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Issue 16 - March 2007

Contents

Cases
Features
Articles
Press releases and consultations
Events
Discounts (how to book and claim any discounts)
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Cases

1. Benjamin v Bennett and others
Citation: BLD 2102070700
Court: Chancery Division
Judge: Richard Sheldon QC sitting as a deputy judge of the High Court
Hearing date: 19 February 2007
Summary: Probate—Grant—Application—Deceased making will in England—Deceased making will in Barbados—Claimant executrix applying for grant of probate—Whether subsequent will revoking English will

The deceased made a will in England and appointed the claimant executrix and trustee. Provision was made for the claimant to receive the residue of the deceased’s assets after payment of certain expenses. Provision was also made for the deceased’s method of burial and funeral services. The deceased then made a subsequent will in Barbados. Its heading contained the word ‘Barbados’ and began with a revocation clause stating: ‘this is the last will and testament of…hereby revoking all former wills and testamentary dispositions at anytime heretofore made by me and declaring this to be my last will and testament’. The first defendant was appointed the sole executrix. Various provisions were made for the first, second and third defendants in relation to the deceased’s moneys and property in Barbados. The Barbados will did not deal with the burial matters of the deceased. The claimant applied for a grant of probate in solemn form in order to resolve whether the English will had been revoked. Revocation of the English will would have had meant that English intestacy rules would have applied and the fourth, fifth and sixth defendants would have been equally entitled to inherit under the English intestacy rules.

The claimant contended, inter alia, that it had not been the intention of the deceased to revoke the English will. The application would be allowed. In the instant case, the claimant had satisfied the onus of proof and established that the deceased had not intended to revoke the English will by the Barbados will, and that he had intended to deal only with his property situated in Barbados by the Barbados will. The revocation clause in the Barbados will was limited to revocation to prior wills relating to assets situated in Barbados only.

Case annotations: Benjamin v Bennett and others [2007] All ER (D) 243 (Feb)
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2. Parrott v Parkin; the 'Up Yaws'
Citation: BLD 1202070572; [2007] EWHC 210 (Admlty)
Court: Queen’s Bench Division (Admiralty Court)
Judge: Aikens J
Hearing date: 8 February 2007
Summary: Admiralty—Vessel—Ownership—Claim for beneficial ownership—Vessel purchased whilst parties in relationship—Vessel in defendant’s name only—Whether claimant entitled to beneficial ownership of vessel

The parties met and formed a relationship in the early 1980s when playing in a rock band. They lived with others in a rented flat, both being unemployed at the time. In 1987, the claimant started working as a personal assistant to a marketing director but the defendant continued not to have a regular source of income. They purchased a house together in September 1991 which was registered in the sole name of the claimant. The defendant undertook numerous repairs and improvements to the house, and began a stained glass window business. By 1999, the defendant’s business had gross earnings of about £15-18,000 per year, while the claimant retained a steady income from her job. They purchased a vessel together for £52,000.

Toward the end of 2002 they sold the vessel and purchased a new one, the ‘Up Yaws’. Originally the draft bill of sale was in the name of both parties but eventually was registered in the defendant’s sole name. By late 2003, however, the relationship ended. The defendant began living on the vessel in November 2003, and although for a time he continued running his business from the house, eventually began running it from the vessel instead. The claimant brought an action seeking a declaration that the defendant held the Up Yaws on trust for her absolutely, an order for possession and an order for sale. The defendant maintained that he was entitled to the property in the vessel; alternatively, that he held a half share on a constructive trust. The issues concerned, inter alia, whether the defendant had any beneficial interest in the house, what interest each party had in the first vessel.

The court ruled: On the facts, the defendant had had a substantial beneficial interest in the house. He was also the legal owner of the first vessel. He was also the legal owner of the Up Yaws. On the evidence, the claimant had a beneficial interest in the vessel to the extent of the purchase money provided by her, which was agreed to be 55 per cent of the total purchase price, which translated into the equivalent of 64th shares of the vessel. There would be no order for possession of the vessel by the claimant, and further submissions would be required on what further orders were required.

