelligent anwers should be presented to what should be considered to be a very interesting client experience. Sadly, once again a number of the comments given have let the “profession” down.

  18. Thank you all for your comments, some less facetious than others. At some stage the interested parties will be consulting both lawyers and, potentially, new IFAs. I was wondering what to prepare them for, in outline, and also prime them as to what to look for both from an adviser’s point of view. As John Hutton ad one or two others have pointed out, I’ve found the “non-replies” as fascinating as the genuine attempts to engage with a thorny issue.

    PS: Kevin, I did manage to think about other things as well while away tying the knot, honest (LOL).

  19. Dear Nic

    As suggested by others, this is not a matter for an IFA to opine on, unless they are appropriately qualified (I speak as a member of the Society of Trust and Estate Practitioners – STEP).

    First of all, has the Will been proven, and who are the executors – presumably not the children? If the Will has been proven, the surviving partner is entitled to benefit as stipulated within the Will, and should not have undue influence brought to bear on her by either the contingent beneficiaries, or the IFA.

    If they have grounds to believe that the Will is invalid, then they should take professional legal advice and challenge it in the Courts.

    As regards the role of the IFA, I believe that he, or she, would be totally conflicted from acting for both parties (a servant can only serve one master). Indeed, if the IFA has previously acted for both parties, then they need to seriously consider whether they can continue to act for either party.

    Turning to your questions, the Will entitles the surviving partner to remain in the property until her death, when the property will pass to the contingent beneficiaries. While the property may increase in value during that period, the children will have to accept that they have no right to insist on indexation of the contingent value, which may rise or fall in value. It is not about fairness, but the deceased’s valid desire to provide their partner with security of tenure.

    It is wholly inappropriate for the children, or the IFA, to bring pressure to bear on her, by suggesting a Deed of Variation. If the IFA is acting solely for the surviving partner, then they must act solely in her interests without regard to the interests of the children. If asked by the surviving partner to comment on her dilemma, the IFA’s appropriate response should be to refer their client to solicitor. In any event, a Deed of Variation must be executed with two years of the death.

    In the scenario that the property is sold during the surviving partner’s lifetime, then the assets will be held on trust. The terms of the Will require the capital to be protected, which would heavily restrict the investments available to the trustees. It could be appropriate prior to the sale of the property, and the creation of the trust, to seek rectification of the terms of the Will, via a Deed of Variation, to alter the terms of the trust by allowing apportionment of the interests and a wider range of investment powers.

    The power to invest the proceeds outside of capital protected assets could be beneficial to both parties, in that the underlying capital value could grow, thus providing inflation linked income for the partner and an inflation-protected eventual inheritance for the children. In this regard, the partner and the children could appoint the IFA as investment adviser to the trust.

    In this case, the IFA may, or may not, have a role to play. But in any event, the interests of the partner must take precedence and both parties should give consideration to taking professional legal advice as appropriate.

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