Something missing? Can you challenge a lifetime gift?

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Legal guidance if you believe something may be suspicious

Winston Churchill said that ‘We make a living by what we get, but we make a life by what we give,’ and many people choose to give away part of their wealth during their lifetime. In recent years, due to the economic crisis we have seen a growth in the ‘bank of mum and dad’ helping their children, whether it by financially or to get onto the property ladder. In fact products have been released by lenders to advocate this. As a result ‘planned giving’ is now an accepted part of minimising inheritance tax.

The above being said, there are however sometimes circumstances which may lead to an executor of a Will (or a beneficiary) to consider that money or valuables have been given away in such an unusual, excessive, or out of character way (for the person who has died) that questions need to be raised. Similarly, suspicions may be aroused when someone who has lost mental capacity appears to have made unusual gifts.

Sometimes lifetime gifts can mask something more sinister and there may be a need to challenge their authenticity. If your gut reaction is that something is amiss, then you should contact a solicitor as soon as possible.

What is a ‘lifetime gift’?

Lifetime gifts are a good way of reducing the inheritance tax liability in a perfectly legal manner. HMRC rules allow that if the person giving the gift (the donor) gives a gift and then survives for seven years, no inheritance tax will be owed on the value of the gift. If they die before seven years have passed, inheritance tax will be charged on a sliding scale, the amount of which will depend on how long they survive after the gift was given.

Additionally, some other gifts which are not subject to the seven year rule are always exempt from inheritance tax. These include:

  • gifts to anyone up to £3,000 (the annual exemption) the £3,000 can go to one individual or be split between several people;
  • wedding or civil ceremony gifts up to £1,000 per person, up to £5,000 for children, and up to £2,500 for grandchildren;
  • unlimited gifts of up to £250 to anyone the donor has not already used an exemption on;
  • unlimited gifts to a spouse or civil partner if they are both domiciled in the UK;
  • unlimited regular payments to someone (such as rent or payment into a savings account), as long as you can afford the payments after meeting your everyday living costs and you pay from your regular monthly income; and
  • gifts to a charity.

Although many lifetime gifts will have been willingly and legally bestowed, all executors and beneficiaries of a Will have the right to check that a lifetime gift was validly given. Indeed, it would be sensible to check this anyway because a lifetime gift has the potential to deprive any beneficiaries under the donor’s Will from part of their inheritance.

What if a lifetime gift is suspicious?

If such scrutiny raises suspicions, it may be possible to challenge the gift and reclaim the gift itself or its equivalent value from the recipient through mediation, negotiation or as a last resort through the courts.

The proceeds would then be added to the deceased person’s estate and distributed to the beneficiaries under the terms of the Will or according to the intestacy rules if there is no Will.

A lifetime gift is potentially open to challenge if it is suspected that:

  • the donor was under undue influence by the recipient to make the gift, for example, this could be threats of physical harm or threats to withdraw care and support;
  • the donor did not have the necessary mental capacity to make the gift, in that they did not have the ability to comprehend the nature of a particular gift and its effect at the time the gift was given;
  • someone with a property and financial affairs lasting power of attorney over the donor’s affairs made a large gift to themselves or to someone else without prior approval from the Court of Protection;
  • the donor gave the gift on the basis of misleading or inaccurate advice;
  • fraud or some other illegal activity was connected with the gift-giving;
  • the gift was actually a loan;
  • the gift was given to stop creditors claiming a portion of the estate to settle debts owed; or
  • the gift was made without the donor’s consent or knowledge.

A lifetime gift can be challenged while the donor is still alive or after they have died. If the donor is still alive but does not have mental capacity, the Office of the Public Guardian or the Court of Protection would be responsible for bringing the challenge.

If you are an executor or a beneficiary of a Will and you are suspicious of the validity of a lifetime gift given by the donor, contact our team of Wills, Trusts and Probate experts as soon as possible.

What evidence is needed?

If you suspect that the gift’s recipient used undue influence on the donor, you will usually need to produce evidence of the improper pressure or coercion that was applied. However, some relationships give rise to a presumption of undue influence (such as between a carer and their patient), and if you accuse the recipient of abusing the relationship of trust for their own gain, it is up to them to prove that they did not apply undue influence.

Who else might challenge a gift?

If someone intentionally reduces their assets in advance of a financial assessment for care home fees, this is known as ‘deprivation of assets’.

So, where a donor gifts assets to loved ones with the purpose of making themselves eligible for more local authority funded help for residential care, and if the local authority finds they have ‘deliberately deprived’ themselves of assets to avoid care fees, the council is within its rights to reclaim the care costs from the gift’s recipient.

How a solicitor can help

Our specialist solicitors can quickly assess whether your concerns are valid and will explain all the available options and then help you gather the evidence you need to strengthen your case.

If you suspect someone with a lasting power of attorney has been abusing their position, your solicitor can help you make an application to the court to have their attorneyship rescinded and replaced by a court-appointed deputy.

Your solicitors will also negotiate with the other party or refer you to a trained mediator to try to resolve the dispute out of court, but if your case does need to go to litigation, they will handle all the paperwork, and provide you with legal advice and representation when the case arrives in court.

For further information, please contact Helen Townsend in the dispute resolution team on 01733 882800 or email [email protected].

Helen Townsend LLB, Partner and Team Leader

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