UK Trends and Developments Contributed by: Ros Bever, Claire-Marie Cornford, Helen Clarke and Ashley Hill, Irwin Mitchell
The taxation and administration of trusts in the UK is complex; “family investment companies” (FICs) are increasingly being seen as an attractive alternative and can be structured to offer a degree of protection on divorce. Companies are particularly tax-efficient due to the avoidance of IHT charges and the 45% income tax rate for trusts. They are most advanta - geous where wealth is retained in the company long- term, allowing for ongoing control where the intention is to protect wealth within the FIC. The Complexities of an Aging Society and Incapacity The number of people living with dementia was esti - mated to be 982,000 in 2024, and by 2040 this figure is expected to rise to 1.4 million. Longer living and increased incapacity brings a need for early planning and a succession strategy that works for a variety of different outcomes and circumstances. Private wealth advisers increasingly need to balance prompt advice with caution and care when dealing with fluctuating mental capacity. The inconsistency in capacity requirements, both within the UK and across different jurisdictions, creates further complexity. The Mental Capacity Act 2005 codified the law of mental incapacity in England and Wales, providing a clear definition of when a person is considered to lack men - tal capacity. It also outlines the powers of the Court of Protection over adults habitually resident outside England and Wales. In the UK, capacity is task- and time-specific. The Mental Capacity Act Code of Practice explains that a person who “lacks capacity” is one who lacks capac - ity to make a particular decision or take a particular action for themselves at the time the decision or action needs to be taken. Attorneys managing the financial affairs of others need to give significant and increasing thought to the extent to which someone affected by mental incapacity can still be involved in the decision- making. In contrast, in some jurisdictions, if a person lacks capacity, they are regarded by the law of that jurisdiction as lacking capacity for all purposes. Mental capacity tests vary by jurisdiction, with each having its own criteria for defining mental incapac - ity and different forms of “powers of representation”,
such as the lasting power of attorney. Unlike the UK, powers in other jurisdictions may be revoked in cer - tain circumstances such as incapacity, marriage or divorce, leading to uncertainty about their use. When it comes to making a valid will, a testator must have capacity both when they give instructions for the preparation of the will and at the time of signing the will. There are two tests that may be applied to determine testamentary capacity: • a common law test established by case law; and • the statutory test introduced by the Mental Capac - ity Act 2005. Although the tests would usually produce the same result, the statutory test may in some circumstances invalidate a will that would be upheld by the common law test. When the Mental Capacity Act 2005 came into force, there was confusion as to whether the common law test for testamentary capacity had been superseded by the statutory test, or whether the common law test remained valid. The courts subsequently confirmed that the historic test still applied, which states that the testator must understand: • the effect of their wishes; • the extent of the property that they are disposing of; and • the nature of the claims on them. In its recent report, the Law Commission recommend - ed aligning the test for testamentary capacity with the Mental Capacity Act 2005, replacing the existing com - mon law test with the more modern framework. A Rise in Predatory Marriages The Law Commission also proposes changes to pro - tect the vulnerable from the effects of what has come to be known in the UK as “predatory marriage”. Pred - atory marriage is the unfortunate situation that arises where a younger person marries an elderly, vulner - able person to benefit from their estate when they die. Although the term “predatory marriage” has been adopted to describe this problem, it also applies to civil partnerships.
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