Case annotations: Parrott v Parkin; The 'Up Yaws' [2007] All ER (D) 145 (Feb), [2007] EWHC 210 (Admlty) 
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3. Kay v Tibbs and others

Citation: BLD 0202070451
Court: Chancery Division
Judge: John Brisby QC sitting as a deputy judge of the High Court
Hearing date: 2 February 2007
Summary: Costs—Order for costs—Discretion—Discontinuance of action—Claimant agreeing to discontinue probate action—Whether court should depart from usual rule that discontinuing party should pay defendant’s costs—Civil Procedure Rules 1998, SI 1998/3132, Pt 38

The deceased died on 25 February 2004, apparently intestate. Prior to his death, he had lived with his sister, the first defendant, for many years. After his death, the first defendant started selling and transferring properties in the deceased’s name using a purported power of attorney. In particular, in October 2004, she sold a property for £485,000 (the property). In February 2005, she transferred shares in the second defendant, a company incorporated in the Isle of Man, into the name of the third defendant, a company incorporated in the British Virgin Islands. The claimant claimed to be the sole illegitimate child of the deceased. Following her discovery of the deceased’s death in February 2006, she commenced proceedings against the defendants claiming a grant of letters of administration and an account from them as executors de son tort of the deceased’s property coming into their hands. Her case was that the first defendant had concealed the deceased’s death from her and that having arranged to transfer shares held on trust for the deceased to the claimant, she had failed to do so. Thereafter, the claimant succeeded in obtaining a proprietary freezing injunction against the first defendant, restraining her from dealing in the various properties and the shares in the second defendant.

On 7 September 2006, the first defendant informed the claimant that she had found the deceased’s will, the terms of which appointed the first defendant as executrix, provided for the property to be sold and for half the proceeds of sale to be given to the claimant, with the residuary estate going to the first defendant. The first defendant offered the claimant the sum of £241,879.13, representing half the proceeds of sale of the property. The claimant took steps to investigate the validity of the will and when it appeared that the will was genuine, the claimant accepted the first defendant’s offer and a consent order was reached between the parties. The claimant applied for permission to discontinue the action, and a determination of the issue as to which party was liable for the costs of the action. The claimant submitted, inter alia, that: (i) by recovering the sums which she had, she had, in reality, succeeded in her claim, on the basis that the first defendant would not have paid her but for the litigation, and (ii) the action was brought on by the defendants due to the conduct of the first defendant in forging the power of attorney and making the relevant transfers, and concealing the deceased’s death from the claimant.

The court ruled: Pt 38 of the Civil Procedure Rules, SI 1998/3132, did not apply to a probate action and accordingly, there was no stated presumption that a discontinuing claimant should pay the costs down to the discontinuance. In those circumstances, the onus lay on the claimant seeking to discontinue to show why there should be a different order. Shortly stated, in the absence of some good reason for a different order, it could be taken that the action had been wrongly brought. Weighing all the relevant factors, the clear conclusion was that the instant case was an exceptional one which required a departure from the usual discontinuance rule in respect of costs. The justice of the case required the court to go further and to allow the claimant to recover the bulk of her costs from the first defendant, taking into consideration the argument raised by the second and third defendants that there was a possibility that the other properties disposed of by the first defendant before the deceased’s death had not been part of his estate. Giving credit to the defendants for their defence in relation to those properties, the court would order that the defendants pay two-thirds of the claimant’s costs on a standard basis, subject to a detailed assessment.

Case annotations: Spiers v English [1907] P 122; BCT Software Solutions Ltd v C Brewer and Sons Ltd [2003] All ER (D) 196 (Jul); Walker v Walker [2005] All ER (D) 277; Wylde v Culver [2006] All ER (D) 172 (Apr); Kay v Tibbs and others [2007] All ER (D) 31 (Feb) 
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4. Le Marchant and another v Denby and others
Citation: BLD 0102070402; [2007] EWHC 65 (Ch)
Court: Chancery Division
Judge: Pumfrey J
Hearing date: 31 January 2007
Summary: Trust and trustee—Powers of trustee—Power of appointment—Settlement Revocation—Whether appointment effected by deed irrevocable

On 21 October 1959, the settlor by deed settled 100,000 second preference shares in W Ltd on discretionary trust for the benefit of a class of persons consisting of his son (the first defendant) and his two daughters, together with any future children of the settlor, his remoter issue and their wives, widowers and widows. Clause 4 of the settlement conferred full discretionary powers on the trustees, including the power to make revocable appointments. In 1974, the trustees, having from time to time made resolutions relating to the manner in which the funds of the settlement were to be held, were not satisfied that the resolutions were effective and determined to confirm them, which they did by the 1974 deed.

