Citation: [2008] All ER (D) 264 (Oct)
Alternative Citations: [2008] EWHC 2451 (Ch)
Hearing Date: 16 October 2008
Court: Chancery Division
Judge: Blackburne J
Representation: Jonathan Ferris (instructed by Cooke Matheson) for the claimant. The defendant appeared in person.
Abstract: Will - Testamentary disposition. Chancery Division: On the evidence, the testator of two wills had lacked the necessary testamentary capacity such that the last will would not be propounded.
Keywords: Will – Testamentary disposition – Testamentary capacity – Proceedings challenging validity of will – Evidence.
Summary: The testator died on 10 October 1991. She had made wills dated 12 September 1978, 19 October 1990 and 24 October 1990. Under the 1978 will, she appointed the claimant as her executor and, after a £500 legacy to a relative, left the remainder of her estate in equal shares to the relative's children and to the claimant. By the second will, dated 19 October 1990, the testator gave the whole of her estate to the defendant, whom she appointed to be her executrix. The gift was conditional on the defendant surviving the testator by 28 days, failing which she gave the whole of her estate to the defendant's younger sister. The will was witnessed by a Mr and Mrs D. The position of Mr D's signature troubled the solicitor who had drawn up the will. In the event, a fresh engrossment of it, in identical terms, was prepared for execution, dated 24 October 1990. That will bore the signatures of two Italian brothers, G.
The claimant, as the sole executor named in the 1978 will, entered a caveat on 21 October 1991 in the testator's estate and on 4 December 1991 entered an appearance to the defendant's warning dated 26 November 1991. That was very shortly after he and the testator's family were told of the existence of the 1990 wills. In February 1993, the claimant issued the writ in the action endorsed with a statement of putting the defendant to proof that the 1990 wills had been duly executed. Alternatively, he alleged that at the time the 1990 wills had been executed, the testator had lacked testamentary capacity and had not known, or approved, of their contents. The dispute came on for trial in July 1998. The due execution of the 1990 wills was effectively conceded and the trial concentrated on the testator's testamentary capacity and the allegation of want of knowledge and approval. The judge found in the defendant's favour. The police subsequently conducted an investigation into the circumstances of the testator's death. That led to the tracing of the two G brothers from whom statements were taken. Those statements came to the attention of the claimant in the course of proceedings concerning the costs of the litigation. The claimant renewed his application for permission to appeal, on the basis of fresh evidence, against the judge's original order. The Court of Appeal subsequently set aside the judge's order (see [2005] All ER (D) 98 (Feb)) and remitted the action for retrial.
Evidence was heard, inter alia, as to the testator's confusion and short-term memory loss well before 1990, in addition to her increasing physical frailty and, as time had gone on, her diminishing mobility; and to the conduct of the defendant at the material time. Consideration was given, inter alia, as to whether the testator had lacked testamentary capacity.
The court ruled:
It was settled law that, if someone were to be mentally capable of making a will, it was essential that the testator should understand the nature of his act and its effect; should understand the extent of the property of which he was disposing; should be able to comprehend and appreciate the claims to which he should give effect, and, with a view to the latter object, that no disorder of mind should poison his affections, pervert his sense of right, or prevent the exercise of his natural faculties, that no insane delusion should influence his will in disposing of his property and bring about a disposal of it which, if his mind had been sound, would not have been made. The testator should be able to recall those (whether related or not) who might be expected to be named in his will.
However, the law did not call for a perfectly balanced mind, nor was a will to be pronounced against merely because the testator was moved by capricious, frivolous, mean or even bad motives. Where a will was rational on its face, and duly executed, the court would pronounce for it, presuming that the testator was mentally competent so that the burden rested on those alleging it to adduce evidence of the testator's unsoundness of mind. However, once there was evidence before the court which credibly called into question the testator's capacity to make a will at the tie the will had been made, the burden shifted to those who sought to propound the will to prove affirmatively, on all of the evidence, that the testator had the required mental capacity to make it (see [245]-[247] of the judgment).
On the evidence, the testator had lacked testamentary capacity when she had made the 1990 wills. That was the clear opinion of the claimant's witness, who was impressive and persuasive. Secondly, the testator's mental decline had been progressive. Thirdly, whilst the defendant's evidence suggested that the testator would have been capable of fully understanding the effect and implications of the will she had made, it fell short of an opinion that the testator had possessed all of the attributes necessary to demonstrate testamentary capacity. If, as was established on the evidence, the testator had not been able to bring to mind whom her nearest relatives were, an essential element of testamentary capacity was absent even if, had she been able to bring them to mind, she might have decided not to benefit them in any way. Moreover, on the evidence, the testator had been operating under a disease of mind which had poisoned her affections towards a relative (see [276]-[280] of the judgment).
