Doing nothing is dangerous...
…Or at least, it can be when it comes to probate matters – especially on the first death of a couple in a civil partnership or marriage.
Earlier in 2018, I set out some general points to consider when a loved one dies. But what if – conversely – you actively do nothing? Or, alternatively, you delay for a protracted period. I reiterate the point made previously: it depends on the estate in question. Some things will happily fall into dormancy with no repercussions. Others may unpleasantly rear their head with the passage of the sands of time.
The recent case of Bhusate v Patel & Others  is extreme, not only in the time delay but also in what the surviving spouse stood to lose. Nevertheless, it illustrates important issues and pitfalls. Mr Bhusate died in 1990 without leaving a will. His closest kin was his third wife, which under the law of England and Wales (his place of domicile) entitled her to act as administrator of his estate. An administrator is the person who takes on the ‘executor’ role where no will was made – most commonly the closest surviving relative(s). Mr Bhusate also had five children from his first marriage.
Mrs Bhusate obtained a grant of representation (a court order formally appointing her as administrator) 1 year after her husband’s passing. Whilst she may have acted expediently initially, this did not continue: 28 years passed and nothing more was done. Mr Bhusate’s property (the main asset in his estate and his third wife’s home) remained in his sole name and no further steps were taken to administer his estate. One of Mrs Bhusate’s claims in court was that she was now its sole legal owner.
Some important points to note:
- A major element of Mrs Bhusate’s claim was made under a statute that required such proceedings to be brought about within a 6-month window from the date of the grant. This claim was brought with 56 of those 6-month windows having elapsed.
- Mr Bhusate's property, valued on his death at approximately £137,000, was by the time the claim was brought estimated to be worth £800,000 - £900,000.
- Under the intestacy rules at the time of Mr Bhusate's death, his wife would have stood to inherit a 'statutory legacy' (a fixed sum, plus interest from the date of death, that a spouse or civil partner is automatically entitled to in the absence of a will) of £75,000, plus a life interest in half the remainder. A life interest is essentially the entitlement to enjoy/occupy something (e.g. a property) for life, without having the right to its underlying capital – just the income. Mr Bhusate’s children stood to inherit the remainder.
- If Mrs Bhusate’s case were to be unsuccessful, she could stand to lose not only her right to that statutory legacy and life interest, but also her home as well.
Without getting bogged down in the various technicalities, the worst-case scenario was realised for Mrs Bhusate: her claim was struck out (a power courts can use if the case is deemed, amongst other things, unreasonable). The judge was critical of the failure to act in a timely manner. Had Mrs Bhusate acted expediently, and the property had been sold in 1991, she would likely have stood to inherit the entirety of its sale proceeds (taking into account the statutory legacy and interest, and the housing market at the time).
Let us not forget that this case is extreme: the deceased's wife let the matter drift for decades before taking substantive action. Still, a moral that can be taken is that delay might result in undesirable outcomes. Assets can 'waste' (reduce in value if, say, they have a limited lifespan). Pension or annuity providers can continue to make payments if not notified quickly, which could result in them issuing demands for reimbursements at a sensitive time.
There may also be tax implications. Transfers of value from one spouse or civil partner to their other half are free of inheritance tax – but what about the personal tax affairs (income tax and capital gains tax, for example.) of the first to die? Were they finalised? Our individual tax positions vary in complexity. Some of us are required to complete self-assessment returns, even if on the surface this does not seem necessary. Clearly, it is preferable to discover sooner rather than later the existence of outstanding/overdue tax returns that carry late-filing penalties.
People commonly have private pensions of some sort. Could a lump sum benefit become payable on death? It is certainly possible and depends on the structure of the scheme in question. An important factor that may be applicable is whether any such benefit becomes subject to tax if it is not paid out within a certain period of time following the scheme provider having notice of the death.
Beyond the ‘first to die’ scenario there lurk time-sensitivities that are not obvious at first glance. For example, the unused nil rate band that (for deaths on or after 9 October 2007) can transfer to a surviving spouse/civil partner is lost if not claimed within 2 years of the date of the survivor’s death. If it sounds unlikely that so much time could elapse without action, remember the facts of Bhusate!
Whatever the situation, it is important to recognise that delay can bring about unwanted issues. Blake Morgan’s Succession and Tax Team are equipped to provide sensitive and practical advice on the priorities to address when someone passes away.