Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Last year, my partner gave me an expensive necklace for my birthday. We have broken up since and his financial situation has worsened because of Covid. He recently asked me to return the gift, claiming that he has a legal right to it. Do I have to hand it back to him? What if I don’t?
Hollie Foreman, family lawyer at Thomas Mansfield Solicitors, says that, put simply, the legal definition of a gift is a voluntary transfer of property from one person to another. Its ownership does not depend on the success of one’s relationship. There is no “consideration” or “intention to create legal relations”, so the transaction is not capable of fulfilling the elements of a contract either.
From the legal perspective, your ex-partner has no right to demand the necklace back and you do not have to return it. He may just be trying his luck to persuade you to releasing the jewellery to him.
However, there is also a moral side to this. Should you return this expensive item to him? If his financial situation has worsened, would it not be right to give it back, especially in these difficult times of a pandemic, where so many people’s finances have been hit hard? Would this greatly assist him and be of little loss to you?
Is this necklace his family heirloom? One could argue that if it is the case you have a greater moral duty to return it.
Another thing to consider is what do you intend to do with the jewellery should you decide to keep it? Will you wear it? Will you sell it and buy something else? Will you donate to charity? If this item will simply sit in a drawer, neither you nor your ex-partner will get any use or enjoyment from it. What do you want to achieve from this? Surely at least one of you should get the benefit.
Often when relationships break down, people do not want constant reminders of their ex-partners, especially in the form of personal items such as jewellery. However, you may really like this piece, and if you intend to wear and enjoy it, you are entitled to do so.
My life policy premiums are unaffordable
Following the advice of a financial adviser I set up a policy with Old Mutual Wealth, which would pay out to my children when I died and cover any inheritance tax. The monthly payments have steadily increased and I can no longer afford to pay them. What is the best course of action?
Victoria Rutland, chartered financial planner at EQ Investors, says that it sounds like you have a whole-of-life policy. This is a form of life insurance that would pay a lump sum to your beneficiaries in the event of your death — usually set up to pay out on second death for couples. With these policies you pay a monthly (or annual premium) from the start of the policy until you die. The proceeds were usually put into trust to ensure that the money was paid outside of probate, meaning that it would be made available quickly to settle any inheritance tax (IHT) liability.
These policies are normally reviewable or flexible whole-of-life policies. This means that the premiums tend to start low for the first 10 years and are then increased every 5-10 years of the policy. You can choose to increase the premium to maintain the original sum assured, or you can maintain the current premiums and reduce the sum assured of the policy.
Some older policies also offered a part insurance and part savings element to the premium. The idea was that you would save a pot of money in addition to paying the monthly insurance premium and the savings pot would either pay towards the cost of the premiums later in life or would enhance the sum assured.
The downside of these policies is that premiums can become unaffordable the longer you live. That said, they do offer you the option to change the cover without the need for additional medical underwriting, which is an advantage compared to taking out a new policy.
My advice is to speak to a financial planner before making a decision on this policy. Since you took out this policy, approximately 20 years ago, IHT rules have changed significantly. For example, in 2001 the nil rate band (the value of your estate that you don’t have to pay IHT on) was £242,000. This is now £325,000 each. In addition, there is the residential nil rate band, which can provide another £175,000 each. This means a couple has an allowance of £1m before any IHT is payable — assuming they pass the value of their home to their children or grandchildren and the overall estate is valued at less than £2m.
Since 2007, any unused nil rate band can also be passed to a surviving spouse. In 2001 a person’s nil rate band effectively died with them and could not be used, which could have increased your potential IHT liability.
Based on the changes to the legislation, do you still need this policy? Or do you still need the same level of sum assured? The only way to answer these questions is to recalculate your IHT liability.
There may also be alternatives to retaining the policy, such as exploring the option of gifting to your beneficiaries during your lifetime, rather than on death, thereby reducing your eventual IHT liability that way. You could also consider gifting 10 per cent or more of your estate to charity and reducing your IHT rate from 40 per cent to 36 per cent.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to firstname.lastname@example.org
Our next question
In August, my partner and I will have been together for 10 years. We built a business and have children together, but never married. We’re now going through the lengthy process of separation, with my partner arguing I do not have the right to funds created through either the house or business, which are in his name. Possibly naively, I’ve always assumed that due to being together for 10 years and having three children, I am legally entitled to my share of the business and house. We have a written, but not legally binding agreement, regarding the business. Can this be used as a valid form of financial proof for my rights?