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Legislation
Intestate Succession (Interest and Capitalisation) (Amendment) Order 2008
Jurisdiction: England; Wales
Enactment Citation: SI 2008/3162
Commencement date: 1 February 2009
Legislation Affected: SI 1977/1491 amended
Enabling Power: Administration of Estates Act 1925, section 47A(3A), (3B)
Abstract: SI 2008/3162: Capitalisation tables revised to reflect increases in life expectancy and decreases in the yields on government stocks.
Summary: Replaces the tables in the Schedule to the Intestate Succession (Interest and Capitalisation) Order 1977 with tables which have been revised to take account of increases in life expectancy and decreases in the yields on government stocks.
Amends SI 1977/1491, article 3(2) to reflect changes since 1977 in the way that the yields on UK government stocks are calculated. Medium coupon yields are no longer produced; however the yield figures for fifteen year UK government stocks are published as FTSE UK Gilt Indices on the web site of the Financial Times.
Taxes and Duties (Interest Rate) (Amendment) Regulations 2008
Citation: SI 2008/3234
Abstract: These Regulations amend the Taxes (Interest Rate) Regulations 1989 and the Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998 to reduce the time taken to change interest rates in relation to unpaid or overpaid tax or duty.
Full Text:
Made - - - - 16th December 2008
Laid before the House of Commons 17th December 2008
Coming into force - - 7th January 2009
The Treasury make the following Regulations in exercise of the powers conferred by section 178(1) to (3) of the Finance Act 1989 and section 197 of the Finance Act 1996.
Citation and commencement
1. These Regulations may be cited as the Taxes and Duties (Interest Rate) (Amendment) Regulations 2008 and shall come into force on 7th January 2009.
Amendment of the Taxes (Interest Rate) Regulations 1989
2.--(1) The Taxes (Interest Rate) Regulations 1989 are amended as follows.
(2) In regulation 2(1) (interpretation)--
(a) for the definition of "operative date" substitute-- ""operative date" means--
(a) the eleventh working day after the reference date, or
(b) where regulation 3ZA or 3BA applies--
(i) where the reference date is the first Tuesday, the day which is the Monday next following the first Tuesday, or
(ii) where the reference date is the second Tuesday, the day which is the Monday next following the second Tuesday;", and
(b) for the definition of "reference date" substitute-- ""reference date" means--
(a) the second working day following the day on which the most recent meeting of the Monetary Policy Committee of the Bank of England took place, or
(b) where regulation 3ZA or 3BA applies--
(i) the day which is the Tuesday next following the day on which that meeting took place ("the first Tuesday"), and
(ii) the day which is the Tuesday ("the second Tuesday") occurring two weeks after the first Tuesday;".
(3) After regulation 2 insert--
"Applicable rate of interest equal to zero
2A. In determining the rate of interest applicable under section 178 for any purposes mentioned in these Regulations, if the result is less than zero the rate shall be treated as zero for those purposes.".
Amendment of the Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998
3.--(1) The Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998 are amended as follows.
(2) In regulation 2(1)--
(a) in the definition of "operative day" for "sixth day of each month" substitute "eleventh working day after the reference day", and
(b) in the definition of "reference day" for "twelfth working day before the next operative day" substitute "second working day following the day on which the most recent meeting of the Monetary Policy Committee of the Bank of England took place".
(3) After regulation 2 insert--
"Applicable rate of interest equal to zero
2A. In determining the rate of interest applicable under section 197 for the purposes of any enactments referred to in these Regulations, if the result is less than zero the rate shall be treated as zero for those purposes.".
Dave Watts
Steve McCabe
Two of the Lords Commissioners for Her Majesty's Treasury
16th December 2008
Explanatory note
(This note is not part of the Order)
The Taxes (Interest Rate) Regulations 1989 specify rates of interest applicable for the purposes of the enactments specified in section 178(2) of the Finance Act 1989. The Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998 specify rates of interest applicable for the purposes of the enactments specified in section 197(2) of the Finance Act 1996.
These Regulations amend the definitions of "operative date" and "reference date" in the Taxes (Interest Rate) Regulations 1989 and the definitions of "operative day" and "reference day" in the Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998. The purpose of the amendments is to reduce the time taken to change interest rates in relation to unpaid or overpaid tax. There is no change to the timing in relation to large companies where regulation 3ZA or 3BA of the Taxes (Interest Rate) Regulations 1989 apply, but consequential amendments are made to the definitions of "operative date" and "reference date" in those cases.
These Regulations also insert a new regulation 2A in the Taxes (Interest Rate) Regulations 1989 and in the Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998 which provides that if the result of the calculation of the rate of interest under those Regulations for any purposes is less than zero, the rate shall be treated as zero for those purposes.
