Spring 2022 Consumer Finance Update

Eddie Flanagan discusses the latest updates from the consumer finance world

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Now is a key time for both consumer protection and the effective use of regulatory bodies to protect everyday consumers

Key factors affecting consumers

  • Amid the cost of living crisis, and the surges in energy bills, what do we know about the impact on consumer financial behaviour?

  • What can consumers expect in the upcoming months?

  • How can consumers prepare for further forced tightening of their own and lenders purse strings?

Klarna is Reporting Consumer Activity to Credit Bureaus

What seemed to be a light touch and easily accessible form of finance could prove to have more negative long term effects on perceived credit worthiness. From 1st June 2022, FinTech organisation Klarna started reporting customer data to credit bureaus in the United Kingdom. This move was in preparation for BNPL sector regulations that will come into force shortly to try and quell the amount of debt owned by younger consumers. With 16 million people using Klarna within the UK, with options to pay in 30 days or split the payments into three, there is a perception that this is fuelling unaffordable spending and that regulatory intervention is now due.

TransUnion and Experian are two of the bureaus that are receiving Klarna’s data. This then influences individuals’ credit reports, and could have unforeseen consequences on the likes of mortgage applications.
Ryan Browne, writer for CNBC, says: “BNPL companies face a reckoning in the U.K. and other countries, as regulators look to crack down on such services amid worries they are encouraging consumers — Gen Z and millennials, in particular — to spend more than they can afford” (CNBC).

However, these regulatory interventions may leave unexpected adverse credit foot prints. This raises the question that the lead time for same should have been extended.

Credit Card Debt on the Rise amid Cost of Living Crisis

According to a report by Creditspring, the UK is forecasted to borrow a further £9bn on credit cards within the next six months, due to the cost of living crisis.

Bank of England figures give a breakdown of how lending currently looks:

  • UK individuals currently borrowing £1.5bn every month on credit cards;

  • This will increase by 18% to £68.9bn;

  • Monthly debt repayments have increased by 9% YoY;

  • Total balance of unsecured loans has increased by 13% YoY.

27% of UK households are feeling “financially unstable” due to rising costs. Only 10% felt this way during the pandemic, which speaks volumes about the worrying state the UK’s economy. Theodora Hadjimichael, the CE of Responsible Finance, says “Any one of the cost of living crisis, recovering from the financial impact of the pandemic, or the explosion of unregulated Buy Now Pay Later products would have sent shockwaves through society. All three together are causing a seismic shift in the consumer credit market” (Credit-Connect).

Cost of Bills to Overtake Wages by 2024

According to Credit Strategy, a new report from Yorkshire Building Society and the Centre for Economics and Business Research has found that monthly outgoings could overtake incomes, by £100 a month in two years.

Younger generations looking to start on the property ladder could face increasing interest rates, and a potential need to dip into savings just to “get by”.

With the adverse effect of Covid, the unprecedented rise in fuel costs, together with inflation at such rates that is unknown to many, consumers we are now facing a perfect storm.

It has been noted that many consumers are now starting to challenge energy companies for hiking up their monthly instalments.

Regulatory measures must be applied effectively to ensure that consumers are protected. Transparency, fairness and the good behaviour of creditors is key to the resolution of financial issues in this time of considerable uncertainty.

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Eddie and his team advise clients on a wide range of issues concerning leasing, hire, consumer credit, the FCA source book and the regulatory landscape affecting the UK finance and leasing sector.

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Charity expert vows to ‘stand up for the sector’ after committee appointment

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Charity law and governance expert Catherine Rustomji has been elected to sit on the Charity Law Association executive committee.

As head of charities at full service law firm Shakespeare Martineau, Catherine’s position on the executive committee will see her play a leading role in improving knowledge and awareness of charity law issues, as well as working closely with the Charity Commission to pursue both technical and practical issues facing the sector.

The role of the Charity Law Association is to support charities of all sizes navigate the legal landscape of the third sector, providing a forum for members to exchange ideas and information as well as responding to consultations from government and regulators.

Working alongside other leaders in the sector including advisors, academics and charity professionals, Catherine will share best practice with the association’s 900+ members.

Catherine, who has more than 20 years’ experience in the charity sector, said: “I’m thrilled to have been elected to sit on the executive committee – I am looking forward to getting back into the thick of developments in charity law and discussions with peers about the latest issues affecting charities, and working as a team to stand up for the sector and make a real difference.

“This additional role will position me at the coal face of charity law, keeping me at the forefront of developments so that I can better support my clients too.”

For more than two decades, Catherine has been exclusively advising charities, social enterprises and not for profit organisations – specialising in charity law and governance, not for profit legal structures, trustee training and board development.

Over the years, she has supported national, regional and local charities, not for profit organisations, community groups, schools, colleges, churches, welfare and professional associations – operating across the health, education, arts, public and private sectors.

Nearly 1,000 members of the Charity Law Association were asked to vote for the executive committee, with appointments announced at the organisation’s recent AGM. Positions are voluntary and held for three years, subject to re-election by members.

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Catherine Rustomji is a partner and head of charities at Shakespeare Martineau. She has been advising charities, social enterprises and not for profit organisations exclusively for over 20 years.

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Leaving money to charity in your will can ensure your chosen charity beneficiaries reap the rewards of your hard work, while you benefit from the financial incentives too. We can advise you on the best way to structure and approach your charitable affairs.

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Financial settlements – never a one size fits all

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Every single family will have their own unique, different set of circumstances and these varied circumstances are always in evidence when family lawyers are looking at resolving financial claims for a separating couple. No two cases are ever the same in terms of a couples financial assets; property, savings, pensions, businesses, income, liabilities and so on.

Family lawyers must assess each case on its own facts, considering how those particular circumstances sit against the factors outlined in section 25 of the Matrimonial Causes Act 1973. These statutory factors are not equally weighted across all cases (although needs of any children and the parties will always be the priority factor). In some cases, the length of the marriage is relevant, perhaps the health of one of the parties, or one parties contributions to the matrimonial wealth.

The point is there is no magic formula to produce the “correct” outcome, which is why it is so important to take early and ongoing advice from a family law specialist when separating.

If you are fearful your partner may “waltz” away with the assets, leaving you in a tight spot, get in touch so we can “(American) smooth” away your concerns.

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Anne has over 30 years’ experience in protecting clients’ wealth through wills and trust structures. She will always go the extra mile to ensure they and their family’s objectives are achieved as tax efficiently as possible.

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From drafting your will to advising you how to structure your finances in the most tax efficient way, we aim to be your personal tax partner for life, ensuring we can design a plan that is exactly right for you and your family to protect your personal wealth.

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Utilising Agricultural Property Relief

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What is Agricultural Property Relief?

Agricultural Property Relief (APR) is a form of tax relief that allows you to claim relief on land that can be used for agricultural purposes, (crops or livestock) and associated buildings such as barns, outbuildings and houses used in connection with the land. 

How does APR work?

To receive APR, the land or buildings must have been owned for at least two years prior to transfer. There is one exception to this rule - if the asset is inherited from a spouse and they too have owned it for less than two years, this scenario is added to that of the late spouse. If the combined period of ownership exceeds two years then APR relief should be available.  If the owner does not occupy the property (land or buildings) which is the case usually with a Farm Business Tenancy) they need to have owned it for seven years in order to qualify for APR. 

What qualifies for Agricultural Property Relief?

Typically, APR is available for: 

  • Land used for crops or livestock 
  • Farmhouses are included as long as they have been used as a base for operations and not just a house.
  • Cottages that have been lived in by someone/family working on the land and are under a tenancy agreement. 

APR is not available for: 

  • Livestock
  • Machinery and farming equipment
  • Harvested crops
  • Derelict buildings/ outbuildings on land 
How much APR is available?

Depending on how the property is owned, relief is due at either 50% or 100%. 

Agricultural Property Relief is a powerful form of tax relief and all options should be explored as it can provide relief of up to 100% after you pass away. If your assets qualify for APR there’s no reason why your maids-a-milking shouldn’t be able to continue to do so following your death. 

As with all areas of taxation, however, Agriculture Property Relief is a complex area and expert advice should be sought on estate planning. 

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Peter has specialised in farms and rural land since doing his articles at Burges Salmon. He has worked in the Midlands for the last 25 years, advising on all aspects of rural property and farm partnerships.

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Utilising Business Property Relief

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What is Business Property Relief?

Business Property Relief (BPR) is a form of tax relief that allows you to claim relief on any business assets owned, which can include shares in a qualifying business.

How does BPR work?

If you are a business owner or have an interest in a business, your estate, upon your death, may be entitled to claim relief from Inheritance Tax (IHT).  This form of tax relief reduces the value of a business or business assets in the calculation of any inheritance liability.

