Gifts to the Children – Unforeseen Consequences
Many of us like to help our children when we can, but gifts can have some unforeseen consequences. Suppose that you have taken our advice and had your Will professionally prepared. The intended distribution of your estate is not complicated. You give some small legacies, perhaps to your favourite Charities and long-standing friends. Then you direct that your assets are to be divided equally between your, say, 3 children. Not an uncommon scenario. Now, deciding that your family home is too large for you as the children have long since left, you sell the property and purchase an alternative, smaller and more convenient place to live. Over the years the family home has grown massively in value and the downsizing results in a not unsubstantial surplus. Unfortunately your health takes a turn for the worse and one of the children suggests that you come to live with them. In order to assist with the cost of some changes to child’s property that will make your stay more comfortable you make a gift from the money that you have from the sale of your house. The amount involved exceeds the cost of the necessary work, but that is something that does not trouble you. After all, if you were to go into Residential Care, the money would only disappear in Care Home fees.
This may all sound quite straightforward, but on your death the question may arise as to whether the money that you gave to your child should be taken into account when considering how your estate is to be distributed under the terms of your Will. The reason for this is that there are 2 legal doctrines that may be invoked in such a case. Indeed, a case on not dissimilar facts had to be decided by the High Court recently.
First of all there is a presumption in law against what are called “double portions”. A “portion” has been defined loosely as “a gift intended to set up a child in life or to make substantial provision for him or her”. If therefore a parent leaves a substantial part of his or her estate to a child, but then makes a significant gift to the child while still alive, if both the bequest and the gift have the characteristics of a “portion” then, in the absence of evidence to the contrary, the Law will presume that the parent only intended the child to benefit once.
In these circumstances, the second legal rule comes into play. This is called the “doctrine of ademption”. Where this applies, when the estate is distributed, the gift will be taken into account when calculating the amount that the child who received the gift is entitled to receive from the estate.
In the particular case that we mentioned above the Court decided that the money that had been given to the daughters were not actually “portions” and therefore did not need to be taken into account when their father’s estate was distributed. Whether this was what the father intended is something that no one will ever know for sure. The Court could only rely upon the evidence of others as to his intentions. What will certainly be the case is that the amount of money that was available to be divided between the children, in whatever shares, was substantially less after the court case than would have been so if the proceedings had not taken place.
The two rules of Law that we have mentioned may have their origins deep in the past, but they remain as much in force today as they ever were. However, perhaps because of their historical nature, they are not particularly well-known – even, dare we say it, by some Lawyers.
As we have pointed out the presumption against “double portions” can be overcome by evidence to the contrary. If therefore you are contemplating making a gift to a child who is also due to benefit under your Will, it is very important that you make it quite clear whether or not the gift is, in effect, an advance upon the intended inheritance, or something that is entirely separate from it. The choice is naturally yours. However, avoiding even the possibility of a dispute after you have gone is certainly well worth the relatively small expense of obtaining specialist advice.
Finally, we would mention that making such gifts may have other implications, including Inheritance Tax consequences. Yet more reason for obtaining the advice before you make the gift.