Trust Estate

The Problem With Death And Taxes - Analysing A Recent Case

Arabella Murphy, 24 August 2021

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In succession planning, those involved in arrangements need to take into account unforseen events that might go against the plan. The author of this article considers a recent case in the UK.

When a family member dies, even the most detailed plans can be badly disrupted and flaws exposed. The author of this article, Arabella Murphy, who is founder and director of Propitious, a consultancy that examines strategic planning for global families, writes about a recent case that made the headlines. The editors are pleased to share these views and invite responses. The usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com
 

Steve Bing’s sad legacy should tell us all many things about the pitfalls of succession planning. He was a man who appeared to have it all – a very wealthy family, and success of his own in the film industry. He reportedly did not have a relationship with his two children born to former girlfriends (including Liz Hurley’s son Damian). Over the last few years, he seemed to want to change that, and won a legal battle to ensure that they would benefit from his family’s trust alongside his sister’s legitimate children.

And then he died unexpectedly.

It has been reported recently that his father has since won an appeal to overturn the decision, meaning that Steve’s illegitimate children are once again excluded from the family trust.

This, in a nutshell, is the problem with death (and sometimes taxes) – things don’t always happen in the order that people assume they will.

I’ve seen many examples of the difficulties caused when the "natural order" of death is disrupted, often the young scion of a family business dying suddenly. In one case, he hadn’t made a will at all, leaving the business majority owned (under intestacy rules) by his pre-school age children. In another instance, the business was on the eve of an amazing takeover, which fell away as there was no means of voting his shares.

This can affect many different kinds of family, as happened when a middle-aged child predeceased their extremely old mother, causing havoc with the careful inheritance tax planning the mother had already undertaken. It is natural to assume that people retire or die according to their age, but a will or succession plan or risk plan which focuses entirely on what happens when the parent, or chairman, or other senior person, leaves the stage has missed a vital point.

I’ve learnt this the hard way. Years ago, as a solicitor, I remember drafting a complex ‘waterfall’ of succession arrangements - if the chairman left office, first x, then y, then z would take his place. Some years later, to my horror, unforeseeable events meant that all of those people were unavailable when a disaster occurred. Fixing the problem was a lot harder than pre-empting it by thinking about the unthinkable.

Take the successful couple I spoke to recently, who had meticulously planned their wills on the assumption that their (adult) children would one day have children themselves. Their draftsman took this so literally that, if a child predeceased the parents, and had no offspring, there was no alternative route for the legacy - that share would go to charity. The parents were surprised by this, and naturally would prefer it to pass to their other children or grandchildren. Luckily, it wasn’t too late for them to avoid the problem.

The key to any plan - whether for succession, or anything else - is to take a moment to step back and think, “What if it does not all go the way I have planned?” A good plan is not one which sets out the steps that will be taken when certain events occur; it’s one that also creates options for what should happen if those events don’t occur, or something else entirely unexpected intervenes.

About the author
Arabella Murphy is the founder and director of Propitious (London) Ltd, a consultancy focusing on strategic planning for global families.

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