To receive BPR, the business or business assets must have been owned for at least two years prior to death. There is one exception to this rule - if the asset is inherited from a spouse and they too have owned it for less than two years this scenario is added to that of your late spouse. If the combined period of ownership exceeds two years, then BPR relief should be available.

What businesses qualify for Business Property Relief?

Typically, BPR is available for:

  • A qualifying trading business or an interest in one
  • Shares in an unlisted qualifying company, including a minority holding
  • Shares in a qualifying AIM listed company

How much BPR is available?

Depending on the type of business, 50% or 100% relief is available.

Business Property Relief is a powerful form of tax relief and all options should be explored as it can provide relief of up to 100% after you pass away. You should ensure your goose that lays the golden egg can continue to do so for the benefit of your family following your death.

As with all areas of taxation, however, Business Property Relief is a complex area and expert advice should be sought on estate planning.

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Ben has a broad range of experience across all areas of commercial litigation, including breach of contract claims, professional negligence recovering large commercial debts, business protection claims and applications for injunctive relief.

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Inheritance - a gift or a curse?

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Inheritance - avoiding the pitfalls

 

James Bond actor, Daniel Craig, has publically stated that he finds the concept of inheritance “quite distasteful” and will not be leaving his £100 million fortune to his children. Baroness Karen Brady has told her children “they will always have a roof over their head and food in the fridge but the rest is up to them”.

Bill and Melinda Gates have pledged the majority of their wealth to charity. Those with significant wealth often worry that by passing it directly to their children they are gifting them something of a poisoned chalice.

Who wouldn’t want many millions in assets and no terms or conditions on how to use it?
Sadly, many wealthy families who pass their wealth down to the next generation without structure leave their children vulnerable to external forces, corrupt influences by those with their own agenda, and ultimate temptation.

An outright gift of significant value when in the hands of an inexperienced beneficiary can lead to the very worst outcome, wealth lost and a child in rehab or worse.
By leaving that wealth in trust for the children with a full letter of wishes and experienced trustees at the helm, the parents can see a future plan and the child has the support they need.

Trustees can be professionals well versed in the role of family trusts, friends or family members, or indeed a combination of all of these. Trusts can take many forms –a fully flexible discretionary trust or cascading life interests for example.

Leaving a gift in a trust ensures levels of guidance and protection are in place but also opens up the opportunity for significant tax planning for the entire family.

Trusts can be created during lifetime or through your will to take effect on your death. Remember, leaving a gift to a child by a will pass to them when they are just 18 years of age if you do not specify a later
age. Well drafted wills with the appropriate trust provisions included can give much needed peace of mind to a parent wanting to provide for their children. A letter of wishes can outline when the trustees should
consider appointing wealth out to a child to assist in property purchase, education or other milestone events.

The child can request an early distribution of funds and if satisfied the reason is one their parents would have endorsed, often trustees have powers to release assets to the beneficiary early.

However, if the reason is unsound or unsafe funds are retained until the child is older and, one hopes, a little wiser.

Our private client team can advise if you need further support or assistance.

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Lesley works closely with her clients to assist and guide in all aspects of complex estate planning and asset protection including trust and estate administration after death, Wills and Powers of Attorney.

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Trusts come in many forms. They can be incorporated into your will, which only come into existence when you die (a Will Trust), or lifetime trusts which are established while you are still alive. Lifetime trusts can outlive you and continue to be effective after your death, often for the benefit of your family.

Our trusts solicitors can guide you through your options to help you make the best decision for your situation.

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Dealing with the practical, legal and emotional process of a relationship breakdown is difficult and stressful enough as it is, without the added complexity of a pandemic. From family court hearings to financial divorce settlements and maintaining child arrangements, we can help you. Whatever the situation.

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Our latest edition of Life Times magazine

Our Autumn Edition of Life Times is Out Now

We bring you the autumn edition of Life Times magazine - a round-up of insightful and informative content.

From looking at how to access the First Homes scheme, to resolving relationship disputes out of court, and Inheritance – A gift or a curse? The autumn issue is packed full of useful tips and information.

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Top tips for making a Will

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Tips for Making Your Will

Making a will for the first time? You might be wondering about the cost of making a will, how to prepare one and who will benefit.

If you would like a copy of these tips to be sent to you in a format that your charity can send out to its donors, please get in contact and we will be happy to send them to you. 

Alistair Spencer sets out his top tips for what to consider when making a Will: 

Work out what assets you own

The value of your assets and how those assets are held, for example in property, shares and so on, will determine whether your estate might be taxed on your death. 

It is worth putting together a schedule of your assets and liabilities with at least approximate values, before attending a meeting with a legal professional to make a Will. 

The legal professional will consider what tax relief might be available, and the most appropriate and tax-effective way of structuring your Will. 

Remember, leaving charitable gifts in your will can have considerable tax benefits for your estate. As well as the gift itself being tax-free, charitable gifts can also reduce the amount of inheritance tax that the rest of your estate will pay. If you give at least 10% of your taxable estate to charity upon your death, the inheritance tax rate for the rest of your taxable estate reduces from 40% to 36%. 

Keep your Will updated

Many people often forget to update their Will after a significant life event and risk the document not outlining what they want it to do.

Once you're married, any Will made prior to your wedding day will be automatically revoked - so if you do separate from your partner, changes need to take place to reflect the change in your circumstances.

It is not unusual to come across situations where an individual has passed away after divorcing but has failed to update their Will, resulting in their former partner still benefiting from their estate.

Life events or causes you are or become passionate about may also mean that you wish to change your will to leave a legacy to a chosen charity or charities.

Whatever the circumstances, it is expected that changes in a person’s testamentary wishes will occur throughout the course of their lives and it is important to review your will as life goes on.

Often, there is no requirement to make an entirely new will when you want to make a change. Providing you are still able to do so, changes to your will can often be made fairly simply.

Decide who will benefit from your will

Many Wills are disputed because family members are left shocked and angry by the contents once a loved one has passed away.

This can lead to costly disputes and the Will writer's decisions being scrutinised and potentially changed.

This is why, once you've written your Will, it is important that you communicate its contents with your family and friends to ensure there are no surprises down the line. If your will leaves legacies to specific friends or charities, let your close family know your reasons for wanting to make these gifts.

If the contents of the Will could be seen as potentially contentious, it is often advisable to prepare a letter of wishes to be kept with it, setting out why you have made the decisions you have in your Will and why certain people might be excluded.

Consider gifts to charities

Leaving money to charities can make such a huge difference, and can mean your money can have a long and positive legacy. There are also some tax advantages of giving money to charity, and in particular, a reduced rate of inheritance tax if you leave at least 10% of your net estate to charity.

Even a small legacy can make a difference!

Choose your executor

Executors are the individuals who will carry out the terms of your Will and sort out your estate when you die. An executor can also be a beneficiary of your Will.

They should be individuals you trust implicitly, must be over 18 at the time of your death and must be mentally capable of doing the job.

Ideally you should name more than one person to act as your executor, as this minimises the risk of both executors passing away before you. However, ensure as far as you can that the chosen executors will be able to work together.

You can also choose one or more substitute executors if the executors you have named are unwilling or unable to act.

It might be sensible to appoint at least one professional executor, although there will be costs associated with this.

Find two witnesses

Any witness should be independent, so they should not be a beneficiary of the Will or a spouse or civil partner of a beneficiary.

Any gift you make to the witness or to their spouse or civil partner will fail.

If you make your Will via legal professionals they will usually provide the independent witnesses.

You must have a minimum of two witnesses and they must both see you sign or acknowledge the Will in their presence before signing the Will themselves.

A recent announcement from the Government allows virtual witnessing of Wills from 31 January 2020 to 31 January 2022, or such other time period as the government may decide. The Will must still be physically signed by the witnesses and the person making the Will.

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In this webinar, our team of Wills and Family law experts we will answer some of the common issues we see in legal practice.

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Alistair specialises in contentious trusts and probate. He represents private individuals, charities and trustees in a wide range of matters.

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Government Announces Adult Social Care Reforms

New Legislation

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Social Care Reforms

The Government announced last week that, from October 2023, there will be changes made to the Social Care system. These changes will affect how much you will need to pay towards your care in the future. These changes are currently proceeding through Parliament.

The current average cost in England of a stay in a residential home is £600 per week, with nursing care costing on average £800 per week.

What is the current system?

Currently, if the value of your capital assets is above £23,250 then your care fees will need to be fully self-funded, and you will not receive any financial support from the Local Authority, subject to certain limited disregarded items in certain circumstances.

If the value of your capital assets are between, £14,250 and £23,250, then you will get some financial help from the Local Authority.

If your assets are less than £14,250, then you must continue paying from your income, subject to a ‘protected’ lower amount, but you will not need to contribute from your capital. The Local Authority will pay the remainder.