Clause 1(a) provided: ‘The investments now comprised in Sub-Fund “A” part 1 [the A Fund] shall be held upon trust as to capital and income (including intermediate income) for [the first defendant] if he shall attain the age of sixty years and subject as aforesaid upon trust contingently for such of his children as reach the age of twenty-one years and if more than one in equal shares (subject to the provisions of clause 2 of this deed)’. Clause 2 provided: ‘The trustees or other [of] the trustees for the time being of the settlement shall have power at any time or times by deed or deeds wholly or partially to revoke or otherwise vary all or any of the trusts contained in clause 1 of this deed and to declare such other trusts (if any) as may be authorised by clause 4 of the settlement’. Thus, the appointments of the A Fund were revocable both before and after the first defendant’s attaining the age of 60, which occurred on 24 August 1994.

A deed of 1976, expressed to be a deed of partial revocation and reapppointment, was primarily concerned with Sub-Funds B and C, which had been directed by the 1974 appointment to be held on trust respectively for such of the children of the first defendant’s sisters as attained the age of 21, if more than one in equal shares. Clause 4(iii) of the 1976 deed provided: ‘Subject as aforesaid the trustees shall stand possessed of the balance of Sub-Fund B and Sub-Fund C upon the trusts and with and subject to the powers and provisions made applicable to Sub-Fund B or Sub-Fund C (as the case may be) by the joint effect of the settlement and the 1974 deed, including in particular the aforesaid power of revocation contained in clause 2 of the 1974 deed’. On 8 April 1992, before the first defendant had attained the age of 60, the then trustees executed a deed of revocation and new appointment in respect of the A Fund. They revoked the appointments made in 1974 in their entirety and established funds for the children of the first defendant’s first marriage. The remaining fund was directed to be held upon trust to pay the income thereof to the first defendant for life, with a power to appoint capital to him and subject thereto upon trust for the members of his family. The first defendant maintained that the appointment in 1974 of the fund to him contingently on attaining the age of 60 was either itself irrevocable or became irrevocable in consequence of a side effect of the 1976 appointment.

The argument proceeded upon the footing that on a proper construction of the 1976 deed, the provisions of cll 4 and 5 of the settlement ceased to be applicable to any part of the fund and, by reason of the limitation of the power to revoke and re-appoint contained in cl 2 of the 1974 deed to trusts as might be authorised by cl 4 of the settlement, cl 2 was deprived of any effect. Thus the first defendant’s contingent interest was not capable of being defeated by an exercise of the power contained in cl 2, and he became contingently absolutely entitled and had been absolutely entitled since his 60th birthday.

The court ruled: The 1976 deed did not affect the subsequent exercisability of the power to revoke contained in cl 2 of the 1974 deed. It would be remarkable if a document expressed to effect revocation and re- appointment in respect of parts of Sub-Funds B and C should also have had the effect (by virtue of the words ‘make such further provision as hereinafter appear’) of destroying the power to revoke or vary contained in cl 2 of the 1974 deed only insofar as it affected the A Fund. Clearer words than the provisions of cl 9 of the 1976 deed would be necessary. It followed from the preservation in cl 4(iii) of the 1976 deed that the contention sought to be advanced on the basis of cl 9 of that deed was not tenable. If the provisions of cll 4 and 5 of the settlement were no longer applicable to the funds, then the preservation of the power contained in cl 2 of the 1974 deed was as ineffective in relation to Sub-Funds B and C as it was in relation to Sub-Fund A. Any contention to the contrary could not be supported.

Case annotations: Le Marchant and another v Denby and others [2007] All ER (D) 291 (Jan), [2007] EWHC 65 (Ch)
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5. Irving v Revenue and Customs Commissioners
Citation: BLD 0802070532; [2007] EWHC 147 (Ch)
Court: Chancery Division
Judge: Blackburne J
Hearing date: 8 February 2007
Summary: Income tax—Pension—Retirement benefit schemes—Charge to tax in certain cases—Transfer of shares in 16 different quoted companies to funded unapproved retirement benefits scheme by taxpayer’s employer deemed to be income of taxpayer assessable under Schedule E—Whether transfer of shareholdings constituting payment of a sum—Income and Corporation Taxes Act 1988, s 595(1)

Income and Corporation Taxes Act 1988, s 595 provides: ‘Charge to tax in respect of certain sums paid by employer etc (1) Subject to the provisions of this Chapter, where, pursuant to a retirement benefits scheme, the employer in any year of assessment pays a sum with a view to the provision of any relevant benefits for any employee of that employer, then…(a) the sum paid, if not otherwise chargeable to income tax as income of the employee, shall be deemed for all purposes of the Income Tax Acts to be income of that employee for that year of assessment and assessable to tax under Schedule E’.

