HOT HEIR BALLOON
Where there’s a will there’s a wave of dissent. Martyn Gowar guides us through the labyrinthine world of succession law
I HAVE SPENT many happy hours over the years advising individuals and families about succession law issues. At one end of the scale is the client who wants a simple will, while at the other end are clients who have very difficult judgements to make about who is to run or take over a business. It may be a decision of hard-headed economics or commercial competence, rather than one of familial emotion.
I have given that advice both to people who live in the UK and to those who come from other countries, and it is a matter of some astonishment when I explain that some of the fundamental rules for the division of property are very different. In the UK, and even more in the US, we start from the principle that a donor or testator can give away property to whom he or she wants.
We call it freedom of disposition. In the UK, that freedom has been eroded to some extent. In the first place, a testator cannot ignore his spouse; if he does so, the surviving spouse on death will be entitled to claim for proper provision out of the estate and, broadly speaking, would expect to be treated in the same way as if there had been a divorce.
Also, under the Inheritance (Provision for Family and Dependants) Act 1975, a person dying with financially dependent children is obliged to make provision for them. So, the principle of freedom of disposition has been somewhat limited in the UK, but it is still the starting point and a testator who makes bizarre gifts either during lifetime or by will is free to do so.
In continental Europe, a spouse and the children of a testator are entitled to fixed shares of the parent’s estate and there is only a limited amount of the estate, dependent on the number of family members, over which the testator has freedom to dispose.
LOOKING FURTHER AFIELD, sharia law in Islamic countries operates the same sort of ‘forced heirship’, although individual rules vary from country to country. Forced heirship does not just apply to gifts on death but also recaptures gifts that may have been made during liftetime. Accordingly, if assets are given into a trust during lifetime, then on death the family can claim that those assets are brought back into the estate and the rules of forced heirship should apply to what was left on death together with what is in donations made during lifetime.
It will come as no surprise that some of those who live in forced heirship countries would much rather live under a law where there is freedom of disposition. It has been a selling point in some offshore financial centres to the extent that legislation has been passed which says the courts in those jurisdictions will ignore claims made against those assets by those who come from forced heirship traditions, unless certain strict tests are met.
It would be wrong to assume, however, that all those in forced heirship states yearn for freedom of disposition. The culture in those countries is deep-seated, and I would say most consider that the rules are fair for family members and as a basis for protecting family values. One could also say that a movement to protect families and dependants in the UK is an acknowledgement that unfettered freedom of disposition has socially divisive effects.
In short, those in common law countries with freedom of disposition and those in civil law countries with forced heirship are generally satisfied with their lot, and there is no hint of demonstrations to parliament to change the system in one country or another.
It does create different problems for those with difficult succession issues, though. The father who wants to give management (and sometimes ownership) of a company that has been created, where a particular child is the obvious successor, may find that the benefits have to be shared with the child’s siblings. Cases of families from different marriages where an equal sharing may be divisive or cases where relationships have broken down between parent and child also cause problems.
IT IS NO surprise that there is no one-size-fits-all solution to succession issues. There are immensely imaginative solutions, some of which work on the division between giving voting control and enjoying economic benefits, as with a trust or a foundation. The difficulties in those cases where there is a disaffected family member may have nothing to do with those who run the structure in place, and they may not necessarily be anything to do with disaffection with the parent. It may have everything to do with sibling rivalry and may not appear until after the parents have died.
Things are not always as they seem, particularly when there is a large sum of money over which to fight, and there are stories of the wealth disappearing into the hands of professionals who have the unfortunate task of trying to create order out of dissent. Sometimes, being a lawyer is a small part of the skills needed.