Your Local Authority will do a ‘means test’ to work out how much you will need to contribute from your capital towards the cost of your care.

What are the new changes?

MPs voted this week by a sizeable majority to approve the following changes to the Social Care system.

  • If the value of your capital assets is above £100,000 then you will need to fully self-fund your care.
  • If the value of your capital assets is between £20,000 and £100,000, then you will need to contribute to a percentage of the fees, based on your income and savings, but you can request financial support from the Local Authority on a means-tested basis.
  • If the value of your capital assets is below £20,000 then you will not have to use your capital to pay for your care, although you will still need to contribute from your income, subject to a ‘protected’ lower amount.

The Government also announced that people will not be made to pay more than £86,000 (a lifetime cumulative amount) in care costs. Whilst, on the face of it, this change may be welcomed by many who worry about spending their life savings on care fees, and needing to sell their homes to fund their care costs, this cap does not include the costs of accommodation and food – only personal care. However, care costs paid whilst at home will count towards this total lifetime amount.

This change will only benefit those starting care from October 2023. If you are already paying for your care, then you will not benefit from the new changes.

Can I protect my savings for my family?

There is no definitive answer to this question. It is important to consider your aims and objectives, and your personal and family circumstances. We can advise and support you about the payment of care fees and the relevant disregards. Learn more about this and the matters mentioned above, or to review any existing steps or structures you may have taken or tried to put in place in this area, by getting in touch with our private client team.

These changes will not affect the Deprivation of Capital Rules or the Continuing Healthcare Funding entitlement to Nursing Care (not residential costs or food) for those who are assessed as needing nursing care which is a NHS responsibility.

 

Get In Contact

Lauren helps individuals put plans in place for the future by means of Wills, Powers of Attorney, and other estate Planning.

With our adaptable and creative approach, we ensure your family’s interests are always protected in troubled times. We know that no two families are the same and we take the time to understand the intricacies and sensitivities of the situations that you face.

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Garraway’s digital legacy challenges are a lesson to us all

Many have recently empathised with TV’s Kate Garraway as she publicly recounted the struggles of her husband Derek Draper in his battle against COVID-19. As if his health challenges weren’t enough, she has spoken out about the additional difficulty of getting access to joint funds whilst he was in the hospital.

With most of our valued information, records and assets online, keeping them in the hands of those we trust has never been more important. With the average person holding 70-80 passwords, this raises an important question for us all - how do we manage our digital legacy, especially in the event of ill health?

Safeguarding our digital legacy

In the midst of a global pandemic, it’s important to be prepared should you suddenly be struck down with ill health. Safeguarding our digital legacy can be done in four simple steps:

 

  • taking inventory of your digital assets and devices;
  • securing your passwords;
  • making decisions about your digital assets.
  • providing instructions for handling your digital assets

Our digital assets become the legacy we own, and protecting them is a vital task. Should the worst happen, it’s important that loved ones have access to be able to complete transactions or stop payments on your behalf. More crucially, it can help mitigate some of the stress that a loved one may feel if struggling emotionally with your ill health. Protecting your digital legacy can mean also protecting your loved ones from significant administrative challenges.

Take stock of your digital assets

We all have a huge amount of digital assets that are expanding on a yearly basis. This could be our Netflix or Amazon accounts, bank accounts, social media profiles, and cryptocurrency accounts such as Bitcoin. Our entire lives are going virtual - so it’s becoming increasingly important that we safeguard our digital legacy.

This starts with taking stock of our digital inventory - making a note of exactly what we have online.

So how can we do that? It starts with conducting a review of our digital assets. We should examine not only the sentimental value but also the potential monetary value that our digital assets now hold. For example, Crypto and PayPal accounts are likely to hold real monetary value and similarly, intellectual property held electronically within books, videos and poetry could provide beneficiaries with significant financial gains.

On the other hand, family photos held within a Dropbox account or social media pages are much more likely to hold sentimental significance.

Since the pandemic, more of our banking assets have shifted further online. ATMs are reducing in number, and many physical branches have closed. Reduced access to physical banks means that they need to protect our digital assets is even more pertinent in a world where we conduct a lot of our transactions virtually. In the case of Kate Garraway, having joint accounts meant that one party could not access funds without authorisation of the partner. Had a schedule been kept of what passwords were held and for what, it could have protected her from what was inevitably a very stressful situation.

What happens if a loved one passes away without safeguarding digital assets? At present there are a number of legal ‘grey areas’ surrounding digital asset legacy planning and only recently has this become more common to include in a will. There is a real need for clearer guidance and an update in the law surrounding digital assets will be required in the near future. However, until that time, those writing and distributing a will should take caution.

Provide instructions for handling your digital assets

However, no matter whether it is sentimental or financial gains that digital assets could provide, ensuring that clear instruction is provided can help to ensure that they are catered for accordingly. It is wise to securely store a digital assets log that provides the access details of all accounts, or use a third-party password genie like Lastpass, along with a clear indication of what action is to be taken with each asset. However, individuals should exercise caution in doing so to ensure that they are not breaching the terms and conditions of the service provider.

If in the event of a bereavement, executors have a duty to maximise and administer an individual’s estate, but accessing online accounts without formal written permission in the will could mean that they are in breach of the Computer Misuse Act 1990.

Being an executor isn’t just about realising the assets of a will, executors often have a moral duty to fulfil the wishes of the deceased to the best of their ability and knowledge. If an executor doesn’t have the correct skillset to manage digital assets, it can cause huge amounts of stress and in turn, if proper instruction isn’t given to the executor, digital assets can be lost completely. Therefore, it is important to nominate a ‘tech savvy’ executor to manage the distribution of the digital asset element of a will  - failing to fulfil the task competently could open executors up to personal liability claims from beneficiaries. It is also not uncommon to have more than one executor, who could be chosen for specific tasks based on their proficiency.

Unfortunately, before more formal guidance is available, we are likely to see an increase in problems caused by unclear or incomplete instructions regarding the legacy of digital assets.

Garraway’s struggles are a lesson to us all, and her challenges can help us all to realise that taking a safeguarding approach to digital assets is a necessary activity for every individual, young or old. Following the four steps means that we can take active measures to protect our digital legacy, for now, and the future. This process isn’t a one-time event - it’s now an ongoing endeavour that we all must undertake.

We're here to help

We can advise and support you with creating your lasting powers of attorney. Learn more about the process by getting in touch with our private client team, and we’ll arrange a free call back at a time to suit you.

Our private client team is ranked as a Top Tier Firm in the Legal 500 2021 edition.

Our updated guide to recovery and resilience covers everything you need to navigate your way out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.  

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

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Guides & Advice

Five myths about marriage and divorce

January typically sees a spike in divorce enquiries for many solicitors – and 2021 is expected to be no different, with the additional stresses and strains COVID-19 has placed on couples and families.

But did you know there are several myths surrounding civil partnerships, marriage and divorce? In this post, family lawyers Jane Charlton and Stephanie Kyriacou explore five divorce myths, answering some of the frequently asked divorce questions from couples across the country. They cover a range of questions on divorce issues, from the division of assets to the ‘remarriage trap’.

 

1. Can I get divorced if we have just drifted apart?

Falling out of love and drifting apart is not itself legal grounds for divorce, however, looking deeper into the reasons may show that one party’s behaviour has actually been the cause and therefore a divorce could proceed. Until the ‘no-fault divorce’ is available (expected Autumn 2021) you will have to prove your marriage has irretrievably broken down due to one of the five ‘divorce facts’: adultery, unreasonable behaviour, desertion, or separation of at least two years or in some cases five years.  The divorce process generally takes between six and nine months but can take longer if financial matters still need to be agreed upon.

Read our frequently asked questions on divorce and separation.

Our handy guide on how to get a divorce also breaks down the process of getting a divorce into seven easy steps.

 

2. Will my partner get 50% of our assets, even if they have cheated?

In England, the courts will always start with a 50/50 split of assets. But there are a number of instances where this may not be the case, such as the length of the marriage/civil partnership, large sums of inheritance or money generated after separation and sometimes generated pre-marriage and whether there are children. Fault – such as one partner cheating – has no bearing on the division of assets.

 

3. Do I have to give my engagement ring back if we split?

This is a particularly common divorce question we encounter. If you break up with your partner, you may feel a moral obligation to return the ring - however, unless it can be proved that the ring was given conditionally, the law states that it is an absolute gift, meaning you do not have to return it to your ex.

 

4. Do I need to appoint a solicitor?

While it is possible to get a divorce without the support of a solicitor, you may run the risk of missing important legal loopholes, such as the ‘remarriage trap’. Put simply; if you remarry without a claim for a financial order you may be barred from seeking maintenance and other financial claims. You may also find yourself out of pocket down the line. Without full legal severance, it is possible that an ex-partner could chase you for a share of funds you may accrue later in life – whether that be a pension pot, inheritance or even a lottery win!