The taxpayer’s employer, a company of which the taxpayer was at the material time a director, decided in the third quarter of 1996 to establish a funded unapproved retirement benefits scheme (a FURBS) for the benefit of its executives. On 16 September 1996 the company executed a trust deed establishing the relevant scheme. The taxpayer was among those admitted to membership of it. The company transferred cash of £80,000 to M Ltd on 25 July 1996, having appointed M Ltd as discretionary asset managers for the company. A further £120,000 was transferred on 12 September 1996. On 8 August 1996, M Ltd acquired on behalf of the company shareholdings in 16 quoted companies. On 19 September 1996, M Ltd acquired on behalf of the company further shares in each of those 16 quoted companies. On 20 September the company contributed £1,300 to the scheme of which £1,000 was allocated to the taxpayer. On 24 September the company’s directors decided to recommend in relation to the taxpayer a pension contribution of £5,000 cash plus the transfer of a part, with an approximate value of £145,000, of the 16 shareholdings it had previously acquired. On 25 September 1996, the directors’ recommendation was accepted and, that same day, the transfer was made. The taxpayer’s tax return for the year ended 5 April 1997 contained a disclosure to the effect that a non-monetary contribution had been made to the scheme in respect of him. It was asserted that that did not create a liability to income tax.

The inspector of taxes opened an inquiry into the taxpayer’s return for that year. That culminated in the inspector’s notification to the taxpayer that he was amending the taxpayer’s self assessment for 1996-1997 to increase the Schedule E income by £145,051 in respect of the contribution of shares. That increase reflected the view of the Revenue that the transfer of the shares in the 16 quoted companies to a FURBS was to be deemed the income of the taxpayer assessable under Schedule E pursuant to s 595 of the Income and Corporation Taxes Act 1988. The Special Commissioners held that the transfer of the shareholdings constituted the payment of a sum for the purposes of s 595(1) of the 1988 Act and dismissed the taxpayer’s appeal against the amendment to his self assessment. The taxpayer appealed. The appeal would be dismissed. Viewed in the overall context of Ch 1 of Pt XIV, the words ‘pays a sum’ and similar expressions used in s 595 of the 1988 Act were not confined to payments in cash. There were two reasons for agreeing with the conclusion reached by the Special Commissioners. The first was the obvious one that, if s 595(1) was confined to cash payments, it was open to the employer to avoid the charge to tax by ensuring that the contribution was otherwise than in cash, of which the instant case was a paradigm example.

That would make the charge to tax, in effect, voluntary. Parliament could not have intended that so easy an avoidance of the charge would be available. The force of that point was not sufficiently answered by the argument that, in such circumstances, there would be a charge to tax under s 596A on all benefits coming out so that the issue was merely one of timing. Second, as accepted by the taxpayer, the expression ‘sum paid’ in s 592(4) of the 1988 Act extended to non-cash transfers. It was true that s 592(4) was concerned with deductibility, but it would seem odd that Parliament should in the space of three sections within the same Chapter have intended different meanings for the same expression. Moreover, if ‘sum paid’ as used in s 595(1) were confined to cash, but as used in s 592(4), extended to non-cash contributions, the odd consequence would be that, by force of ss 76(1) and (3) of the Finance Act 1989, the employer could deduct for the cash contribution to the scheme but, unless otherwise deductible, could not do so for the non-cash contribution.

Case annotations: Irving v Revenue and Customs Commissioners [2007] All ER (D) 105 (Feb) 

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Features

1. Anna Nicole Smith's death raises questions of inheritance rights
The premature death of actress Anna Nicole Smith, who was in the throes of legal actions regarding her past business interest TrimSpa Inc and the estate of her late husband J Howard Marshall II regarding the £240 million claim, gives uncertainty to potential inheritance by her beneficiaries. This presumes that she made a valid will. Added to this is the uncertainty over her marriage being legally recognised and the disputed paternity of her daughter who may potentially benefit from her estate.

