Problem solvers

Being a private client lawyer is like doing a 3D puzzle. You need to have the skill of knowing the law, of course, but it is critical to sift the information you have been given to see how what is missing, or presented obliquely, completes the picture

Jo Summers, Jurit

‘Private client is sexy again,’ says Jonathan Shankland, head of international private wealth at RadcliffesLeBrasseur. ‘We are inundated with applications from solicitors eager to train or develop their skills in this practice area.’

 

Surging interest in wealth management – encompassing wills, trusts, probate, succession planning and tax – is a far cry from private client’s image in the 1990s. Back then many magic circle and other UK firms shed private client teams as seemingly incompatible with the cut and thrust of corporate and finance. US firms, by contrast, always kept their private client teams close to their corporate capabilities.

Withers, Macfarlanes and Farrer & Co are among those that successfully blend corporate, funds and banking with a focus on services to the individual.

‘In corporate transactions for closely held or private companies, there are individuals that need to be advised of the effect on tax arrangements and other aspects of their personal affairs,’ says Duncan Bailey, head of private client at newly branded Brabners Personal, part of north-west-based Brabners. ‘It’s critical that private client practitioners are involved at an early stage.’ After all, many of the world’s most successful companies remain family-owned, including Nike, Samsung and Volkswagen.

Private client practices, whether London-based, regional or international, have weathered the storm that hit other legal sectors in recent years remarkably well, maintaining a busy pace of instruction throughout. ‘In many instances, the effect of the pandemic brought home the fact that the head of the family – who is usually elderly – may be vulnerable, prompting widescale reviews of family financial planning arrangements,’ says Jo Summers. Her wealth management and private client firm PWT Advice recently merged with Jurit to offer corporate clients guidance on the legal effects on them as individuals. Wills and letters of wishes were reviewed and revised, lasting powers of attorney (LPAs) put in place, and foundations, trusts and family investment companies were utilised to ensure effective tax planning.

‘The recent performance of private client has underscored what law firms have come to realise,’ says Bailey. ‘Although this is not a practice area that garners the headlines of corporate deals it is very much a “Steady Eddie” and a beneficial offering for the full-service law firm.’ Looking ahead to 2022, there is likely to be no let-up in instructions, while contentious probate is set to boom. Experience suggests that challenges to estates rise in times of economic constraint, as beneficiaries feel the pinch and pursue what they believe is owed.

Pros and cons of opening up

In recent years will-making and probate have opened up to a wider pool of advisers. Private client lawyers have been joined by will-makers (both regulated and unregulated), independent financial advisers and probate administration companies, while the government actively encourages individuals to make personal applications for probate and LPAs online. This has generated debate among practitioners about whether easing the process for these vital rites of passage for the public has resulted in less rigour, impacting on the vulnerable.

‘People do not have to go to a solicitor to draft a lasting power of attorney or administer probate anymore,’ says Melinda Giles, a partner at Essex firm Giles Wilson who also sits as a member of the Law Society’s Private Client Section committee. ‘Although on the one hand this provides greater accessibility to essential legal services for many, there is no doubt that the opportunities for financial abuse have increased. At the moment, the balance is off-kilter – there are not sufficient safeguards in place to protect the vulnerable from those who wish to take advantage of their assets.’

Financial abuse is defined as making improper gifts and not acting in the vulnerable person’s best interest, often coupled with emotional abuse. Usually carried out by a trusted family relation, it is often complicated by a lack of documentation and record to contradict the account of the suspected abuser, especially when the vulnerable person is suffering from a mental capacity issue such as dementia.  

‘Although a criminal matter under the Theft Act 1968 (fraud perpetuated by the abuse of position), the police often do not have the resources to prosecute, so financial abuse is infrequently pursued in the criminal courts,’ says Giles. The Court of Protection, with jurisdiction over the property, financial affairs and personal welfare of people who lack mental capacity, provides some redress. According to Kingsley Napley, financial abuse cases referred to professional deputies by the Court of Protection have escalated over recent years, with more than 3,000 investigations conducted by the Office of the Public Guardian – the supervisory body for all attorneys and deputies – in 2019/20. Over 30% of these investigations resulted in court proceedings and involved the removal of an attorney or the appointment of a professional deputy.

Any adviser or institution involved in administering personal affairs needs to ensure that they have the full picture. ‘At the moment there is a lack of education across the piece,’ says Giles. ‘Banks, for example, can deal with personal accounts in a way that is inconsistent with the legal position, paying out to people incorrectly when they shouldn’t.’

Moreover, it is not so much what the client tells you about their intentions over the divestment of their wealth and background, but what they do not. ‘Being a private client lawyer is like doing a 3D crossword puzzle,’ says Summers. ‘You need to have the skill of knowing the law, of course, but it is critical to sift the information you have been given to see how what is missing, or presented obliquely, completes the picture.’

The balance is off-kilter – there are not sufficient safeguards in place to protect the vulnerable from those who wish to take advantage of their assets

Melinda Giles, Giles Wilson

Current talking points

Virtual will-signing and witnessing

Since the Wills Act came into force in 1837 it has been established practice that for a will to be valid it has to be signed in the physical presence of two witnesses. When social distancing restrictions created difficulties in meeting these requirements, the government introduced temporary legislation in August 2020 which allowed the ‘presence’ of those making and witnessing wills to include a virtual presence via video-link as an alternative to a physical presence. ‘The question is now whether virtual will-signing is here to stay – or whether it will be revoked when the law ceases to be in force in January 2022,’ says Giles. Whatever the case, practitioners expect a rise in disputes over the validity of wills executed in this way.