 

5.We’re not married, but we’ve been together years – will I get 50%?

There is no such thing as a ‘common law wife/partner’. Cohabiting couples frequently believe that living with somebody for a prolonged period of time leads to certain legal rights such as a share of property owned by one party – it does not. If you choose not to marry then do consider a living together agreement to protect your best interests.

We’re here to help

This post has explored five common questions on divorce issues, helping to debunk some of the divorce myths we come across when talking to clients. Going through a divorce or separation can be one of the most stressful periods in your life and highly emotional. No matter where you are on your journey, our team of family law experts can help guide you through the maze of emotional and legal responsibilities.

For advice and support contact Jane Charlton or complete our enquiry form and we’ll call you back to arrange a free, 20 minutes no-obligation confidential consultation at a time to suit you.

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Guides & Advice

Can you remove an executor from a will?

When an executor is dragging their feet in progressing the estate administration, but refusing to stand down, it can be extremely frustrating for beneficiaries who are to inherit from a person’s estate.

Here we outline five top tips for dealing with this issue, particularly where an executor named in the will has not yet taken a grant:

1. Act early

As soon as you are notified that you are a beneficiary, start making enquiries of the executor. These enquiries may include asking for details of the legacies left to you (or a copy of the will) and confirmation of when the executor intends to apply for probate. Engaging early with the executor can help to identify is unnecessary delays are likely to occur at an early stage.

2. Where there’s a will there’s a way

Where an executor is in possession of the deceased’s will, and simply will not divulge the information in it, provide a copy or submit it to the probate registry to apply for probate, you can issue a subpoena ordering the executor to deliver up the original will to the probate registry.

If the executor fails to comply with the subpoena, they will be in contempt of court. This can then form grounds for asking the probate registry to ‘pass over’ their entitlement to take a grant and allow another appropriate person to step in and take on the role of executor.

3. Next stop…citation

If an executor is refusing to apply for a grant to administer an estate, there is a process by which an application can be made to the probate registry for an order requiring the executor to take a grant. This is known as the citation procedure.

Once a caveat is in place, a draft citation application is made by the ‘citor’ (person seeking to force the executor to take the grant) and is lodged with the probate registry (together with payment of the £4 fee and a draft order).

This is then served on the ‘citee’ (the executor) and the citee then has eight days from the date of service to enter an ‘appearance’ (explanation of their position) at the probate registry.

If an appearance is not entered then the citee can be required to enter one within a set time, or the citor can apply for the grant themselves. Similarly, if an appearance is entered by the cite, but they still fail to apply for the grant, the citor can apply for an order to be made to them instead. This is a good tool to have in your armoury should you be trying to persuade an executor to take a grant and progress the estate administration.

4. Push to stand down

Where concerns have arisen about the executor’s ability to fulfil their duties, or their handling of the estate administration prior to taking out a grant, then you could request that they “renounce” their position.

If they have been carrying out actions as an executor (known as ‘intermeddling’) then they are not able to renounce, but they can still agree to step down. It will still require a court order to remove them but, if this is done with consent, it is relatively quick process. If they won’t agree to step down then a formal application for their removal/passing over of their entitlement to the grant can be made.

It is always preferable to try and get the executor to agree to stand down as executor in the first instance.  A letter detailing your concerns and requesting their agreement to stand down, perhaps with the threat of a court or probate registry application if they continue not to co-operate, is a good first step and can also be used an evidence in court if required later down the line.

5. Seek legal advice

Wherever you have growing concerns regarding unnecessary delays by executors, it is advisable to seek legal advice at an early stage to understand what you can do and the likely costs involved. Often, the earlier action is taken the quicker matters can move forward and the estate be administered.

We can help to administer estates professionally and empathetically

Dealing with administration of an estate when someone has died can be an extremely emotional and testing time, particularly when it involves the estate of a close family member or friend.

If you’re the beneficiary of a will and an executor is dragging their feet in progressing the estate administration then we can help - contact Andrew Wilkinson or Debra Burton for guidance and support.

Alternatively, get in touch online or visit our wills solicitors page to learn more.

Our charities team is ranked as Top Tier firm in the Legal 500 2021 edition.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

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Guides & Advice

The Dangers of Joint Property

“How is your joint property held” is a question we ask every client undertaking estate planning or making a will.

The answer can potentially have very significant consequences, particularly where the family home is the main asset.

For some, the ability to hold property as either joint tenants or tenants in common may be very familiar concepts. For others, the decision of how to hold the family home has often been made many years ago or was not something ever actively considered.

Other clients have undertaken estate planning many years ago, which resulted in their property being held as tenants as common. However, when the couple have moved, the new property has inadvertently been purchased as joint tenants, potentially undermining any estate planning they have put in place.

Where property is held as joint tenants, on the death of one owner, the property passes automatically to the other, regardless of the provisions of that person’s will.

But in contrast, where property is held as tenants on common, when one person dies, the share belonging to them passes in accordance with the terms of their will.

Many family homes are held as joint tenants, as this is often seen as the “default” for married couples and although this may work well for many people, it is not always the best option.

Considerations for the future

Consider a second marriage, where the first to die wishes to protect their share of the property for the children of previous relationships. If the home is held as joint tenants, the surviving spouse has complete control after the first death – they could give the property away or they could leave it in their Will to their own children or to a new spouse if they remarry. If they die without a Will, the laws of intestacy will decide who will inherit this on their death and this will not include step-children.

The possible unintended consequences of holding a property as joint tenants are clearly demonstrated by a recent case where a married couple were both found dead at their home. It was unclear who had died first and each had a daughter from a previous relationship.

The couple held their home (and their bank account) as joint tenants, meaning that whoever died second would inherit the other’s share.

Where it cannot be determined who has died first, the law considers this to have been the older person, in this case the husband. As a result of this, the wife was deemed hold all the assets at her death and her daughter inherited everything. The husband’s daughter inherited nothing. Had the property been held as tenants in common instead, each daughter would have received half.

How it affects estate planning

Holding property as tenants in common can also sometimes be useful even where the ultimate intended beneficiaries are the same for each joint owner.

Many people choose to include Nil Rate Band Trusts in their Wills on the first death, not least because this allows up to £325,000 to be held outside the Estate of the survivor, providing protection of this sum from care fees. If the main asset is the family home, it is often necessary to ensure that the share belonging to the first to die passes under their Will in order to have enough value to make full use of this Trust. This will not happen where property is held as joint tenants.

These are the key features of joint tenants vs tenants in common but whether they are pros or cons can be subjective and frequently depends on individual circumstances. It’s important to obtain legal advice before committing to one option over another so that you know that you’re making the right choice for you and your family.

Contact us

For further information contact Kathleen Ryan or another member of the private client team in your local office.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance for any queries on family and private matters. We also have a team of experts on hand for a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

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Guides & Advice

Improving cash collection – every little helps

In a world where cash is king, cash flow is all important to ensuring the survival of any business, which has been bought into even sharper focus now in our new COVID-19 world.  Whether your business is sailing smoothly, treading water or struggling during these tough economic times, having a reliable collection strategy is integral to remaining solvent.

What is a cash collection strategy?

A cash collection strategy is one way to ensure that your accounts receivable (money in) stays under control and you continue to collect your cash and a collection strategy sets a particular standard and a set of processes on how to collect your money from people who owe you money for goods or services.

The problems cash flow can cause

Many businesses do not realise just how much cash is NOT flowing. The key to the future of a business can be tied up in just that process – the gap between money out and money in, and to enable your business to survive you need to make sure that the people who owe you money for goods pay you on time.  Not receiving monies on time for goods and services, means you may well not have the money to pay your bills and staff and is a fundamental requirement for a successful business.

It’s time therefore to review your cash collections strategy.

As a business you can set your own payment terms.  Many small businesses and sole traders submit invoices which are payable on presentation.  Other common terms of business are seven days, 14, 28 or 30 days.  However this means you should have the cash in your account by that date.  This is not the timescale that you should then use to start a collection process to chase cash.

All too often, invoicing and chasing cash is not given the focus it needs and particularly when a business is in trouble, this needs to change and quickly.

