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A Tangled Investment Web Causes Inheritance Migraines

Steven Barrett, 28 September 2020

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Investors look more widely to find yield in a low-rate environment, and that means their assets can be increasingly complex, illiquid and cross-border in nature. When it comes to estate planning and transfers, the rising complexity creates headaches.

One consequence of the pandemic has been a rapid shift to handling tasks online rather than using paper-based systems. As investments and the structures in which they sit become more complicated, when problems arise, it can lead to lawsuits. Greater use of international investments, and online channels can add to the headaches.  

In this article, Steven Barrett, barrister at Radcliffe Chambers, talks about how increased complexity in investments could threaten inheritance. This is a case of where investment and estate planning considerations cross over.

The editors are pleased to share these views; as ever, the usual disclaimers apply about external contributors’ views. To jump into the conversation, email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

The legacy of the financial crisis has remained with us. Interest rates across the globe are low and have remained persistently low. This has created particular pressure for high net worth individuals who need to look more widely when considering investments. 

For practitioners it has meant an increasing diversity of the types of investment which are cropping up in litigation involving individuals – from wind power production units to bitumen deposits. But this has also raised very serious concerns for their families after they have died.

The market pressure of low rates, has increasingly pushed investments in two particular ways:

-- Investors seem increasingly more willing to go online; and,

-- Investors seem increasingly willing to consider international investments 

These have caused difficulties in litigation already. They pose a further problem now for those set to inherit.

The research published in September 2020 by Direct Line found that some 88 out of 100 probate lawyers believe it is harder to track down online bank accounts following the death of an individual due to the lack of a physical bank card or bank statements. Twenty five in 100 probate lawyers say they have experienced problems themselves. 

In pre-internet times, the jurisdiction which became synonymous with secrecy was the eponymous Swiss bank account. I was fortunate enough once to deal with a case where the account information was inscribed on the inside of a gold ring.

Online banking and online investment platforms have simply amplified this problem. It is not necessary now to have a regime being actively opaque – failure by a loved one to ever mention the specific name or existence of an account is now causing real problems. 

Direct Line also found in a separate survey that two-fifths of the 2,007 people questioned did not know where a loved one held details of banking and financial information.

Both the online world and increasing interest in global investments have the same practical impact – necessary information cannot be found. Both have similar additional burdens. Independent sovereign jurisdictions each set and require their own forms and levels of identification. Online investments whether stored in a bank or inside the platform are each equally free to and do require their own levels of security.

The rise of bitcoin and other products further amplifies the issue. Bitcoin can be hard stored on any data storage device. Hard drive capacity is now found in many devices such as a telephone and even a fridge. 

This is an issue which is seemingly easily solved – simply tell a loved one, tell the beneficiary or tell your executor. The reality is, as all practitioners know, far less simple.

The government has moved with remarkable alacrity in the area modernising the remote witnessing of wills. Remotely witnessed wills had, in theory, a similar weakness in the question of who would store the video record of the signature – given that there are still, regular challenges via litigation to witnessed documents. It seems that the government is alive to these and solving them by way of amending the portal process. That process will be the gatekeeper to every will signed and witnessed in this way. 

The same seems sadly impractical for financial investments. Unless a body like the Financial Conduct Authority, the UK regulator, creates a final repository – a 21st Century Land Registry of online assets, these problems will sadly persist.

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