Family property: pitfalls and protection
18 February 2019 by Matthew Wyard
Unfortunately disputes between family members over family property are on the rise and it is becoming increasingly common for such disputes to be reported in the national media. Back in October 2018 various institutions, including the BBC, reported the plight of Clive Shaw, the son of a dairy farmer in Lincolnshire who took his parents to the High Court for the right to inherit the farm upon their demise. More recently, the Daily Mail reported the dispute between BA pilot Chris Burgess and his two sisters who challenged the contents of their mother’s will suggesting that Mr Burgess should not inherit what was bequeathed to him on the basis that it was never their mother’s intention. This article considers the circumstances in which disputes can arise between family members regarding family property, what steps a family can take to protect themselves in case of relations breaking down and what steps they can take where relations do break down. Where “property” is referred to, this is property in the general sense. “Real estate” is used to define residential or commercial land. What kind of disputes arise in relation to family property By way of an insight into the types of disputes that can arise in relation to family property, the following three examples are cases that SINCLAIRSLAW has successfully conducted over the past few months alone. Firstly, was the case of D. D moved to Wales with his wife. Upon purchasing a property they decided to enter into an agreement with the wife’s mother that she would loan them a large sum of money to assist D and his wife buy a larger property and then live in the property. It was agreed between them and written up into a Declaration of Trust that should the property ever be sold, D’s mother in law would be entitled to her financial capital outlay from the proceeds. D and his wife subsequently divorced causing the mother in law to intervene in the financial remedies proceedings and seek to assert a lifetime right to reside in the property on the basis of an alleged promise made to her by D and claimed that the property could not be sold as a part of any divorce settlement. At trial, the judge considered that D had not made any promise to the mother in law that she could reside in the property for life and that she did not have a lifetime interest in the same. Secondly, was the case of H. H had sold her property that she had owned for many years following reaching an agreement with her daughter that she would loan her daughter a significant sum of money following the proceeds of the sale so that the daughter could purchase her own second property that H would then have a right to live in until she died. H sold her property and moved into her daughter’s second property. On the understanding that she would reside there for life, H paid out further significant sums of money to renovate the property and also paid rent to her daughter. Having lived in the daughter’s second property for over three years, the daughter then reneged on the agreement and sought to sell the property without returning any of the money loaned by H. This matter managed to avoid going to court and was settled through effective communication. Thirdly, was the case of A who was the executor of his father’s will. A’s parents had separated and were going through a divorce. Before the decree absolute was granted A’s father died leaving, in his will, all of his property, including real estate, to his children and new partner. A’s mother challenged the will pursuant to the Inheritance (Provision for Family and Dependents) Act 1975 on the basis that reasonable financial provision had not been made for her and that the contents of the will should be varied. The matter successfully settled at mediation. Avoiding the pitfalls associated with joint ownership and transfer of family property As can be seen from the above three examples, it is extremely easy for disputes to arise in fairly innocuous circumstances. What steps can families take to protect their assets? In relation to disputes arising under the aforementioned Inheritance Act, it is unfortunate that there is very little that can be done once a will has been prepared and therefore, the avoidance of disputes involves clear and proper advice being given at the time the will is prepared. A private client solicitor will be able to take detailed instructions from you as to your family set up, including whether you are divorced, as well as advise you on who, if anyone, would be entitled to reasonable financial provision within your will. Proper advice, if followed, should assist mitigate against any dispute arising following your death. Additionally, a carefully crafted will can prevent (insofar as possible) disputes arising in relation to the ownership of various property. The terms of the will should be certain about who is to receive what and be free from ambiguity. Further, a will can be used as a vehicle to establish a trust (company or otherwise) to hold your property on trust for a beneficiary of the settlor’s choosing. This has particular tax benefits which should be considered in detail at the pint of instruction. Where the family members wishing to transfer property are living, it is generally wise to take advice on the same as, dependent upon the type of chattel that you wish to transfer, to what extent the whole or part of the chattel is to be transferred and to whom the chattel is to be transferred, various options are open to you that, amongst other things, can