A recent Scottish court decision issued just after Christmas last year has shown that tensions can arise after a death where there is no documentation in place to illuminate the nature of a lifetime payment made by the deceased. Is it a loan? Is it an advance? Is it an outright gift?
The facts of the case are that Molly Mailer made a will dated 25 February 2015. Molly died on the 2 June 2017. In her Will Molly specified the following:
- She appointed her children Suzanne and Michael to be executors
- Michael was to receive a legacy of £15,000
- Suzanne was to inherit the residue of the estate.
On the 5 December 2016 Molly made a payment of £9,950 to an account in the name of Michael’s partner to help with a house build, as the main contractor had become insolvent.
After Molly died a discussion ensued over the nature of the £9,950 payment.
- Was it a loan by Molly to be repaid to the estate by Michael/ his partner?
- Was it an advance against Michael’s legacy meaning that it would be deducted from his £15,000 legacy?
- Was it an outright gift which would have no effect on the estate as such but would reduce the size of the residue to be inherited by Suzanne?
Agreement between the parties could not be reached and the case went to court for a determination. The court decided it was an outright gift. Their reasoning was:
- Molly left no paperwork indicating that the monies had to be repaid or taken into account when distributing the estate.
- The presumption against donation was discussed. The court agreed there is such a presumption but when a payment is made “from natural affection and duty” it can be taken to be an outright gift. Molly was making the gift to help her son out “in an hour of need” and “out of a sense of natural obligation”.
So what lessons can be learned from this case?
- Make the nature of a payment and its effect on death absolutely clear.
- If it is a loan a short loan agreement should be made.
- If it is an advance this should also be set out in a document to show the agreed position.
- If it is an outright gift then record this fact in writing.
If you need help to make it certain how your estate should be passed on during life and after death please contact me Heather Warnock on 0141 552 3422 or by email at firstname.lastname@example.org and I will be delighted to assist.