A US domiciled citizen has a potential maximum estate tax of 45 per cent but a US citizen’s spouse may receive unlimited marital transfers free of estate tax after debts, losses and funeral/ administrative expenses, which in this case could be substantial. However, under the Uniform Probate Code where there is no valid will and the individual dies intestate, then the rules become complicated with the spouse obtaining one half of the community property and where the surviving spouse is the father of the child(ren) he receives the entire intestate estate, but if there was no recognised marriage certificate then the estate would go to the deceased’s descendants by representation i.e. the daughter with, as a consequence, a potentially large US estate tax bill. Jon Golding says: “It is uncertain what the actual situation in this case is, but it is a lesson to all of us that we must die ‘tidily’; that is to ensure that a valid will is in place, paternity issues are resolved and the estate tax implications of our inaction is clear.”

In the UK such a similar situation would also bring problems. In the case where a valid will has been made and registered under section 9 of the Wills Act 1837, then notwithstanding any invalid execution of the will, the beneficiaries named will benefit after debts, losses, and funeral/ administrative expenses. On intestacy, a surviving spouse is entitled to the grant of letters of administration in priority to all others and will receive all personal chattels, £125,000 absolutely and a life interest in one half of the residue. The issue will receive one half of the residue plus the other half of residue on the death of the parent (see section 49(1)(a) of Administration of Estates Act 1925). Where a child’s parents were married at the time of the birth then both parents have responsibility of the child under section 2 of the Children Act 1989. But where they are not married the child’s father may obtain parental responsibility by applying to the court for an order for responsibility or by the mother and father having agreed that the father shall have responsibility and the registering of that same agreement. Alternatively, the court may appoint an individual to be a guardian of the child.

In these cases the surviving spouse’s benefit by reason of will or intestacy will be exempt from IHT under section 18 of the Inheritance Tax Act 1984, whereas the benefit by the issue will be chargeable to IHT at 40 per cent after any available nil rate band.

(16/02/2007)
Legal News Analysis
For a free trial and discount offers contact assoc.legalupdater@lexisnexis.co.uk 
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2. Recent case questions meaning of “undue influence” 
In a current case in the High Court, Sir Richard Cox-Johnson, aged 70, wrote the will just before he died and left £2.6 million of assets to his second wife, Lady Caroline, but three of his sons want a judge to uphold an earlier will in which their stepmother should receive the £1.5 million family home near Stroud, while they should share his net estate, including £6.6 million of offshore assets.
The court was told that Sir Richard, a former managing director of the private bank Leopold Joseph & Co, was so badly affected by the disease in the months before his death in 2005 that he lacked the capacity to make a legally binding will. Jonathan Arkush, representing the three sons, said a solicitor had been instructed as to Sir Richard's wishes on the basis of a short interview in which Lady Caroline relayed the instructions because her husband could not do so. She was the principal beneficiary and the solicitor had to confirm Sir Richard's wishes by asking him "closed, ie, leading, questions''.

The question arises what constitutes “undue influence” in a case such as this? Normally, anyone over 18 years can make a will provided they have the intention to make a will and have the mental capacity to do so. That person must be able to do those to things without coercion or undue influence from other people. Interestingly the law does not presume that eccentricity is the same as incapacity so that a capricious testator or testatrix may leave their entire estate to the “cat’s home” which might be viewed by close relatives as lacking mental capacity. Mental capacity has in the past been defined in Den v Vancleve [1819] 2 Southard 589 where the testator must have “…a sound disposing mind and memory.”

Even where a testator has mental capacity, the making of the will must be free from coercion by others and must be done without undue influence. Undue influence is not persuasion as “persuasion appeals to the affections or ties of kindred, to a sentiment of gratitude for past services, or pity for future destination or the like… On the other hand, pressure of whatever character…if so exerted as to overpower the volition without convincing the judgement…will constitute undue influence, though no force is either used or threatened. In a word, a testator may be led but not driven; his will must be the offspring of his own volition and not the record of someone else's.” Hall v Hall [1868] LR 1 P&D 481. Clearly, these factors may rely on the recall of witnesses and others well after the testator’s/testatrix’s will was drawn up.