Trusts Registration Service

In October 2020, as part of the UK’s implementation of the EU’s Fifth Anti-Money Laundering Directive, the Trusts Registration Service (TRS) expanded its scope, requiring many trusts with a UK nexus to register with its online service. HM Revenue & Customs’ online registration facility for registering new trusts required to do so opened on 1 September 2021. Practitioners have questioned the ‘time-consuming’ and ‘frustrating’ process – which has caught many dormant trusts – with many reporting technical difficulties with the portal. The set-up of businesses that register relevant trusts on a bulk basis is a distinct possibility to save practitioner time on a low-profit activity.

Digital assets conundrum

Many of our most valued possessions are now digitalised – from photos and music collections, to online bank accounts and cryptocurrencies. Yet many people still do not include these online assets in their will. Research by the Law Society in January 2021 indicated that just 26% of respondents knew what happens to their digital assets after they die – with only 7% ‘fully’ understanding and 19% ‘somewhat’ understanding. Of those surveyed who had a will, a startling 93% had not included any provision for digital assets.

‘Testators need to provide a comprehensive list of digital assets and a clear record of how they can be accessed through passwords when they make a will,’ says Bailey. ‘If they don’t, and executors are only aware of the paper record, these will not be declared to HMRC on the inheritance tax return.’

In its report, the Society called upon legislators to put in place clearer rules on property rights and rights of access by personal representatives. It also called on cloud providers to liaise with inheritance planning experts to resolve the problems of post-mortem account access, denial of which causes distress for grieving families. A joint report of The Society for Trust and Estate Practitioners and the Cloud Legal Project at Queen Mary University of London echoed this cri de coeur, demanding legal reform to allow families easier access to digital assets. ‘Asking about the extent of digital assets is now an essential part of the will-making process,’ says Bailey. The government has asked the Law Commission to make reform recommendations.

Potential for tax system reform

With the notion of a proposed wealth tax stayed by chancellor Rishi Sunak in January 2021, attention turned to how the government may choose to generate the revenue required to buffer its £280bn-plus Covid-19 debt. Reform of the capital taxes system has been mooted by industry commentators. ‘At the moment we are seeing clients making gifts or entering into deeds of variation to alter inheritances in anticipation of a possible substantial rise in CGT – but nothing is certain,’ says Summers. Posited scenarios range from the alignment of CGT rates (currently at main rates of 10% or 20%) with income tax rates (currently at an additional rate of 45%); substantial rises to IHT; conversely, the abolition of IHT – which is not a big fundraiser for government coffers; and changes to the seven-year rule governing lifetime gifts.

The Office of Tax Simplification produced two reports on IHT in 2018 and 2019. The first gave an overview of IHT and the administration it creates. The second focused on simplifying the design of the tax. Both reports are currently being considered by the government.

‘The capital taxes system is not easy to change,’ says Shankland. ‘It has evolved over years, with various add-ons, and any changes would have wide-ranging implications for elements such as the residence nil-rate band, the reduction in IHT for charitable giving and the interaction with the taxation of non-domiciles and excluded property trusts. A proper overhaul would take years of consultation and evaluation.’ By contrast, a rise in corporation tax is easier to administer and less problematic for a government that wants to generate money quickly.

Updating wills and trusts to reflect a more diverse society

Another talking point that practitioners may not come across every day but of which they should be aware is the reviewing of wills and trusts impacted by trans issues. Paul Maddock, senior contentious probate associate at DWF and a committee member of the Law Society’s LGBT+ Lawyers Division, explains: ‘You may have a discretionary trust that leaves certain assets to “the females in the family”, for example,’ he says. ‘A trans individual may fall outside this category, contrary to the settlor’s true intentions.’

In practice it is more common for testators to refer to beneficiaries (such as their children) by their names, in which case the gift may not fail as the beneficiary can prove that they were previously known by the name of the person in the will and are the same person. ‘If clients are benefiting a person who has changed gender, or is in the process of doing so, we would advise them to review their will,’ says Maddock.

Uncertainty over unmarried status

In addition, ‘misinformation in the press over the concept of the “common law spouse”, implying that unmarried couples gain property rights through co-habitation creates confusion, which has led to many claims under the Inheritance (Provision for Family and Dependants) Act 1975’, says Summers. ‘The UK needs an update in its laws so that unmarried couples have equal rights to those of registered (civil) partners or spouses.’

At present unmarried couples who co-habit for any period of time have no automatic entitlement to financial support from the other party when they separate, and are unable to register an interest in the property they share to prevent their ex-partner from selling their home.

At a Gazette roundtable discussion a few years ago, one attendee predicted that the role of private client lawyer would increasingly come to be recognised as akin to that of corporate counsel. For both, they argued, the complex interaction of the client’s legal needs combined with a need to take the long view of their interests in the round. Helped on by the pandemic, that similarity and its consequent attraction has got better recognition for private client departments.

Katharine Freeland is a freelance journalist