A common question which can arise when thinking about how to divide an estate on death is whether, and how, to take into account gifts that have been made during lifetime to the same people who are to benefit under a Will. Suzannah Lindon-Morris looks into different ways that lifetime gifts can be taken into account in a Will.
When planning how your estate is going to be divided upon your death, one of your main priorities may be a desire to achieve fairness and equality between your chosen beneficiaries. This can be more difficult to accomplish when you have already made provision for certain beneficiaries during lifetime, for example by having made lifetime gifts, or if you expect you may make such gifts in the future. You may therefore wish to address this directly in your Will.
“Hotchpot” clause
It is possible to include a flexible clause in your Will which expressly requires that, when calculating the amount that a beneficiary is due under the terms of the Will, the Executor/s must take into account lifetime gifts made to the beneficiary during your lifetime. You can specify that the clause only applies to lifetime gifts made over a certain value, which can be helpful in avoiding all lifetime gifts, however small, being brought into account. You can state that the clause is to apply to gifts made over a particular time period. It is also possible to provide instructions about how a gift should be valued, including provision for indexation to take account of future inflation, for example. Including this sort of clause can allow the Executors to take into account gifts made both before and after you sign your Will, in the manner that you wish.
Discretionary Trust Structure
Another alternative which provides even more flexibility is to make provision in your Will for your estate to be held on ‘Discretionary Trusts’, instead of to your chosen beneficiaries outright. With this structure, your Will would appoint trustees who would be responsible for deciding how the trust funds would be distributed amongst a list of potential beneficiaries. Separate instructions can be left for the trustees to consider in the form of a Letter of Wishes, which could include directions to your trustees about the lifetime gifts you would want them to take into account when distributing your estate. This could be a general request that each beneficiary receives an equal share, after taking into account any lifetime gifts that you have made. You can also include guidance on any scenarios where you might want the trustees to exercise their discretion about lifetime gifts, for example if you did not want certain gifts such as those related to education or medical costs to be brought into account, or if you wanted any inheritance tax which might be due from the beneficiary as a result of the lifetime gift to be paid from your estate. This structure would give your trustees a great deal of flexibility over the division of your estate and you could update your guidance in the Letter of Wishes over time as circumstances change, including when further lifetime gifts are made, without having to change your Will.
What if my Will makes no specific provision for lifetime gifts?
If lifetime gifts are not directly addressed in a Will, there are legal doctrines which can apply automatically in certain circumstances involving lifetime gifts and gifts in Wills. Where a parent benefits their child in their Will and, after signing the Will, subsequently makes a lifetime gift to that child, this can result in the lifetime gift being brought into account by the Executors of the estate. This would result in the benefit to the child under the Will being reduced, by relying on the ‘presumption against double portions’. This is a legal presumption under common law that a parent would not have intended one child to benefit twice, or to prefer one child over another. The presumption against double portions only applies to gifts made from a parent to a child and can be rebutted by evidence about the parent’s intention in relation to the lifetime gift. Relying on this presumption to equalise the position with lifetime gifts to children is generally not advisable as it leaves the position uncertain, which can give rise to disputes and additional legal costs.
In general, it is advisable to make intentions in relation to lifetime gifts clear and the two options above are ways you can address this.
Whichever option you choose when making your Will, it is important to keep clear records of any lifetime gifts that you do make and where possible, your reasons for making them. This will assist your Executor/s when administering your estate, not only when calculating distributions amongst beneficiaries, but also when analysing the inheritance tax position of your estate.