(08/02/2007)
Legal News Analysis
For a free trial and discount offers contact assoc.legalupdater@lexisnexis.co.uk
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3. Landmark ruling protects ex-wife's divorce settlement from bankrupt husband's trustees

According to Mrs Haines’ solicitor Rob Taylor of Harrison Clarke solicitors, the Worcestershire housewife divorced her husband in 2005 and, after a heavily contested hearing, was awarded a 100 per cent interest in their former matrimonial home. A few weeks after the pronouncement of the decree absolute, her former husband petitioned for his own bankruptcy.

As a consequence, Mr Haines’ entire estate then became vested in his trustees in bankruptcy, who sought to claim a 50 per cent interest in the former matrimonial home, arguing it constituted a transaction at an undervalue. However, District Judge Cooke found for Mrs Haines on the grounds that the value of her claim for a property adjustment order was equal to the value of the assets originally transferred by the divorce order. The trustees are appealing.

Mr Reed, partner in City law firm Macfarlanes’ private client department, says: “Allowing insolvency legislation to overrule divorce proceedings is bizarre. Unless there have been material factual errors or fraud, divorce orders should stand unchallenged, otherwise families are left trying to rebuild their lives with question marks hanging over them. There are already provisions to prevent bankruptcy being used as a tool to defeat the divorce rights of the spouse and it would be a sad day for the law if going bankrupt immediately after the completion of divorce proceedings became disgruntled husbands' new underhand weapon of choice.”

The Haines case deals with the interaction of divorce law with bankruptcy legislation. Reed explains that Section 39 of the Matrimonial Causes Act 1973 expressly states that the mere fact that an asset has been transferred to comply with the order of a divorce court does not mean the person has a ‘let-out’ under the bankruptcy rules designed to protect creditors from assets disappearing by sleight of hand.

He says: “Sections 339 and 340 of the 1986 Insolvency Act enable judges to overturn transactions which have been made "at an undervalue" and so-called "preferences". These cover things like gifts and purported disposals where less than market consideration is charged, as well as favouring one creditor, such as a family member, over another. There is no need to prove any intent to defraud creditors, though a finding of intent can lead to criminal penalties.”

While these are “laudable” provisions designed to protect the consumer, in the context of divorce, “their interaction with the divorce rules is verging on scandalous: if you are a divorce judge struggling in painful circumstances to split a family's assets down the middle and still leave both sides with the wherewithal to live, it cannot be satisfactory for creditors to be able to question the division after the event”. He says that the normal rule is that the bankrupt's estate is subject to a spouse's economic interest in the matrimonial home conferred by a property adjustment order on the making of a decree absolute of divorce following the 2002 case of Mountney v Treharne [2002] EWCA Civ 1174.

He points out that bankruptcy searches are usually made during financial proceedings in a divorce, while the parties are required to make declarations of solvency. He asks: “How can it be right for the order of one court, nominally in full possession of the facts, to be questioned after the event by another? Less well-off spouses already have a tough enough time before the breakdown of the marriage ensuring the recognition of any equity they may have acquired in the family home and the courts have achieved a good balance here over the years.”

(07/02/2007)
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4. Recent case highlights fact that trusteeship is for life

In the case of Jasmine Trustees Ltd and others v Wells and Hind (a firm) and another [2007] All ER (D) 112 (Jan), [2007] EWHC 38 (Ch), a settlement was constituted in 1968 as a result of which C and Mrs C, who were resident in the UK, were made trustees of that settlement but resigned and were replaced in 1982 by the Investment Bank of Ireland (IOM) Ltd (IBI) and Mr T as trustees.
Whilst the appointment was effective, the resignations were not because if they had been effective then there would have been one company and one individual, as opposed to two individuals and as trustees of a settlement within section 37(1) of the Trustee Act 1925 it states “…a trustee shall not be discharged from his trust unless there will be either a trust corporation or at least two individuals to act as trustees to perform the trust.”

Accordingly, C and his wife remained trustees at that point, which affected the validity of the acts of certain of the trustees appointed thereafter and whether the trust was onshore or not for the purposes of the capital gains tax legislation. A whole series of acts were done by the new trustees appointed after 1982 on the basis that they were the sole trustees. Other than C and Mrs C all the other persons listed as having been appointed trustees were non-resident in the UK for capital gains tax purposes. In the ineffectiveness of the resignations of C and Mrs C the court ruled the word “individual” had a natural meaning which did not include companies so C and Mrs C had not retired when they thought they had and those later trustees were trustees son tort. Whilst a trustee de son tort might be described as a trustee of trust property vested in him, it was not necessarily or naturally correct to describe him as a trustee of the settlement and as a result, in the context of the Taxation of Chargeable Gains Tax Act 1992, the actual trustees C and Mrs C were the trustees of the settlement with consequent CGT implications.

