Latest Posts
Marcus v Marcus (2024): Trusts, Family Secrets and the Power of Intention
Overview of the Case
The Marcus v Marcus case (EWHC 2086, 2024) essentially relates to a dispute over the status of Edward Marcus as a beneficiary of a family trust created by his legal father (the deceased). The trust, settled in 2003, was established as an arrangement designed to postpone capital gains tax in relation to shares in a family company. It listed the deceased’s (or settlor’s) ‘children and remoter issue’ as discretionary beneficiaries. The dispute arose when it was revealed that Edward was not the biological son of the deceased, though he had been raised as the deceased’s son. It is worth noting that the deceased never knew this.
Jonathan Marcus, Edward’s brother, discovered this fact in 2023 after their mother had revealed it to Edward years earlier in 2010. Following a family fallout, Jonathan took steps to remove Edward as a beneficiary.
Legal Argument
Jonathan’s key argument rested on the interpretation of the term ‘children’ in the trust deed. He argued that since Edward was not biologically the settlor’s son, he should not qualify as a beneficiary. Jonathan asserted that the trust’s language implied a biological connection and that Edward’s inclusion was improper because the deceased was unaware of Edward’s true parentage at the time of settlement.
Edward, on the other hand, argued that the deceased had always treated him as his son, raising both him and Jonathan as brothers without distinction. He claimed that biological parentage was irrelevant to the settlor’s intention and that he should remain a beneficiary due to the deceased’s clear intention to provide for both sons.
Court’s Conclusion
The court rejected Jonathan’s application, maintaining Edward’s status as a beneficiary. The ruling highlighted that in trust law, the settlor’s intention is paramount when determining beneficiary eligibility. In this case, the court emphasised that the deceased had consistently treated Edward as his child and had shown no intention to exclude him based on biology. The wording of the trust, which referred to ‘children’ without specific qualifications, was interpreted in the broader context of the family dynamic, in which Edward had been accepted as part of the family unit.
The court concluded that the biological connection was irrelevant to the deceased’s intention at the time of the trust’s creation. The trust was constructed with the understanding that both brothers, Jonathan and Edward, were equal in the eyes of the deceased. Consequently, Edward remained a discretionary beneficiary, and Jonathan’s attempt to remove him was denied.
Key Takeaways
- Settlor’s intent is crucial and the courts will look beyond strict legal definitions of family relationships to determine a settlor’s true intention, especially in cases where family dynamics are more complex;
- Clear definitions in trusts to avoid future disputes, and the use of clear and precise language when defining terms like ‘children’ or ‘issue’. Where non-biological relationships are involved, explicit wording should clarify the settlor’s wishes; and
- Being aware of the potential for family disputes, although in this case matters were complicated by the settlor’s ignorance as to biological status. However, generally speaking, trusts involving non-traditional family structures or unresolved familial tensions can give rise to disputes and advice should be sought to overcome any perceived or future challenges.
This case ultimately highlights the importance of considering family dynamics and the settlor’s intention in trust law, particularly where biological connections do not reflect the family unit’s reality.
For Private Wealth & Tax advice and services, please contact Ben Rosen via our contact form below.
Tourist Today, UK Taxpayer Tomorrow?
A UK Standard Visitor Visa typically permits individuals to stay in the UK for up to six months at a time, and it is often mistakenly assumed, that you will therefore not become UK tax resident as long as you do not exceed this period. This common error arises because many countries, such as the UAE, have straightforward day count thresholds for becoming a tax resident, leading individuals to incorrectly apply the same criteria to the UK.
However, this approach is unlikely to be sufficient for those who visit the UK frequently; commonly because they have acquired property in the UK and spend extended periods visiting, and/or have children who attend school in the UK.
Visitors should approach this exercise cautiously as the implications of becoming UK tax resident are potentially substantial, by inadvertently bringing non-UK source income and gains into the UK tax net.
Statutory Residence Test
The UK’s test for determining tax residence is set out in the Statutory Residence Test (SRT) which conclusively determines whether an individual is UK tax resident in any given tax year.
It is primarily based on physical presence in the UK and does not consider any test of habitual residence (generally, this is a test which determines the country in which an individual has established the centre of their personal and professional life, for legal purposes) or the intention of the individual, when determining whether they become UK tax resident.
The well-advised visitor may be aware that the number of days they may spend in the UK without becoming tax resident, can be affected by the number of connections they have to the UK. Under the SRT, these connections are known as ‘ties’ which are as follows:
- Family tie;
- Accommodation tie;
- Work tie;
- 90-day tie; and
- Country tie (this tie only applies to individuals who have been a UK resident in at least one of the previous three tax years).
Each of the ties has its own set of conditions or qualifying criteria attached to them. In essence, individuals with few or no ties are more freely able to spend time in the UK without triggering UK tax residence.
