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I’m getting divorced but I’m not getting on with my divorce lawyer — they don’t seem to be on top of all the finances and I’m worried I will lose out. If I change to another will this impact on my financial settlement?
Olive McCarthy, a partner at Taylor Walton solicitors, says it may seem daunting switching your divorce solicitor during one of the most stressful times in your life but if this thought has crossed your mind, your gut instinct is probably kicking in and there is likely to be a reason why you feel this way.
You should ask yourself some questions. Thinking about your current relationship with your solicitor, what is it that you are unhappy with? Is it the communication? Are you given realistic advice as to the options available to you and the resultant costs of each option? Is your case progressing as you had been advised it would? Have you been surprised by an outcome that you weren’t advised to expect? Has a court hearing gone as planned?
Sometimes the chemistry is lacking and that could be because you don’t feel your solicitor actually cares about your case. How can a solicitor demonstrate this? They should return your calls or emails promptly, be knowledgeable about your case and what matters to you, put you at ease when unexpected events arise and have a strategy. Invoices received should not be a shock. Your solicitor should be transparent with you about what your case will cost you.
Before making the change, seek a second opinion from another family solicitor. It might restore your faith in your existing representation — or be the reason you change solicitors and make a complaint.
Changing solicitors won’t impact your financial settlement and it may even secure you a better financial outcome if you are not getting the best advice. However, you will have to pay for the new person to get up to speed with your case. An experienced solicitor will be able to give you an idea during that first appointment of what it will cost to transfer your file so you can weigh up whether it’s right for you.
Hopefully you will not have cause to use a divorce solicitor more than once in your lifetime, but given how important their advice is, it’s best to have the right person in your corner from the beginning.
How can I avoid tax on gifts to my children?
I am a successful entrepreneur in my fifties, hoping to minimise the blow of inheritance tax on my assets when I die. I have been gifting my children money for their birthdays for the past five years in the hope that these will be listed as “potentially exempt transfers” when I’m gone.
As these gifts will be taxed if I do not survive seven years, for administrative ease, when should I stop gifting? How can I plan how I share my wealth in my lifetime to minimise the amount I am taxed on it?
Tom Connock, senior associate in the private client group at Taylor Wessing, says there are several reliefs and exemptions available to reduce your exposure to inheritance tax (IHT) and you have identified probably the best known — gifts known as “potentially exempt transfers” (Pets).
If you make a Pet and survive it by seven years, it will not be included in your estate on death. If you die within that period, the gift is aggregated with your estate and could be subject to IHT at 40 per cent. However, the IHT rate starts to reduce after you survive the gift by three years. Pets are not limited in value or number, so this can be a valuable exemption provided you survive seven years.
There is no prescribed “right time” to stop making these gifts. However, as you get older, the likelihood of you surviving seven years naturally decreases, and so Pets may be less attractive. You could consider taking out life insurance — for a limited term — to help cover the risk of you dying in that period and IHT becoming due.
The so-called “normal expenditure out of income” relief could be another way of passing on your wealth free of IHT, if you have surplus income from which you could make gifts. These gifts must not be made from capital savings; must form part of your normal expenditure (and follow some sort of pattern, such as monthly payments); and you should ensure you have sufficient income after making the gifts to maintain your usual standard of living.
A key benefit of such gifts is that they are not treated as Pets and so do not require survival by seven years. There is no monetary limit on these gifts, with the amount gifted depending on each individual’s circumstances. The relief needs to be claimed after your death, so you should keep clear records to assist those administering your estate.
It is important that you do not retain any benefit from any gift you have made — such as gifting a car and continuing to use it; or gifting a holiday home and continuing to stay in it. The value of the gift may otherwise remain part of your estate for IHT purposes This is irrespective of whether you survive seven years from making the gift.
Our next question
I’m a 56-year-old married man with two adult sons. My family rarely discusses financial matters, making the topic quite uncomfortable for us. My wife has suggested I take steps to write a will and establish an lasting power of attorney for the benefit of our young family and its future. Where should I start with this process? I’m hesitant about incurring significant costs, so is it feasible to handle this on my own, or should I consider seeking legal advice?
There are additional smaller exemptions which you might want to consider but these are subject to a monetary cap of some form. These include: gifts on the occasion of a marriage or civil partnership — allowing you to gift a child £5,000 free of IHT — and the annual exemption, allowing you to gift up to £3,000 each tax year free of IHT.
As a successful entrepreneur, it is worth considering whether “business property relief” (BPR) applies to any assets you wish to gift. BPR is an important potential relief for IHT on trading businesses and may provide 100 per cent relief to IHT if your assets are structured correctly.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to money@ft.com
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