Legal rights (IHTM12221) are entitlements to fixed fractions of the moveable estate of the deceased at the date of their death. The value used is therefore normally based upon the respective values of the assets and liabilities making up the estate at the date of death, as returned for IHT purposes. However, where the estate is wound up within a reasonable time, the value actually realised, if different from the IHT value, will be used in calculating the amounts payable in legal rights.
would 2.5 years be a reasonable time ?
if the net moveable estate on death is £1m and legal rights = £500k (to be divided amongst legitim) would a £500k increase in the net moveable estate 2.5 years later be added to the £500k resulting in the legal rights funds now being worth £1m or would 50% i.e. £250k be added to the £500k making it £750k?
thanks, ***** ***** aware of interest being applicable to legal rights but thought that interest and an increase in the value of the net moveable estate as described in my previous post would be treated separately i.e interest would be added to legal rights fund in addition to any increase in value of the moveable estate
Thank you for that.
With regards ***** ***** would you agree with the quote below in that only interest at a lower rate should accrue from date of death if the executor had no funds with which to satisfy legal rights with?
(c) Legal rights in a deceased's estate. The general rule under Scots law has been that legal rights carry interest from the date of death. However, the question of entitlement to interest must be distinguished from the question of the appropriate rate of interest. Where there has been delay in payment which is not attributable to any fault on the part of the executors, it has been held that interest should not run at a rate higher than that which the funds have in fact earned.32 On the other hand, where a claim has been made, or where there is no doubt that legal rights will be claimed because the claimant has been disinherited, the courts have awarded interest at the "legal rate" (ie 5 per cent), apparently on the basis of wrongful withholding.
You mention 3%, in the above they mention 5% and from HMRC quote below they talk about "below commercial rate" and up to 7%!
Would you say that the legitim could force the executor to pay out 7%?
The rate of interest payable on legal rights (IHTM12221) has been a matter of uncertainty in the past and can still cause problems. There is no fixed rate, although the Scottish Law Commission have recommended that the rate of interest payable on legal rights should be fixed, in line with the arrangements in place regarding the prior rights financial provision which does carry a fixed rate of interest. It is accepted that the rate of interest payable is somewhat below commercial rates.
Payment of the same rate appropriate the prior rights cash provisions is considered to be acceptable which is 7% or something close to that. If a significantly higher figure is suggested as being appropriate, and the matter is material, you should refer the case to Technical.
Is TAX due on this interest?
Would you agree that interest at the higher rate shoud start acruing once funds are available to satisfy legal rights and not before?
Would you consider investing in Funds prudent? or would
Savings and notice accounts (30, 60 day notice) be more prudent?
If the latter then interest rates range from 0.01 - 1.91% GROSS per year.
Far removed from the legal rate of 8% which i believe was recently upheld in a commercial debt case.
Would you say that investing in for eg. UK 10 year Government bonds would be viewed as prudent investment with a yeld over the last 3 years ranging from 1.7-3.1% ?
Would investing in equity funds vs bond funds be viewed as prudent?
I took your advice and asked the question in your finance section.
I thought i would share the response as it was unexpected.
"If we speak from neutral angle, the executor is expected to beat atleast the capital and money market / mutual funds returns significantly. He is expected to surpass them. Taking a benchmark, it is expected that while balancing the risk and return, returns of anywhere above 14% per annum is safe and prudent as well."
As you can see 14% is what prudent investment could achieve. Considerably higher than the 3% you sugested or even the legal rate of 8%.
Is anything above 8% a rate that a court could impose on the executor?
I would think so but not sure as it does not state on the profile. Just says "Attorney and Financial Expert. Have specialization in Financial Laws.Practice experience of over 13 years"
I would imagine that an investment returning 14% would not guarantee the capital which in my opinion must be safeguarded above all.
I mentioned the rates for bonds, savings and notice accounts averaging 3% a year and the legal rate being 8%
The anser was "I am aware of this. But from my point of view, if one does not significantly surpass these average rates, there is no point in managing the money. One is better off investing in a mutual fund with mix of debt and equity with more tilt on equity.However, having said this, if one targets 14% and achieves somewhat 12% of so, even then it is excellent in all perspective."