A full Impact Assessment has not been produced for this instrument as no impact on the private or voluntary sectors is foreseen.
Explanatory memorandum
1. This explanatory memorandum has been prepared by HM Revenue & Customs and is laid before Parliament.
2. Purpose of the instrument
2.1 These Regulations amend the Taxes (Interest Rate) Regulations 1989 (SI 1989/1297) and the Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998 (SI 1998/1461) in order to reduce the time taken to change interest rates in relation to unpaid or overpaid tax or duty.
3. Matters of special interest to the Select Committee on Statutory Instruments
None
4. Legislative Context
4.1 Rates of interest on unpaid and overpaid taxes and duties and the dates from when those rates should be applied are determined by the Taxes (Interest Rate) Regulations 1989 and the Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations1998. The legislation allows for rates to be set either directly by Statutory Instrument, or by a Board's Order.
4.2 Regulation 2(1) of the Taxes (Interest Rate) Regulations 1989 defines "operative date" and "reference date"; regulation 2(1) of the Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations1998 defines "operative day" and "reference day". The application of these provisions determines the rates of interest to be applied to unpaid and overpaid taxes and duties and the dates from which those rates should be applied.
4.3 This instrument amends the definitions of operative date and reference date and operative day and reference day to enable HMRC to apply any changes to interest rates more quickly than now from 7th January 2009.
4.4 This instrument also clarifies that if the interest rate calculated is less than zero the rate shall be treated as zero.
5. Territorial Extent and Application
This instrument applies to all of the United Kingdom.
6. European Convention on Human Rights
As the instrument is subject to negative resolution procedure and does not amend primary legislation, no statement is required.
7. Policy background
7.1 HMRC is consulting on a package of changes designed to harmonise the charging and paying of interest across all taxes and duties. As part of this work consideration was given to reducing the time taken to make changes to these interest rates following changes in the Bank of England bank rate, as announced by the Monetary Policy Committee (MPC) at its monthly meetings.
7.2 The Government has decided to bring forward the particular proposal to reduce the time lag in changing the HMRC interest rates charged and paid by HMRC, so that following any changes in the Bank of England base rate HMRC can change its rates more quickly, as appropriate.
7.4 HMRC interest rates for taxes and duties are calculated using procedures laid down in legislation. These procedures require the application of formula which because of the continuing reduction of the base rate make it possible that a rate could be calculated less than zero. So that there is no misunderstanding about HMRC's position it has been decided to make it clear that if the result is less than zero the rate shall be treated as zero.
7.3 It is intended that these changes will first take effect in January 2009, so that HMRC will be able to pass on any necessary changes as a result of the MPC's January meeting and at any subsequent meetings.
7.4 These Regulations do not change the way in which the rates used by HMRC are calculated.
8. Consultation outcome
Consultation on the changes to these Regulations was not necessary as the amendments do not significantly change the existing law about interest rate- setting and changing processes.
9. Guidance
No additional guidance is required as no significant changes have been made to the existing processes.
10. Impact
An Impact Assessment has not been prepared for this instrument because there is no impact on business, charities, voluntary bodies or the public sector.
11. Regulating small business
The legislation may apply to small business but a Small Firms Impact Test has not been undertaken because the legislation does not alter the operation of existing procedures.
12. Monitoring & review
Not appropriate.
13. Contact
Robert Horwill at HM Revenue & Customs Tel: 020 7147 2447 or e-mail: robert.horwill@hmrc.gsi.gov.uk can answer any queries regarding the instrument.
Family Provision (Intestate Succession) Order 2008
Jurisdiction: England; Wales
Enactment Citation: SI 2008/Draft
Commencement date: 1 February 2009
Legislation Affected: Administration of Estates Act 1925 amended; SI 1993/2906 superseded in relation to the estate of a person dying on or after 1 February 2009
Enabling Power: Family Provision Act 1966, section 1(1)(a)(b)
Abstract: SI 2008/Draft: Statutory legacy levels increased from £125,000 to £250,000 where the deceased leaves children and from £200,000 to £450,000 in other cases.
Summary: Increases the statutory legacy from £125,000 to £250,000 where the intestate is survived by issue, and from £200,000 to £450,000 where there is no surviving issue but the intestate is survived by certain close relatives. This is the fixed net sum payable to a surviving spouse or civil partner from the estate of a person dying intestate, that is without leaving a valid will. The statutory legacy levels were last increased in 1993. The increase will apply in relation to the estate of a person dying on or after 1 February 2009.