Steps to take to improve your cash collection
  • Review your overall invoicing and cash collection strategy and ensure that it is someone’s responsibility within the business to manage this most vital of tasks. Sometimes this job is given to reception staff or office administrators and often it will not be done properly or in a timely manner. Asking people for money is difficult so ensure adequate training is given to enable them to do the job properly and well.  If you have a credit controller this is their job to manage this process proactively.
  • Review your whole process carefully. What is your process?  Is it too long?  Is it fit for purpose?   Make the changes needed.
  • As a business you should not be waiting until a payment is due to start chasing that debt. If you know when your customers set their payment run, call your customer to check that payment is on the next run. This can often be done under the guise of a customer care call – are they happy with the product/service etc.
  • Do not send a statement by mail as the next communication, this will not encourage payment. Send an email invoice reminder.
  • Call the customer and ask when you can expect to receive payment – after all this is your money. If there is an issue with the goods, be prepared to sort this out.  However this should not prevent a customer paying for the goods that are correct, so push for a part payment.
  • Keep calling your customers at regular intervals until you receive payment. Customers will almost certainly divide invoices into urgent and ‘can wait’.  If you keep calling, you keep your invoice top of their list.
  • Develop good relationships with the credit control team at your larger customers.
  • If payment is not forthcoming get in touch with your actual business contact – they may be able to expedite payment as they are not close to the accounts team.

If payment is still not forthcoming do not delay in starting the formal proceedings and contact a debt collection expert. If you work with the correct third party, they will support you in the collection of your debts, without damaging your reputation.

What else can I do to help with cash collection

Review your terms of business.  When many businesses start out it is often the case that the terms of business can be a slight afterthought, often ‘borrowed’ from somewhere else or found on the web. In order for a business to claim all monies due to them, it’s vital to ensure your terms are drafted correctly and includes several very key elements.

An important thing to consider is:

  • Do your terms of business do what you think they do?
  • Do they allow you to recover your goods if your customer becomes insolvent?
  • Do you have an enforceable retention of title clause within your terms of business?
  • Do your terms of business allow you to recover collection costs or claim contractual interest on overdue invoices?

If you are in any doubt we can review your terms of business, ensure they are drafted correctly and review your cash collections strategy ensuring you are in the best position to ensure your cash keep flowing.

Contact us

For further help in developing a cash collection strategy contact Jayne Gardner or another member of the debt recovery team in your local office.

For legal support in relation to the coronavirus or any other matter, get in touch with your team today.

We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential, navigate their way out of lockdown and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we have lots of educational and entertaining content for life and business visit SHMA® ON DEMAND.

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Guides & Advice

Court of Protection | A guide to deputyship orders

What is a deputyship order?

A deputyship order can be issued if a person, known as the ‘client’, lacks sufficient mental capacity to manage their own health, welfare, financial or affairs. 

There are two types of deputyship:  

  • Property and financial affairs deputyship 
  • Personal welfare deputyship 

property and financial affairs deputyship is the most common. The Court of Protection may appoint a deputy to manage the client’s financial affairs on their behalf. The deputy can make financial decisions for the client, but must always do so in the client’s best interests. 

It is unusual for the Court to appoint a personal welfare deputy – instead it is more common for the Court to make issue-specific orders authorising another person to make individual decisions on behalf of the client. 

Why set up a deputyship?

financial deputyship will be needed if a client lacks sufficient mental capacity to manage their own financial affairs, has assets that need to be administered, or financial decisions that need to be made -  and has not previously executed a valid power of attorney.  

What is the difference between a deputyship order and a lasting power of attorney?

Ultimately the Court of Protection decides if someone lacks mental capacity, after considering the medical and other evidence submitted as part of the application for the appointment of a deputy. The solicitor dealing with the application will obtain medical evidence from a suitably qualified mental health professional. 

Who can apply to be a deputy?

A deputyship order and a lasting power of attorney both allow an appointed person, or persons, to make decisions on behalf of someone who lacks mental capacity.

However, the main difference is that a lasting power of attorney is made by the client before they lose their mental capacity, so they’re able to decide and appoint their own attorney(s). Read more about powers of attorney.

If that individual did not make a lasting power of attorney before they lost their mental capacity, then an application can be made by someone else to become their deputy and manage the client’s affairs on their behalf.

The role of the deputy

In most cases, a spouse, partner or close family member will apply to become the deputy, although they must be over the age of 18.   

When making the application to be appointed as a deputy, any criminal convictions or bankruptcy or insolvency issues must be declared to the Court of Protection, and this could lead to the Court refusing the application.  

Where no one is willing to make an application, or there is no one suitable to act as deputy for the client who lacks mental capacity, then a professional deputy can be appointed by the Court. 

If the assets of the client are substantial in value, or are complex, then it may be necessary for a professional deputy to be appointed.  

It is possible for more than one deputy to be appointed. This can be either: 

  • together (‘joint deputyship’), which means all the deputies have to agree on the decision; or 
  • separately or together (‘jointly and severally’), which means deputies can make decisions on their own or with other deputies. 

Acting as a deputy can be onerous and time-consumingtherefore it’s important to understand the role and the duties of being a deputy. 

What are the duties of a deputy?

Property and financial affairs 

A property and financial deputy looks after the client’s financial affairs, including paying bills and operating bank accounts, making and changing investments and making financial decisions on behalf of the client - but always in the client’s best interests 

This type of deputy can do most of the things the client can dosuch as sell the client’s house if authorised in the court order (or otherwise with the Court’s permission) on the client’s behalf.  

A deputy cannot: 

  • make a will or change the client’s existing will 
  • make substantial gifts on the client’s behalf (unless a specific court order authorises this);  
  • hold any money or property in their own name on the client’s behalf 

Any major decisions, unless duly authorised in the court order, need the Court’s specific permission.  

property and financial deputy must keep a record of all payments and keep copies of receipts for all payments. 

Every year, the financial deputy has to provide an annual report to the Court. This gives the Court information on decisions that the deputy has made on the client’s behalf, and also provides full financial accounts for the Court to approve. Where the deputy is a professional person, details of the fees charged during the deputyship year and a best estimate of the fees to be charged for the year ahead will also be included. 

Personal welfare 

The role of a welfare deputy will depend on the authority that the Court has given to the deputy. For example, there could be an order in place allowing the deputy to give consent to certain specific medical treatment, or to decide where the client lives. 

Who decides if someone lacks mental capacity?

The Mental Capacity Act 2005 sets out a Deputy’s duties. Read more about the responsibilities of a deputy on the gov.uk website. 

Essentially, the deputy must ensure that he or she acts in the best interests of the person who lacks mental capacity, in the case of each decision made, and demonstrate that the client lacks sufficient mental capacity to make that decision. A financial deputy has a duty to keep accounts and to keep the clients money and property entirely separate from their own finances. 

The deputy can only make decisions if authorised by the deputyship order, and must have regard to all relevant guidance in the Office of the Public Guardian’s Code of Practice. The Code of Practice provides guidance information on the Mental Capacity Act and how it works in practice. 

Are deputies supervised?

The Office of the Public Guardian assesses the suitability of each deputy to act on an ongoing basis, and applies an appropriate level of supervision to each deputy. There are four levels, ranging from close supervision to a light touch supervision. Read more about supervision and support. 

Before being appointed, a financial deputy will need to take out an indemnity bond with a bank or insurance company, on the basis of a financial level determined by the Court (in case of any financial loss being sustained by the client as a result of the deputy’s actions or omissions). This will need to be renewed annually by the deputy. 

How long does it take to appoint a deputy?

Once the application has been sent to the Court, it usually takes at least three months for someone to be appointed as a deputy. There can be delays prior to sending in the application to the Court, as obtaining suitable and appropriate medical evidence can sometimes take a long time to obtain,  depending on the medical or suitably-qualified mental health practitioner involved. 

How to apply to be a deputy?

To apply to become a deputy, an application must be submitted to the Court of Protection. The Court of Protection then assesses the suitability of each deputy to act from the information provided on the application form. 

The application process involves supplying a lot of detailed information about the client’s personal financial, and other, circumstances. It also involves notifying certain people about the application. 

How much does a deputyship order cost?

An application fee of £365 is payable to the Court of Protection at the time that the application is submitted. 

Other fees payable include an annual supervision fee, which is payable to the Office of the Public Guardian. The fee is calculated by reference to the level of supervision required and the level of the client’s income. 

Helping you to set up support for years to come

We appreciate it can be difficult when someone you know loses the ability to make considered decisions for themselves. 

Should you wish to manage someone’s affairs on their behalf, our team will advise you of your options and guide you through the process of applying to be appointed as a deputy, including preparing the deputyship application papers and liaising with the Court of Protection regarding your application. 

We often engage with newly appointed deputies to assist and support them with their responsibilities, and continue to do this for many years, building strong relationships with them and the person in their care. 

If required, walso have appropriately skilled, experience and qualified experts who can act as a professional deputyfor example, if there is no other appropriate person to act in this capacity, if the value of the assets are substantial or the affairs and property are complex, or where a lay deputy being appointed would not be appropriate (such as if there is a family rift or dispute).   

If you think you are ready to see how this process could work for you, you can make a first confidential enquiry by clicking on the button below. 

To take that first step in the process of becoming a deputy, speak to a member of our local private client team. 

