The administration of Michael Winner’s estate is proving a cautionary tale for all of us who work in this area of law.
Would it have been possible to draft his Will in such a way as to avoid the problems which have arisen?
Below we discuss the individual issues and consider whether anything different could have been done.
1. Not enough money for the widow to live on
Michael Winner’s widow, Geraldine, has been vocal in complaining the “they” have frozen his bank accounts and that she doesn’t have enough money to live on. In fact, Mr Winner’s solicitors have quite properly notified his banks of his death and they, equally properly, have frozen his accounts until they have instructions from the people to whom probate is granted. Until then, they can’t know if the money is required to pay any liabilities, or to whom the money should properly be paid.
Where the couple’s lifestyle is supported financially by one of the couple only (usually the husband) and the money is in accounts in his sole name, it is important to ensure that the wife has enough cash in her sole name to support herself until the estate is administered and she receives what has been left to her. As an alternative, the money could be in joint accounts which will pass automatically to the surviving account holder on production of the death certificate. Estates vary in the amount of time they take to sort out, but 6 months would cover most estates. In addition, the state retirement pension and any occupational pension can usually be re-directed to the surviving spouse within a couple of weeks.
2. Properties left with debts outstanding on them
According to the Daily Mail, Michael Winner’s assistant, Dinah May, has been left £300,000 and a £1.2 million flat in the Will. However, she has also been asked to pay a tax bill of £150,000 and the mortgage on the property, which is £600,000.
A typical Will will contain a number of gifts of fixed amounts of cash or specified assets – for instance, £5,000 to each grandchild, or jewellery to a daughter – but the largest gift is that of residue – ie what’s left when the liabilities of the deceased, Inheritance Tax (“IHT”) and other costs, and the fixed gifts, have been paid out. In Michael Winner’s estate, however, even the fixed gifts are substantial. Normally the residue pays all the liabilities of the estate so what’s happened here?
It is very difficult to say why Miss May has been asked to pay the tax bill of £150,000. To hazard a guess, she has been living in the flat rent-free and each month’s rent that she didn’t pay was in fact a gift from Mr Winner. Where a gift is made to an individual prior to death, usually IHT is not paid because the person making the gift (“the Donor”) hopes to survive 7 years, so that the gift will escape IHT altogether. However, if the Donor does die within 7 years and gifts above the IHT threshold were made by the Donor during his life, then the gifts are included in the estate and the appropriate proportion of the IHT payable by the estate as a whole is in fact payable by the recipient of the gift.
In respect of the mortgage, where a loan is secured on a particular asset then, unless the Donor provides to the contrary, it is the recipient of that asset who has to pay off the loan.
The usual advice to give to people in these circumstances is:
a) to warn the person receiving the gift, so that they keep 40% on one side to pay any tax which might be due – admittedly difficult in Miss May’s case; and
b) to take out life assurance at the same time as the mortgage is taken out, to cover the loan if the borrower dies while it is still outstanding. Ordinarily mortgages will not be given to people who are too ill to obtain life assurance so provided they are done at the same time this is not a problem.
3. What if there isn’t enough money to pay the gifts?
Unusually, and again according to the Daily Mail, it looks as though the largest gift in Michael Winner’s estate is not the residue but £5 million and the house which he left to his wife. The residue of his estate has been left to the Police Memorial Trust which he set up. It is thought his whole estate is worth £4.75m so what’s going to happen here?
The first thing to say is that the residue is, quite literally, what is left. If there isn’t enough money in the estate to pay the gifts of fixed amounts of cash then the residue will be reduced to nothing; the fixed amounts of cash will be reduced pro rata. For instance, if there are gifts of £2m but there is only £1m cash in the estate after all the debts have been paid then each cash gift will be reduced by half. If, as here, specific assets have been left to people, then those assets are untouched unless the other assets in the estate (which are not the subject of specific gifts) are insufficient to pay the deceased’s liabilities. If this happens, the gifts which have been specifically left to people also have to be sold off and again the gifts reduce pro rata. All the recipients are treated in the same way – the wife does not get special treatment.
Although few people have debts like Michael Winner’s, it is not uncommon for people to make cash gifts in their Wills which exceed the cash assets in their estate. Usually this is because they are thinking about what will happen when they and their spouse are both dead, rather than thinking about what will happen if their spouse survives them. In theory, therefore, the deceased’s home should be sold to pay these gifts, which can be a problem for the surviving spouse – this is an issue which an experienced practitioner should pick up. This is easily solved by making sure the cash gifts only have effect on the death of the second spouse.
It looks as though Mr Winner himself did not realise his true financial position, or not the extent of it. Accordingly, his solicitors have not been able to discuss his options properly with him. The result is that problems have arisen which could have been reduced with careful planning.
For the unfortunate women in Michael Winner’s case, talking to the Press is necessary because they need the money. It looks as though there will be sorry tales for some time to come.
Myerson Solicitors LLP provide specialist advice relating to wills, probate, probate disputes, inheritance tax planning and powers of attorney to clients in Manchester and Cheshire.