As has been widely reported, the UK is entering the largest intergenerational transfer of wealth in its history (the ‘Great Wealth Transfer’). This article provides further insight from a lawyer’s perspective – Claire-Marie Cornford, Head of Private Client Dispute Resolution at Irwin Mitchell.
Over the next 30 years, an estimated £5.5–7 trillion is expected to pass from the baby boomer generation to younger family members.
Disputes over succession and inheritance are already common-place and on the rise, and the Great Wealth Transfer is likely to contribute further to this rise.
The rise in disputes
There are many reasons why disputes between families over succession are so prevalent, and in our view, this is only going to be exacerbated by the Great Wealth Transfer.
Economic factors: Due to the economic climate, the younger generations are often increasingly more reliant on a share of their parents’ wealth to set themselves up financially.
The increasing costs of living and future economic uncertainty place a greater importance and dependency on inheritance than in previous generations, meaning individuals have more appetite/need to contest an estate and/or family succession decisions when the outcome is not what they’d envisaged.
The increasing value of estates also contributes to the rise in disputes, as the higher the value, the more worthwhile it is to dispute.
Longevity and vulnerability: People are living longer and declining physical and cognitive health in later life create fertile ground for disputes when decisions around succession and Wills are made during this period.
Conditions such as Alzhiemer’s may have an impact on a person’s capacity to make decisions, and/or frailty in old age could make them susceptible to influence from family members to make decisions which they otherwise may not have made.
These are arguments that we expect to see more frequently due to the Great Wealth Transfer, with significant decisions being made by those with substantial wealth in their later years.
Modern families: Blended families, successive marriages, cohabitation and estrangement are more common than in previous generations.
Competing expectations over estate distribution between blended family members often create tensions leading to disputes.
Increased awareness: Estate disputes are increasingly reported in the media, raising greater awareness of options available in respect of challenges to Wills, lifetime gifts and other succession-related matters.
Also, there’s more awareness that disputes don’t necessarily mean costly Court proceedings. Alternative Dispute Resolution, such as mediation, can resolve issues early and preserve relationships.
Asset complexity: The diversity/complexity of assets can cause issues e.g. family businesses can lead to difficulties if the appropriate succession planning is not undertaken.
The changing IHT landscape in respect of BPR, APR and pensions could also lead to issues, highlighting the importance of obtaining tax advice.
Key risks
There are several recurring risks which contribute to the likelihood of inheritance disputes.
Unexpected/outdated Wills and a general lack of planning: If the contents of a Will are unexpected, this can give rise to a dispute.
Additionally, if those who require reasonable financial provision from an estate have not been provided for, they may be able to bring a claim even if the Will is valid.
These disputes often arise where Wills are outdated, missing or drafted without professional advice and without documentation explaining the rationale behind the decision-making.
Furthermore, a general lack of planning around one’s succession can cause disputes to arise.
Informal promises: Many disputes stem from assurances made during life, such as “this will all be yours one day”.
Where someone has relied on such promises, by working in a family business, caring for a parent, or foregoing other opportunities, claims can follow if the succession plan does not reflect those expectations.
Lifetime gifts: Significant financial assistance to children during a parent’s lifetime is becoming more common.
Disputes can arise as to the validity of such gifts, and it can also cause issues after death if it is unclear whether this was a gift or a loan, or ambiguous as to whether this was in lieu of what they should receive post-death.
Cross‑border complications: International assets and the deceased’s place of residence can introduce uncertainty over jurisdiction, applicable law and succession rules.
Without coordinated planning and the appropriate legal advice, estates can become mired in parallel disputes across multiple countries.
Evidential gaps: When intentions are unclear and documentation is thin, this can cause disputes and can make them harder to resolve and far more expensive.
Preventing disputes
While no plan can eliminate all risk, these are the top-tips for avoiding inheritance/succession disputes:
Plan early and review regularly: Estate planning should be proactive and revisited as families, assets and laws change.
Careful consideration should be given to who is nominated to deal with an estate after death (ideally someone independent) and/or if trusts are created in lifetime or on death, who is best-placed to be the trustee, and advice should be taken from reputable advisors.
Manage expectations: Where appropriate, communication amongst family members is an effective way of preventing disputes.
Additionally, a clear letter of wishes to accompany a Will or trust can prevent misunderstandings hardening into disputes.
Take a holistic approach: Wills, trusts and business documents must work together, and any international elements must be addressed.
Fragmented advice is a common source of problems and it is sensible to instruct a firm that advises in all of these areas, like Irwin Mitchell, for a joined-up approach.
Evidence: Contemporaneous records and professional involvement reduce the scope for challenge.
Where capacity may be questioned, medical confirmation should be sought of the donor/testator’s ability to make decisions.
Address lifetime arrangements: Gifts or promises made prior to death should be documented and considered in the estate plan.
We are expecting to see a continued rise in disputes, particularly in light of the Great Wealth Transfer.
Whilst conflict cannot always be avoided, steps can be taken to reduce the risk of disputes, and early, coordinated planning and open communication remain the most effective way to ensure that wealth transfers as intended, rather than becoming a source of lasting family conflict.
Main image: generation, markus-spiske-2sZiklfv_0M-unsplash