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Guides & Advice

Top ten things to consider before preparing a trust

Families have used trusts for centuries to protect their wealth and maintain its value for the benefit of future generations. Whilst many people have heard of trusts, most struggle to understand exactly what they are and the benefits they can bring.
What is a trust?

A trust is the formal transfer of assets (such as a property, shares or simply cash) to a small group of people, usually two or three, known as “trustees”, with instructions that they hold the assets for the benefit of others.  

If the trust is to be made in your lifetime, to take immediate effect, then it is usually evidenced by a trust deed and often referred to as a ‘settlement. If it is to be created on or shortly after your death, then the trust rules must be set out in your will itself and would be known as a ‘will trust. 

Whether created by lifetime settlement or by a will, the trust document states who is responsible for looking after the gifted assets (the trustees), who is to benefit (the beneficiaries), and any rules or conditions to which the trustees and beneficiaries must adhere. The separation of the legal ownership and beneficial ownership, which were once inseparable, is the unique characteristic of the trust concept. The trustees are the legal owners but the beneficial owners are the beneficiaries.  

Here we outline the top ten things to consider before preparing a trust: 

1. Identify the assets you want to give away

This could be cash, property, or even shares in a business. It is important to appreciate the different tax implications of transferring these different types of asset into a trust, as this may influence what assets, and the value of the assets, you wish to put into the trust.  

2.Consider the reasons for wanting to give your assets away

One reason might be because you would otherwise face an inheritance tax bill if you still own the assets when you die. Read out more about how personal tax planning, including creating trusts, can assist with minimising tax liabilities.  

Another reason may be that you simply wish to ensure that others, such as your children, can benefit from the assets now because you do not need to anymore. It could also be part of a wider estate planning exercise involving the procurement or sale of a business. Once you’ve thought about why you want to give the assets away, it will help form your decision on whether a trust is the best option for you. 

3. Decide who will act as trustees and safeguard the assets

This could be you, or a spouse/civil partner, or it could also be other family members or close friends. It is worth noting that professionals can also act as trustees. 

4. Decide who will be named as the beneficiaries of the trust

This could be named individuals or a class of beneficiaries, such as your “children” or your “siblings”. Trusts are a useful way of safeguarding assets for vulnerable beneficiaries as they can protect them, as well as the funds, into the longer term. 

5. Review your options and decide what type of trust is most suitable for the beneficiaries

There are several different types of trust to choose from and each of them affords the trustees and beneficiaries different responsibilities or rights respectively. Each one is treated differently for tax purposes so it is important to select the right one.  

There are three main types of trust to be aware of. 

Discretionary trust

This type of trust affords your chosen trustees with a very wide range of authority to manage the trust assets – including how the beneficiaries receive any benefit from the trust. The key element of a discretionary trust is that no one beneficiary has an absolute right to receive either, income generated by the trust assets (e.g. dividends, interest, rental income) or to receive any capital. 

These types of trust are very widely used because they enable the trust assets to be distributed in what the trustees deem to be the most tax efficient or practical way, depending on the circumstances at the time they make the decision.  

As none of the chosen beneficiaries have an absolute right to either income or capital, none of the trust assets are deemed to be theirs and they will therefore not generally impact their entitlement to receive benefits, or form part of their own estate for inheritance tax purposes. 

Although you cannot seek to hinder your trustees’ discretion as to how the trust assets are used, you can seek to guide them and influence their decision through the use of a ‘letter of wishesThis confidentially informs your trustees how you envisage them using the trust assets. They can, if having considered all the relevant circumstances, exercise their discretion to follow your wishes. Because of the amount of discretion your trustees can exercise, it is vital you select the appropriate people to act in this role. 

Interest in possession trust

This type of trust generally affords one or more individual with the right to receive an income from the trust assets, or occupy and property that the trust may own. That chosen beneficiary is usually referred to as a life tenant because they are normally given that right to receive the income for the rest of their life. Generally, your trustees do not have the discretion to deprive that chosen beneficiary, or beneficiaries of that right, and any income generated by the trust must be paid over to them. 

Given that the beneficiary does have a right to receive income from the trust, this will have an impact on their own tax position when they receive the income, when they die, and if they dispose of the asset. Ordinarily, if a beneficiary of these types of trust dies, the value of the underlying trust assets are combined with their own assets when calculating any inheritance tax liability. 

Your trustees must balance the entitlement of the life tenant to receive a reasonable income, and therefore maximise the same, while also maintaining and safeguarding the value of the underlying capital assets for the ultimate beneficiaries who will receive the capital when the life tenant dies, or otherwise forgoes their entitlement. 

Bare trusts

These are the most basic type of trust structures. Effectively, the trustees hold a defined amount or share of both the capital and income for the benefit, or one or more individuals who are absolutely entitled to both. For all tax purposes, the underlying trust assets are treated as though they are held in the beneficiary’s own hand (with certain exceptions for minor beneficiaries).  

The beneficiary can insist that the trust assets are transferred into their name, provided they have reached 18 years of age. 

Bare trusts are particularly useful as a means of accurately recording the true beneficial ownership of an asset, while the legal title is still vested in another. For example, should a minor inherit a property, their name cannot appear on the legal title because minors cannot hold property in their name. Consequently, a parent or guardian may instead own the legal title in their name, but they will hold the beneficial entitlement as bare trustee for the minor beneficiary. When that minor becomes 18, they can, at that point, have the legal title to the property transferred into their name so that the legal and beneficial ownership become aligned. 

The tax rules around these different types of trust are complex and must be carefully considered before a decision is made. 

6. Understand the practical implications of setting up a trust

Once assets are transferred into a trust, it is generally the case that you cannot benefit from those assets again. This is often to ensure that the establishment of the trust is advantageous to you from a tax perspective. Therefore it is important to ensure you do not need access to these assets once you have given them away.  

The trustees also need to be prepared to file tax returns for the trust, prepare trust accounts, hold trustee meetings and otherwise ensure ongoing administration and safeguarding of the assets is managed. 

7. Think about your long-term plan for the trust

Trusts can be in place for up to 125 years if they are non-charitable. While it is often the case that more modern trusts do not last this long in reality, you should think about who you would want to benefit from the assets if they remain in the trust for a longer period of time; for example, your grandchildren, wider family members or a charity. 

8. Assess whether you expect your trustees to seek legal and tax advice to assist them in administering the trust

If your trustees are likely to need legal advice and support when administrating the trust then you will need to consider ensuring that there is sufficient liquid assets in the trust to meet the costs of obtaining the advice - your trustees are not obliged to use their personal funds to discharge these costs.  

It is also worth noting that if you are a trustee yourself, and you pay these fees on the trustee’s behalf, you will in effect be adding to the trust fund each time you contribute to the fees. 

9. Consider if you’d like to benefit charitable causes

A charitable trust can be an extremely effective way of ring-fencing assets for the exclusive benefit of charitable causes close to your heart. There are many tax advantages too if a trust is set up for these purposes. Read more about how a charitable trust can be included as part of your estate planning. 

10. Use a trust to safeguard compensation pay-outs

A trust can be used to safeguard personal injury or medical negligence compensation, but it is important you seek this advice before, or as soon as possible after, you have been awarded the funds. A personal injury compensation trust can be an extremely effective way of ring-fencing your compensation, so it doesn’t impact on your entitlement to certain benefits. 

Safeguarding your estate for future generations

We appreciate that personal circumstances evolve, and tax regulations change over time, so we know it’s important to consider a number of factors before deciding if establishing a trust is the right decision for you. Our private client team are on hand to support you throughout the lifetime of that trust to ensure your estate is protected for future generations. 

If you’d like to discuss what the most practical and tax efficient trust vehicle may be for you then speak to a member of your local private client team. 

How can we help?

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Guides & Advice

What lifetime gifts are exempt from inheritance tax?

Did you know that you can make certain lifetime gifts, and give money away, without adversely effecting your inheritance tax position? However, some exemptions require careful planning to make sure that you don’t fall foul of technical rules. 

What is inheritance tax?

Inheritance tax is a tax on the estate (assets, property and money) of someone who has died. There is normally no inheritance tax to be paid, so long as: 

  • the value of your estate is below £325,000 (the current threshold); 
  • you leave everything above £325,000 to your spouse or civil partner, or 
  • you leave everything above £325,000 to an exempt beneficiary (such as a charity or certain political parties) 

Where the value of your estate is above £325,000, then the amount above the threshold might be liable for inheritance tax at the current rate of 40%. However, there are ways to reduce (or even avoid) inheritance tax by making gifts during your lifetime so that the value of the gift is disregarded for inheritance tax purposes. 

How much money can I give away without tax implications?

You can give up to £3,000 per tax-year as gifts. If you have not given away the full £3,000 allowance within the previous tax year then you can carry forward the balance of that allowance to the next tax year. However, you can only carry forward an allowance for one year.  