have significant tax implications. If you wish to transfer real estate, various forms need to be completed and registered with the Land Registry. The type of form and the detail required differs dependent upon the type of real estate and the value of the share that you wish to transfer. Equally, if you wish to transfer shares within a family company, you need to consider your overall objectives, for instance, whether you wish for your children to take the reins and run the company or simply benefit from its financial income. Commonly, parents gift shares to their children however, a company could, amongst other things, also issue more shares to the children. Regardless of what method (and there are many) is used HMRC will be very eager to consider how this affects your children’s tax liabilities, particularly in respect of capital gains tax. Art, vehicles and other high end chattels have their own considerations that are outside the remit of this article. Regardless of the asset to be transferred or the method pursued, it should always be borne in mind what will happen if things go wrong. The key piece of advice that can be given is to make sure that all discussions held between family members, including any agreements arrived at, are reduced to writing contemporaneously to when the discussions were held or agreement reached. If this is done by your family solicitor then all the better. What can be done if it all goes wrong? Family members have a variety of options open to them should relations break down and a dispute emerge over legal rights associated with family property. Regardless of the option to be pursued, the key thing is that the matter is dealt with sensitively. All too often the instruction of lawyers heightens tension and causes even more friction between family members than before. The first option that can be considered is family mediation. This is a relatively informal process involving a meeting between all family members and their representatives that is also attended by an independent mediator. The mediator liaises with all parties separately and seeks to facilitate a settlement between the parties by acting as a go between, thereby preventing communication breaking down. Mediation is an extremely effective dispute resolution option as not only is it far more cost effective than legal proceedings, it also allows for any remedy and is not confined to those open to a court. Difficulties arise where one party becomes entrenched in their view and is not prepared to move away from, or negotiation upon, their own view point. An experienced mediator can often assist with this. The second option that can be considered is basic correspondence between the parties, outlining the relevant family members concerns and putting them in writing with a view to coming to a negotiated agreement. This has similar benefits to mediation however, is not always as effective as a face to face meeting. Additionally, dependent upon the tone and contents of the correspondence, written communication can cause more bad feeling between the parties. Where an agreement is reached, this should always be reduced to a formal written agreement. Thirdly, as a last resort, court action can be instigated. The types of court action to be taken would depend very much upon the fats of the individual cases. If, as in scenario 1 above, a family member believes that they have a lifetime right to reside in a property that has been taken away from them, they could issue proceedings for proprietary estoppel. Proprietary estoppel is a claim that allows a court to estop (i.e. prevent) one party from breaking a promise that another has relied upon to their detriment. Therefore if, as a family member, you have loaned money to another family member to purchase the property in which you are living based upon their promise to allow you to live there for the remainder of your days, you have detrimentally relied upon that promise and therefore they can be prevented from breaking it or, alternatively, can be ordered to pay you the financial equivalent. Of key importance will be any contemporaneous written evidence at the time of the alleged promise. If the promise is made in writing then it is suggested that this will be the best evidence. Alternatively, if as in scenario 2, you have inadvertently in good faith made someone wealthier because of a promise relied upon, you may be able to consider a claim for unjust enrichment. If you have financially contributed to a property that you live in and then upon the sale of the property a cohabitee or family member seeks to exclude you from the proceeds of the sale you may be able to prevent this through alleging a beneficial interest in the property that you have contributed to pursuant to the doctrine in Stack v Dowden, namely, that where a person has contributed to the property, in certain circumstances, it can be shown that the property was held on constructive trust to them. Such claims are extremely complex and should not be attempted without legal advice. SINCLAIRSLAW has a wealth of experience in disputes regarding family property arising out of inheritance, divorce and company breakdowns, and represent all clients from UHNWs seeking advice on protecting their assets, to individuals seeking to assert their rights to property that is rightfully theirs in the Chancery Division of the High Court and the County Court. If you would like to discuss any matters raised in this article then please contact Matthew Wyard, Barrister, on firstname.lastname@example.org / 02920 388 398.