‘Death – thinking the unthinkable’

Published: 23rd November 2007

It was, of course Benjamin Franklin who famously wrote 'In this World nothing is certain but death and taxes'. Obviously, we can suffer taxes without death though, unfortunately taxes have a way of tagging along with the Grim Reaper. But are taxes the big issue?

Well, in my opinion, hardly. But, let's dig deeper. The unexpected car fatality, the fatal disease, don't always happen to someone else. It is the spouse or other partner who is left to face the 'business trauma'. We will call this person 'the survivor'.

'What's there to worry about?' Many GPs will say.

'If anything happens to me it's all sorted out, it will be straight forward'. But will it?

Let's look at a not untypical scenario and do some role play.

The Practice in which you are currently a partner has three premises, one a freehold property (A) purchased 20 years ago, another leasehold (B) where there are five years unexpired and the final, also leasehold (C) with three years unexpired. In respect of A there is a small amount owing under the original mortgage. Following an unexpected partner death it becomes clear that the title to A remains in the names of the Partners who purchased A 20 years ago. Of those Partners, two have died and one is retired living with his children in Australia.

You have been contributing directly or indirectly to the mortgage. You had always understood you had a share in A but with the various 'comings and goings' of partners you are far from certain precisely what share you have but rather more importantly, what share has the deceased's partner.

The Practice has sought the advice of valuers. The valuers say that there is no legal document in existence which gives them any understanding of the basis upon which a valuation should be given. This apart the valuers require a legal opinion as to the amount of the deceased's partner's interest in A. The Practice solicitors say they cannot give a legal opinion as it is not a straight forward matter. They have no information about your practice save for the title Deeds of 20 years ago. They recommend taking Counsel's Opinion. For this they will need detailed facts and figures about what has happened over the last 20 years since the purchase.

Is this scenario entirely fictional? No!

Let's now look at the premises B and C.

The deceased partner was one of the named leasees under both leases. B is in an area which is now regarded as less desirable commercially. In contrast, C has gone the other way. The Practice had been thinking about approaching the landlord of C for greater security when the current lease expires but are unsure whether or not the landlord will be interested because C might provide a better return as an outlet for a trendy restaurant chain. The Partners are not clear whether or not they can compel a new lease and are confused about the consequences of the death of the deceased partner in all of this. The Practice accountants have said that there might be a ''ticking bomb" in respect of dilapidations. Will that be a shock for the survivor?

Common sense, time, money and patience can resolve these problems. But there is never a guarantee that these features will be present in spades!

And what about the trading accounts for the business of the Partnership? Is it necessary to have the expense of a special set of accounts drawn up to the date to the date of death? Can the last pre death accounts or the first post death accounts be used? Over what period must the deceased's Partner's estate be paid the capital account. What is the policy with regard to valuing fixtures, fittings and other equipment?

Addressing problems arising out of these types of scenarios is likely to cost many thousands of pounds in professional fees. In addition there will be the GP management time and angst. Is there another way? Any dealings with property are likely to have important legal, tax and accounting consequences. To ignore this is to store up trouble. The cost of consulting the appropriate professionals before decisions are made, will be considerably less than at the point of crisis. In the UK, traditionally, lawyers in particular are used as 'crisis" people. In the United States they used as 'crisis avoidance' people. This must be for a reason!

Perhaps there was another "certainty" which Mr Franklin didn't mention - planning! The certainty about planning is that it does pay dividends. Trust me, I'm a lawyer!

Tel: 0161 214 0500

Web: http://www.maceandjones.co.uk/