Here we outline the main exemptions from inheritance tax when making lifetime gifts and the limits and restrictions you need to be aware of. 

Gifts between spouses and civil partners

There is no limit to the amount that can be given away by one individual to another individual, as long as the person making the gift survives this by seven years. However, complications may arise if that person has made a gift to a non-individual such as a company or trust. 

Gifts made more than seven years before death

You can make an unlimited number of gifts, not exceeding £250; however, the gifts do have to be to different people. For example, you cannot make a gift of £3,000 to one person and then make a gift of £250 to that same person - if a particular person receives even £1 over the £250 limit in any tax year, then the whole £250 exemption is lost for that person. 

Small gift allowance

Gifts between spouses and civil partners are normally exempt; however, there are restrictions where one of the parties to the marriage (or civil partnership) is not resident for inheritance tax purposes within any part of the UK. I.e. you can give your spouse or civil partner as much as you like during your lifetime, as long as they live permanently in the UK. 

Normal expenditure out of Income

Habitual gifts, which are paid from your excess income and can be made without adversely affecting your standard of living, are exempt from inheritance tax. However, careful record keeping is needed, as HM Revenue & Customs will require proof that the gifts were genuinely made out of excess income if you die within seven years making the gifts.

Living costs

Payments to help with another person’s living costs, such as an elderly relative or a child under eighteen, can be exempt from inheritance tax. 

Gifts to charities and political parties

Gifts to registered charities and political parties are also exempt from inheritance tax. In the case of gifts to political parties, exemption from inheritance tax will only apply when, at the last election preceding the transfer of value, the political party had at least two MPs (or one seat) and a minimum of 150,000 votes. 

Careful planning is needed

We understand that personal tax planning is important – we know you want to look after and protect the wealth you have accumulated, and really make the most of it. If you’re looking to minimise your tax liabilities, or considering making gifts during your lifetime, then speak to a member of your local private client team. 

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

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Guides & Advice

Unmarried couples who live together: How to protect your assets

Choosing to live together before marriage is pretty much the norm in today’s society, with the number of couples choosing to cohabit on the up. Although it can provide a financially practical option, many couples fail to recognise the lack of protection of their assets if they separate.

There is a common misconception that cohabiting couples are protected by “common law”, giving them the same legal rights as married couples or those in a civil partnership. However, this is not the case - there is no such thing as cohabitation law and there is actually very little legal protection when dealing with a relationship breakdown. Read more about how you can resolve disputes that may arise using mediation, collaboration or arbitration. 

However, there are ways you can protect your assets in the event that the relationship endsThis is particularly crucial if children are involved, as protecting your wealth will provide security and help safeguard their future.  Although this may be an uncomfortable thought (after all, no one wants to plan for the breakdown of a relationship!), it is important to consider all eventualities and arrange legal protection if something was to go wrong, giving you both peace of mind. 

Cohabitation agreements

To avoid unwanted conflict further down the line, drawing up cohabitation agreement (or a ‘living together agreement’ as it is sometimes referred to as) should be the top priority for all unmarried couples that are planning to move in together. As there is no such thing as cohabitation law, cohabiting couples have very few legal rights compared to married couples and therefore a cohabitation agreement provides a level of legal protection and security for both parties in the relationship.  

It is essentially a contract between a couple that neatly sets out which assets are joint assets, and which are separate. It also outlines what will happen to those assets in the event of a break-up, i.e. if you moved into a property already owned by your partner and then you both live there for a number of years and have children together, does this become a joint asset?  

Read more about the benefits of cohabitation agreements, what can, and should, be included and how they can provide you with legal protection if your relationship ends. Our helpful FAQs on cohabitation agreements also address common questions and misconceptions around living together, but not being married. 

In order for a cohabitation agreement to be legally binding, it will need to be drawn up by a lawyer – you cannot just create your own and sign it. Once everything is agreed, the contract must be signed and witnessed by both parties in order for it to hold up in court. 

Properties in a single name

When the property is in your name only, once your partner begins to contribute towards the mortgage and renovations, then they will gain a beneficial interest in the property. The level of interest does vary depending on the extent of the contributions, but the property’s equity is no longer solely yours. 

Arguments can arise over the beneficial interest in the house of each person, as legal ownership differs from beneficial ownership. This is where living together agreements can be used to solve the dispute in a straightforward and less traumatic way. 

Planning for the future

It’s clear that cohabiting is now a normal and common occurrence, so it is essential that people know the best way to safeguard their financial interests. Although there is no legal status for cohabitation law, there are ways you can give yourself a level of legal protection. From putting in place a cohabitation agreement, to preparing a will to protect your personal wealth, we’re here to help. 

The best time to put a cohabitation agreement in place is before moving in together, but it’s never too late to set one up or seek advice if you’re feeling financially vulnerable. Our team of cohabitation lawyers will support you with reaching an agreement that works for your relationship. 

For more advice on putting a cohabitation agreement in place, speak to a member of your local family law team. 

How can we help?

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Five things to consider before giving away your home

There are many reasons why you may consider transferring your property from your name into that of a relative, such as a child or grandchild. As your home is one of the most important assets you own, it is vital that you understand the implications, as well as the benefits, in order to make an informed decision that is right for you. 

Here we highlight the top five things to consider if you are thinking about giving away your home. 

1. What are the reasons for wanting to give away your home?

If you are considering giving away your home to avoid care costs then you need to be aware of the implications - you cannot intentionally reduce your assets to avoid paying care home fees. 

If in the future you require residential care, the local authority will assess the extent of that need (i.e. for nursing or residential care) and would consider if you are eligible for financial assistance with care fees. Where your income and capital is below a certain level then you may be entitled to a contribution from the local authority to help pay for the fees.   

However, if you have reduced your capital by giving away your home, or other assets, to your children or other relatives, the local authority may disregard this transfer as a deliberate “deprivation” to avoid paying care fees. They will make an assessment on whether you were fit and healthy at the time of giving away your home and therefore could not foresee needing care and support. There is no set time limit between making the gift and needing to move into care.  

2. Are you planning to continue living in your home after you give it away?

If so, you should consider the various tax consequences for yourself and for the recipient of the asset, as transferring your home to someone else could give rise to various tax consequences for inheritance tax as well as capital gains tax. 

Inheritance Tax 

Inheritance tax may be payable on your death on assets including savings, investments and property over £325,000 (the “Nil Rate Band”). Tax is payable on the amount over this figure at 40%. 

If you give away your home during your lifetime it will still be included as part of your estate, if it was given away within seven years of your death. Read more about what other lifetime gifts are exempt from inheritance tax.

Additionally, if you transfer your home to another (such as your children), and continue to live in the property until the date of your death, HMRC may treat this as a ‘reservation of benefit’, even if the seven year period has elapsed.  This could be avoided if you pay a market rent to the new owner of the property, although this may then have income tax consequences for that individual. 

Capital gains tax

There is no capital gains tax payable on any gain (if any) when you transfer the ownership of your main residence. However, if it is a second home, capital gains tax is payable on any gain from first acquisition to when it is given away, even if no money changes hands.  

Also, if the person you transfer the property to then disposes of it in the future, then they may liable to pay taxThis is because they will acquire the property at the current market value at the time of transfer, and so any gain made on disposal may be liable to capital gains tax. Therefore, it is vital to have the property valued at the time that the gift is made. 

Read more about how personal tax planning can protect your wealth and help you and your family to make the most of it.  

3. Is there a risk of the recipient divorcing or becoming bankrupt?

If you transfer your home to a person who is married, or who later marries, your home could be made part of a financial settlement if they were then to divorce. As a result, their ex-spouse may have a legal claim on the house and could dispose of it in a way in which you do not approve.

The situation is similar if the person you transfer your house to becomes bankrupt later in life. The trustee in bankruptcy could have a claim on your home in order to sell it and satisfy various creditors - resulting in the loss of your home.

4. What happens if the recipient dies before you?

Once you have transferred your home, it no longer forms part of your estate and therefore cannot be included in your will. To ensure that you don’t lose your home if the recipient of the property dies before you, you need to ensure that you are provided for in their will. Read more about the importance of making a will. 

However, if they don’t update their will in a timely manner, and die before you, then their interest in the house will pass under their will. If they don’t have a will in place then the property will pass under the intestacy rules 

In either circumstance, the ownership of your home may pass to someone you did not intend. 

5. What happens if you ‘fall out’ with the recipient?

Many families experience conflict and discord at some point, and if you decide to transfer you home to a member of your family, complications may arise if you later have a disagreement with them. 

A gift is irrevocable and absolute. So once your home has been legally transferred to your family, you will need their consent for future dealings (for example, to transfer it back) and you may have no legal right to live there if none were agreed at the point of the initial transfer. Therefore, in certain circumstances following a disagreement, your family may be able to force you to leave your own home.  

