Receiving some inheritance or a substantial gift can be a life-changing event. The expectation of a legacy is an important part of family cohesion.
Research by the Cancer Macmillian charity found that 2 in 3 UK residents do not have a will, including 42% of those over 55 years old. Though the figures improve for those over 75 years old, they do demonstrate that many people leave making a will or estate planning generally to the last moment. But what happens if someone loses the ability to make a will?
Capacity to make a Will or Gift
The Mental Capacity Act 2005 (MCA) confirms that mental capacity is issue specific. This means that one might lack capacity to do one thing but be able to do another. When considering estate planning for anyone with difficulties in their reasoning, the first place to start is with an assessment of their capacity to make a will. If they do have capacity then that needs to be evidenced, but it does make life a lot easier.
Capacity to make a will is not the same test as under the MCA but was first set out in the case of Banks v Goodfellow back in 1870. Although the test has been refined since then, but essentially one has to understand the nature of a will, the extent of your estate, who might have an expectation to inherit and not suffer from a condition that might impair that reasoning. However, these requirements have to be put in context. The capacity required to make a simple will leaving a small estate to your only child, would be less than in a complex situation.
It is important to have expert input into any capacity assessment in situations where the will or gift might later be challenged.
When a Statutory Will might be Required
If someone lacks capacity to make a will then one must first look at what would happen to their estate on death. That might present a problem in various circumstances, for example: –
- There may be no will and the intestacy rules might pass everything to someone less deserving than a person close to the disabled person;
- There might be a good will, but it has been revoked by a subsequent marriage;
- There might be an old will, but there have been significant developments since then;
- The disabled person might have expressed a desire to change the arrangements;
Advice should be sought as to whether any situation might merit the expense of applying to Court for a new will to be put in place.
Timings and Procedure
It is possible to get an emergency will at very short notice, however, the usual procedure might take six to eighteen months, depending on the complexity of the application. If the relevant people can agree on the form of the will, that will save considerable time.
The first step is to get a good medical report on capacity. Then one must put forward a proposed will and apply it to the court for that to be put into effect. The court procedure is quite complex and if not done correctly will result in delays and needless costs.
Sometimes it is right that affordable gifts are made to assist loved ones. Other than modest gifts, if someone lacks mental capacity then it is not possible for an attorney or deputy to make gifts on their behalf. Even if the disabled person very much wants the gift to be made, it will be repayable. Gifts can be authorised by the Court, assuming they are affordable and in the best interests of the protected person. Advice should be taken as to whether a gift might qualify and any tax issues arising from the gift. Advice should be sought as to the impact of the Care Act 2014 and the numerous related Regulations dealing with the Deprivation of Capital from Social Care and other means of testing assessments.
Legacies and Trusts
Often disabled persons are left out of wills, on the basis that any capital they receive will deprive them of their entitlements to support. The regulations around such capital will mean that they are locked out of that entitlement until such time as their nominal capital has depleted the allowable level – at a prescribed weekly rate. That can result in entitlements being unavailable after the legacy has been spent. It is possible to avoid this trap by passing any legacy directly into a trust. These trusts should be prepared carefully so as to qualify for discretionary status and vulnerable person trust tax election.
If a will has been made that does not make reasonable financial provision for a close family member, then it is possible to make an application to the Court to rectify the problem. Whilst many firms are able to make such applications on a no-win no fee, the benefit is limited unless they have the specialist knowledge around trusts in which we pride ourselves in being thought leaders. We look not only to secure the best outcome but also to ensure that that family money is used effectively so as to achieve significant improvements to life experience.