Q. My mother died recently, leaving her estate to me and my two younger sisters (in equal shares). I have an older brother who is disabled and who lived with my mother. My mother’s will did not provide for my brother (primarily because he is in receipt of benefits) but my mother left my sisters and me a letter explaining her decision and asking that we take care of him (including allowing him to remain in my parents’ home, which is valued at circa £750,000, as it has been adapted for his needs). I am the sole executor of my mother’s will and intended to comply with my mother’s wishes. However, my youngest sister wishes to sell the house (as she is indebted and her share of the sale proceeds would, in all probability, clear her debts and leave her mortgage-free). Can I provide for my brother, in accordance with my mother’s letter, or should I disregard it (as my youngest sister would have me do)?
A. First, I am sorry to hear of your loss and the dispute it has caused.
It is common for parents to leave an inheritance, intended for a disabled child, to that child’s siblings, trusting them to take care of their disabled sibling and to ensure that their needs are provided for. However, if these funds are not left in a formal trust, this can give rise to disputes (as is the case here).
Often, in the absence of a trust, a letter expressing a parent’s wishes is of no legal effect and the executor must disregard their parents’ wishes in administering the estate in accordance with their will (often meaning that their disabled sibling does not inherit).
However, as your brother was living with your mother at the time of her death, it might be argued that he was financially dependant upon her. If that is the case, it is possible that your brother might claim, under the Inheritance (Provision for Family and Dependants) Act 1975, that your mother failed to make reasonable provision for him in her will. Indeed, if the local authority is asked to re-house your brother (as your youngest sister advocates), it is possible that the local authority will bring such a claim on his behalf (in order to ensure his inheritance and to avoid having to meet the costs of re-housing your brother).
I recommend therefore that you seek assistance from a solicitor, who specialises in wills and estate planning, to consider what, if any, provision you ought to make for your brother. I recommend that you consult a chartered financial planner also, who specialises in trusts and tax planning, to ensure that any provision you make for your brother, from your mother’s estate, is done in the most tax-efficient manner. Both advisers will be able to assist you also in realising your mother’s assets in a manner which is most efficient (for example, your youngest sister may be less intent upon selling your mother’s home if she can realise her proportion of your mother’s estate from other assets, leaving you and your other siblings with a greater share of the house).
Q. I have seen reports that the Bank of England has issued “forward guidance” in respect of interest rates. However, I do not understand what that guidance is or what it means for me. Can you help, please?
A. Yes. When delivering its most recent quarterly inflation report, the Bank of England announced that it plans to tie interest rates to unemployment levels. The Bank announced also that it will not raise the base rate (currently 0.5%) until the unemployment rate falls to 7%, at which point the Bank of England will reassess its interest rate policy (the unemployment rate stands at 7.8% at present). However, the Bank stressed that this forward guidance “is not unconditional”.
The new Governor of the Bank of England, Mark Carney, has stated that he does not expect the UK’s unemployment rate to fall to 7% until mid-2016. He stated also that the forward guidance was dependant upon the Bank’s inflation target remaining within a 0.5% tolerance on a two-year horizon (i.e. they must expect the rate of inflation must to reduce to no more than 2.5% within two years).
The intention of the Bank’s forward guidance is to provide stability to financial markets and to prevent investors from being “spooked” at the thought of a rapid increase in interest rates and/or a withdrawal of the Bank of England’s financial stimulus (known as quantitative easing).
The Bank hopes that by providing forward guidance, this will prevent lenders feeling the need to increase commercial interests unnecessarily, thus ensuring that mortgages and loans do not become too expensive before the economy has recovered to an extent that people are better able to afford such increases.
Q. I caught sight of a newspaper headline last week that seemed to be suggesting that Capital Gains Tax is set to increase. Is this correct?
A. No (at least, no announcement has been made confirming an increase).
I suspect that the headline to which you refer was reporting news that the Lib Dems’ “tax working group” have published a number of tax proposals, which are expected to form part of the Lib Dems’ manifesto at the next election.
These proposals include increasing the rate of capital gains tax (currently 28%) to either 40% or 45% (depending upon an individual’s income tax marginal rate) and reducing the tax-free capital gains allowance from £10,900 to £2,000. It has also been reported that the Lib Dem leader, Nick Clegg, is set to invite his party’s membership to vote on whether to raise the additional rate of income tax to 50% (as it was when it was introduced by the previous Labour government).
There has been no suggestion that these proposals will be brought forward whilst the Lib Dems are part of the current coalition government (which is set to govern until May 2015) and there is little chance therefore that the current rate of capital gains tax will increase (so dramatically) in the near future.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