Deciding to give away your home

If you’ve considered the benefits and implications of giving away your home and have decided that it is the right decision for you, then we can help.  

Our private client team will support you and guide you through the process of giving away your home, ensuring you protect your current wealth to provide you with a secure future. 

How can we help?

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The importance of the Pre Nup

The importance of the Pre Nup

For lots of couples the use of a prenuptial agreement (commonly referred to as a pre-nup) is there to protect assets and interests, should things go wrong in the marriage.

In the past, they have very much been thought of as the domain of the rich and famous but with blended families becoming more common, they too are becoming much more common.

The recent news that billionaire musician and producer Dr Dre and his wife Nicole Young are divorcing, has bought the issues of pre-ups into sharp focus and the thornier issue of ‘Can a pre-nup be overturned?’

The background to the case

Dr Dre and his wife, Nicola Young, entered into a prenup prior to their marriage in 1996.   The validity of the prenup is now in focus as paperwork seems to show that Dr Dre repeatedly ripped up copies of the pre-nup throughout their marriage, leading his wife to believe that the pre-nup was no longer valid.   Young is also citing that she felt threatened and intimidated into signing the agreement shortly before their marriage.

Dr Dre is reportedly worth near to 1 billion dollars so the financial fall out from the argument of pre-nup v no pre-nup is extremely significant.  Dr Dre has since confirmed the existence of the pre-nup agreement requesting that any settlement is made in accordance with it.

The situation here in the UK

The UK has been slow to recognise the importance and validity of pre-nups and it was the landmark case of Radmacher v Granatino that highlighted this.

Radmacher and Granatino had entered into a pre-nup prior to their marriage agreeing that neither party would benefit from the property of the other, on divorce.

When the couple did divorce, the pre-nup was overturned by the judge, who awarded the husband a much larger settlement than was recorded in the pre-nup because, in her view, its importance had been lessened as the husband had not received appropriate legal advice before signing it and there were now children to take into account.

The wife appealed this decision and won.  The husband took the case to the Supreme Court but the decision was upheld and he was unsuccessful.  The judge ruled that pre-nups have ‘magnetic importance’ and appropriate weight should be given to the agreement IF entered freely entered into by both parties and who fully appreciate the implications of the agreement and potential outcomes.

So, can a pre-nup be overturned in the UK, even in light of the matter of Radmacher v Granatino?

The keyword in the above case review is IF the agreement has been entered into freely and knowledgeably.  If it can be proved that this is not the case, then there are grounds for the agreement to be overturned and it will not be considered binding if:

  • Any subsequent children from the marriage are not provided for.
  • The agreement was signed under pressure or there was undue influence or if one party did not have the  legal capacity to enter into the pre-nup
  • It can be proven that one party did not fully understand what they were signing or what the implications to them would be if it was used.

Additional measures that can be taken to ensure a pre-nup is given maximum weight.

To limit the opportunities for the agreement to be reviewed or overturned it is advised that any prenuptial agreement be drawn up and entered into well in advance of the actual wedding to allow time for review, discussion and negotiation if appropriate.

Financial disclosure is also a prerequisite.  Either party found to be failing to disclose their financial situation will mean the agreement is unlikely to be given maximum weight.

Also evidence of the parties having a full understanding of the financial position of the other party will help an agreement remain watertight.

If all of the above can be proven then a pre-up, whilst still not technically legally binding, will stand up to scrutiny by a UK court and should be given decisive weight.

Contact us

Pre-nups are becoming much more common so to ensure that they work for you and your family careful and considered advice is key. For further information, please contact Stephanie Kyriacou, another member of the family team in your local office or fill out our enquiry form, and a member of our family law team will get in touch with you shortly. 

Our free legal helpline also offers bespoke guidance on a range of subjects, with a team of experts on hand for any queries relating to personal and family matters. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

The uncertainty of what’s to come as a result of the COVID-19 pandemic is understandably keeping many people awake at night but, whilst the scope of what our future may look like is still evolving, one aspect that can be controlled is putting measures and provisions in place to plan for the future and protect the wealth of you and your family. Our guide to recovery and resilience highlights the opportunities currently out there for effective wealth planning that will make a real difference.

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Conditional fee agreement (CFA) case update | Spring/Summer 2020

Conditional fee agreement (CFA) case update | Spring/Summer 2020

Here we take a look at two recent significant cases relating to the recovery of success fees for claimants acting under conditional fee agreements in 1975 Act claims.

What is a conditional fee agreement (CFA)?

Where a potential claimant may have limited funds to bring a case, but have good prospects of success, solicitors may offer to take their case on under a conditional fee agreement, commonly referred to as a CFA or a ‘no win no fee’ agreement.

When are success fees charged?

Payment of legal fees to solicitors are conditional upon their client ‘winning’ their case, and at that point, a further success fee on top of their standard fees can also be charged to the client. Success fees are often substantial and capped at 100% of the solicitor’s base fees.

Until recently, the general position was that only the claimant's base costs could be recoverable from the defendant or the deceased's estate, and not any CFA uplift charged by the claimant’s solicitors.

Example 

Under the will of A, the entire estate worth £250,000 is left to a charity.  A’s spouse, B, brings an inheritance claim against the estate of their late husband.  The charity settles the claim for £100,000 plus costs.

B’s standard costs are £30,000 but the solicitors acting for the spouse were acting on a CFA with a success fee of 50%.

The estate would therefore pay £30,000 towards B’s standard costs. However, the £15,000 success fee would come out of B’s award of £100,000 so she would receive £85,000 after payment of all the legal fees.

Bullock v Denton and Willoughby (2020) and Re H Deceased (2020) EWHC 1134 FAM

Two recent decisions by the High Court have changed this position.

In Bullock v Denton and Willoughby and Re H Deceased, the courts have awarded the successful claimants a higher sum from the estate to compensate them for the success fees charged by their legal representatives.

Bullock v Denton and Willoughby

In the recent unreported case of Bullock v Denton and Willoughby, the claimant brought a claim against the estate of the deceased as his cohabiting partner of five years. The primary defendant (the deceased’s brother) argued that the claimant was a housekeeper and not in a loving relationship with the deceased.

However, the judge found in favour of the claimant and awarded her a life interest in a sum of £140,000 to purchase a property, together with an additional £65,000 to cover her further costs such as moving fees, white goods and payment towards historic debts.

In addition, the judge also awarded the claimant a £25,000 contribution to the success fee charged by her solicitor and counsel. The judge made this award on the basis that the claimant was entitled for these costs to be taken into account when considering her financial needs as the success fee would be a future debt.

Re H Deceased

This decision was then recently applied in the family court case of Re H Deceased (2020) EWHC 1134 (Fam).

The claimant was the estranged daughter of the deceased and had not been financially maintained by her family for more than 20 years. Despite the estrangement, the judge held that the claimant’s claim for financial provision from the estate should not be precluded solely on the basis of a lack of financial maintenance from the deceased. The judge felt that the claimant was “in a position of real need” due to suffering with mental illness and awarded her appropriately to meet her current financial needs.

The judge concluded that success fees could be recovered by claimants in Inheritance Act claims.  However this case is subject to appeal.

The impact of these cases on legacy income for charities

Ultimately, the further awards given in CFA funded cases mean further significant deductions from the estate fund, and lower distributions to any other beneficiaries named in the will.

This could have a real impact on what charities receive from the estate; in our example above, some of the £15,000 success fee would be payable by the estate, in addition to the base costs, meaning the charity receives le4ss money.

The decisions in these cases are likely to encourage people who have potential claims that would have otherwise been put off paying solicitors’ fees (and certainly their success fees) to instruct solicitors and pursue their claim. This is likely to result in a general increase in will challenges and claims brought under the Inheritance Act. If this proves to be the case, charities may find themselves in a position where they are obliged to defend more Inheritance Act claims.

Hopefully the Court of Appeal will overturn the decision in Re H Deceased and make a ruling on this point that will be binding for cases going forward.

However as the appeal won’t be heard for many months, until then, these cases will be heavily relied upon by solicitors (and barristers) acting under CFAs to try to get more money from the estate.

As a charity, what can you do?

If faced with will challenges and Inheritance Act claims, it is important to continue to pursue the necessary steps to recover the legacies and assets you are entitled to from a will - particularly in the current economic climate.

It is always advisable to seek legal advice following notification of a potential claim, as early legal intervention may help to flush out any unmeritorious claims and encourage settlement of disputes out of court.

We can guide you through the process

We understand that legacy donations form an increasingly large part of charities’ income, and to have your bequests challenged can delay and reduce that much-needed income.

With a particular specialism in representing charities, our team of experts can support you in dealing with those disputes and guide you through the process - contact Andrew Wilkinson or Debra Burton in our inheritance disputes team.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

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