Trustees In Bankruptcy – Inheriting The Benefit

Tuesday, February 11, 2014 - 14:44

Traditionally Insolvency Practitioners have tended to regard the matrimonial home as being the likeliest source of realisations in a bankruptcy. However with the percentage of home owners having reached its peak of 69% in 2001 and steadily declining since that time, this looks set to change.

There is still a majority of owner-occupiers in the UK, but this excludes significant numbers born in the 1970s and later, who often struggle to get on the housing ladder. With property ownership concentrated amongst older generations, gifts and inheritance appear to be the obvious way in which property ownership will shift in the future.

A report published by the Institute For Fiscal Studies in December 2013 indicates that 70% of those born in the later 1970s expect to receive an inheritance as compared with only 28% of those born in the early 1940s.

It seems probable that this trend will be reflected in future bankruptcies, with the matrimonial home being replaced by wealth from the parents’ home (in whatever form, but likely to be inherited) as the main asset to target.

There are a number of misconceptions about the circumstances in which an inheritance is a bankruptcy asset. Broadly speaking, if the beneficiary of a will is made bankrupt after the person making the will has died, then whatever the beneficiary stands to inherit passes to the Trustee in Bankruptcy. If the beneficiary is already bankrupt and has not been discharged at the date of death, then his inheritance will be claimed by the Trustee in Bankruptcy as after-acquired property, and dealt with in the same way as other bankruptcy assets.

Estate planning will often incorporate Protective Trusts or Deeds of Variation, which can be intended to prevent a Trustee in Bankruptcy claiming an interest in the deceased estate; however, the Trustee has wide-ranging powers to overturn transactions that were made with the intention of putting assets out of the reach of creditors.

As this trend emerges, we at Harrisons are continually evaluating the most appropriate way to identify and maximise realisations for creditors.

We also advise individuals in financial difficulty and would recommend obtaining advice at the earliest opportunity, particularly if there are assets available. Early action and negotiation with creditors may prevent the ‘last straw’ of bankruptcy, and the significant cost that bankruptcy entails.
Should you require wish to discuss this in more detail, or are seeking advice concerning personal insolvency, please one of our directors, details of which can be found in the Team section of this website.