In contrast, individuals who for instance own UK property, perhaps spend time working in the UK, or who in previous tax years, spent 90 days or more in the UK, will have these ties which significantly decrease the threshold number of days they may spend, without becoming UK tax resident.
An Example
Ali is a non-UK national, employed as a consultant who often works remotely. Ali has a spouse and children who reside in the UK. He also jointly owns a property in the UK with his spouse, where his family resides in. Ali has also spent over 90 days in the UK in each of previous last three tax years. Ali has not been UK tax resident in previous years.
Ali therefore has the following ties:
- 90-Day Tie: Ali has spent more than 90 days in the UK in previous tax years.
- Accommodation Tie: Ali owns a property in the UK, which is available for his use.
- Family Tie: Ali’s immediate family (spouse and children) live in the UK.
With three ties, Ali could spend up to 90 days in the UK in the current tax year without triggering UK tax residency, according to the SRT.
If Ali were to acquire a fourth tie in the same tax year, i.e. the ‘work tie’ on account of having spent the requisite amount of time working in the UK, his days would be severely limited the following tax year, to 45 days, if he wished to remain non-UK resident.
The above example shows that monitoring your UK tax residence goes beyond simple day counting, and it is important for individuals to carefully observe time spent in the UK, particularly in circumstances where they may have ties.
To discuss any of the points raised in this article, please contact Ben Rosen or fill out the form below.
The Art of Estate Planning
For many art collectors, building a collection is a lifelong endeavour. Whether you collect for personal enjoyment or as an investment, your collection often becomes a significant part of your estate. It is therefore essential that collectors engage early with estate planning, to ensure that their collections pass in the way they intend, and that they are properly preserved and managed after death.
Taking Stock and Knowing Your Collection’s Worth
One of the first steps for any collector is understanding exactly what is in their collection. Maintaining a detailed inventory throughout your life will help your executors and trustees identify each item and determine its value for UK Inheritance Tax (IHT) purposes.
Knowing the value of your collection can also inform your decision as to how to transfer or gift it in the most tax-efficient way, whether during your lifetime or upon your death, and whether to individual or institutional beneficiaries.
Your inventory should be as detailed as possible, including information such as object type, images or illustrations, measurements, features, title, relevant dates and periods, and as much evidence as possible of provenance. Many auction houses and art advisers offer these services, and appointing professional valuers will assist with providing accurate and credible valuations.
If you already have advisers who are familiar with your collection, let your executors and trustees know (perhaps in a letter of wishes) who these experts are. This will help to ensure the ongoing management and preservation of your collection.
Choosing The Right Executors
Depending on the nature of your collection, it might be wise to appoint executors who have a good understanding and appreciation of art. They should be capable of coordinating appraisals, overseeing the collection’s transfer or sale, and navigating the intricacies of the art market. If your collection is held in a Will trust, you can also appoint specific trustees with the necessary expertise to manage the trust, who are separate from the general executors of your Will.
Understanding The Inheritance Tax
For IHT purposes, art, antiques, and other collectibles are treated like any other tangible asset. IHT is generally payable on estates exceeding £325,000, unless the estate is left to an exempt beneficiary, such as a spouse or civil partner, or UK charity.
Once your collection is valued for IHT purposes, this valuation is submitted to HM Revenue and Customs (HMRC) as part of the IHT account. IHT, if due, is then payable on the estate.
However, certain schemes and reliefs can reduce or exempt the IHT liability for eligible artworks, such as the ‘Acceptance in Lieu’ (AIL) scheme and the ‘Conditional Exemption Tax Incentive’ (CETI).
The AIL scheme allows those liable to IHT to pay the tax by transferring important cultural, scientific, or historic objects and archives (including artworks) to the nation. If accepted, the estate receives the open market value of the artwork, minus the IHT due, and a 25% douceur for art.
If the AIL scheme is not an option, personal representatives might consider the CETI, which exempts IHT on certain items including artworks, as long as they meet specific criteria. Under the CETI, the estate may retain such artworks provided they are accessible to the public for certain periods each year.
Leaving a Legacy
Beyond IHT concerns, if you do not specifically provide for your collection in your Will, it might end up as part of your residuary estate. This could mean your art goes to beneficiaries you did not intend to benefit or that your collection ends up being divided in complicated ways if your residuary beneficiaries are a class, for example, to your children generally.
By putting a Will in place that considers your art collection, or by setting up appropriate ownership structures, you can ensure your chosen beneficiaries inherit your collection and that it is managed and preserved properly.
Taking these steps will help secure your collection’s future, allowing it to be enjoyed and appreciated for generations to come.
To discuss any of the points raised in this article, please contact Ben Rosen or fill out the form below.