The effect of an invalid appointment of new trustees can be far reaching as in Pearce v Pearce [1856] 22 Beav 248 where a trustee denuded himself of the trust property but never actually ceased to be a trustee. On several previous occasions where insufficient care is taken in replacing UK resident trustees with offshore trustees, this has given rise to CGT liabilities exigible by HM Revenue and Customs, much to the chagrin of the ‘retired’ trustees. Jon Golding says “HMRC will of course look, with a microscope, at deeds of appointment and other documentation to ensure that all correct procedures have been followed because there may be a latent tax liability to be uncovered.” Another practical aside arising from the Jasmine case, other than appointing individuals as well as an offshore trust company to replace the retiring trustee, might be to ensure that the appointed individuals of the trust company are local to the offshore jurisdiction and not internationally mobile employees who are likely to jeopardise the residence of the trust in future years.

(30/01/2007)
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5. HMRC ponders increased reporting threshold for gifts into trusts 

According to the Financial Times (16 February 2007) and Daily Telegraph (19 February 2007), HMRC has indicated its willingness to increase the reporting threshold for gifts into trusts, from £10,000 to £200,000. Currently, transfers in any one year not exceeding £10,000 do not need to be reported on form IHT100, provided the cumulative total does not exceed £40,000 (SI 2002/1731).

These details appear to have emerged from discussions between HMRC and the Association of British Insurers. HMRC has not confirmed the proposal, but is said to have acknowledged the increased administrative burden caused by FA 2006 changes bringing interest-in-possession and accumulation and maintenance trusts within the main reporting requirements. Gifts into such trusts were previously potentially-exempt transfers. Commentators are hopeful of further announcements in the forthcoming Budget.
 
(20/02/2007)
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Articles

1. Practice trends: wills and probate
Journal name: Solicitors Journal
Author: Jean-Yves Gilg
Citation: 151 SJ 4, 105
Issue date: 26 January 2007
Summary: The article considers the effect of the forthcoming Act in relation to the current workloads of solicitors. It looks at the Co-operative Group which has announced that it will be launching a wills service to provide more than just a one-off service, but also to keep clients informed of changes in the law and whether they ought to review their wills, in addition to dealing with storage and living wills, suggesting that the Act will cause businesses to grow and become more competitive.
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2. Hazards ahead?
Journal name: Taxation
Author: Jan Ellis and Anne Morrison
Citation: Taxation, 1 February 2007, 129
Issue date: 1 February 2007
Summary: The changes introduced by FA 2006 have increased and complicated the inheritance tax charges faced by trustees, and have introduced major funding difficulties for existing trusts where trust assets are neither liquid nor income-producing. In addition to recognising when a charge arises, it is also important to consider exactly what one is required to value and how the tax charge will be funded. This article takes a look at the new tax charges within accumulation and maintenance trusts and the position within the new regime for trusts for 18 to 25-year olds.

Please note subscribers can go to LexisNexis Butterworths for further details about all the above articles. Non-subscribers can sign up for a free trial of the online service.

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Discount offers

1. How to book and claim any discounts
  • Law Society Publishing: quote “Probate Section” to receive a 20 per cent discount off all related titles (excluding directories) via Prolog at The Law Society, PO Box 99, Sudbury Suffolk CO10 2SN, telephone 0870 850 1422, fax 01787 313 995 or email lawsociety@prolog.uk.com.
  • LexisNexis Butterworths: quote “Law Society Section discount offer” when ordering via www.lexisnexis.co.uk, customer.services@lexisnexis.co.uk or 020 8662 2000.

This e-alert is not intended to provide comprehensive records of information concerning the probate sector. If you have any feedback or suggestions, please email probatesection@lawsociety.org.uk. This e-alert was created in conjunction with LexisNexis UK Legal Updater Service. For further information about any of the articles, please contact sabina.smith@lexisnexis.co.uk. The views expressed by the Legal Analysis interviewees are not necessarily those of the proprietor.

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