Non-Contentious Probate Fees (Amendment) Order 2008
Jurisdiction: England; Wales
Enactment Citation: SI 2008/2854
Commencement date: 26 November 2008
Legislation Affected: SI 2004/3120 amended
Enabling Power: Courts Act 2003, section 92
Abstract: SI 2008/2854: Non-contentious probate fees adjusted
Summary: Amends the Non-Contentious Probate Fees Order 2004. Amendments are being made, firstly, due to the introduction of primary legislation or amendments to the Civil Procedure Rules, and secondly, to remove uncertainty and confusion caused by the current fees order.
Features
Actuarial tables on intestacy updated after 32 years
As of 1 February spouses and civil partners of people who die without leaving a will ('surviving partners') are to receive more generous payments if there are sufficient assets in the deceased's estate: £250,000 (double the present level) if there are also children or £450,000 (up from £200,000) if there are no offspring. As before, if there are children the surviving partner will also receive a life interest in half the rest of the estate--with the right to elect that the capital value of this life interest be paid to them (provided that this election is made within 12 months from the date of grant of representation).
Although not part of the consultation on the amount of the statutory legacies, the multipliers for calculating the capital value are also being updated under a statutory instrument, the Intestate Succession (Interest and Capitalisation) (Amendment) Order 2008, which was laid before Parliament in December. In most cases it is expected that the surviving partner would live on the interest or other income from their life interest (together with the other assets they receive from the estate and their own assets). But if they want to receive the capital value of their life interest instead, so that they receive a lump sum straightaway, the actuarial tables can be used to find a multiplier that is applied to the part of the estate in which the life interest subsists and for which an election is being made.
The multiplier is found by using a combination of the prevailing gross yield on fixed-interest Government stock and the age and sex of the surviving partner. So, for instance, the sum paid out as capital would be more generous if the person is 70 years old than if they were 50. In the past the yield part of the calculation was set with reference to 'medium coupon' yields but these are no longer produced. Sally Spicer of Wedlake Bell's private client team thinks the change is needed. "The actuarial tables were last updated in 1977 and since then life expectancy has improved and the yields on government stock has dropped," she says. "This means that the actuarial tables are outdated." Instead of using medium coupon yields, the new tables refer to 15-year government stocks as published on the FTSE UK Gilts Indices in the Financial Times.
So, while the old tables assumed a minimum rate of 8.5% or less for the calculation, the new tables go down as low as 2.5% or less. This can make a big change to the calculation. As an example, where the surviving partner is within the 70-90 age bracket and government stock is yielding less than 4.5 per cent, the surviving partner would receive more under the old actuarial tables than they will under the new ones. The current rate for 15-year government stock is 4 %and may well continue to fall lower.
However, even though she thinks it is useful to have this mechanism in place, Mrs Spicer queries whether it will always be necessary to use them. "It is possible not to use the actuarial tables at all," she says. "If all the children are adults, they can agree the capital value for the life interest with the surviving partner. It is only where some of the children are minors or where the children and surviving partner cannot reach an agreement between them that the actuarial tables will need to be used."
But there will be a tax reason against capitalising in some situations. "There may be a tax disadvantage in making an election to capitalise the life interest from an inheritance tax perspective," she says. "There is very likely to be more inheritance tax (IHT) to pay because the value of assets passing to the surviving partner--which benefits from the spouse/ civil partner exemption for IHT purposes--is reduced." If there is no capitalisation, then the value of all the assets in the part of the estate to which the life interest relates is free from IHT because they are all deemed to belong to the surviving partner. But if the survivor capitalises all or part of the life interest, then the IHT charge on that part of the estate is recalculated and this is likely to result in the remaining uncapitalised assets being subject to IHT whereas they would have fallen under the spouse/civil partner exemption previously. So, a 65-year-old widow with children getting a 30.5 %capitalisation would receive that sum free of IHT, but if the estate is above the IHT threshold then the IHT on the remaining 69.5 %of assets that go to her children would be recalculated and an IHT liability would probably arise.
Although the actuarial tables may reflect falling yields on government stock, they also reflect longer life expectancy rates that may have a positive effect on the calculation for the surviving partner depending on the other circumstances. Life expectancy has been increasing at extraordinary rates in the last couple of decades. In the last 25 years male life expectancy at birth has gone up from 71 to 77 years and female life expectancy has gone up from 77 to 81.5.
In their own words: SI 2008/3162 Intestate Succession (Interest and Capitalisation) (Amendment) Order 2008
This Statutory Instrument has replaced the Schedule tables to the Intestate Succession (Interest and Capitalisation) Order 1977. LexisNexis asked Jon Golding, author of 'Tolley's Inheritance Tax' to comment.
Analysis
This Order replaces the tables in the Schedule to the Intestate Succession (Interest and Capitalisation) Order 1977 (SI 1977/1491) (LNB News 07/01/2009 1) with tables which have been revised to take account of increases in life expectancy and decreases in the yields on government stocks.
Article 3(2) is amended to reflect changes since 1977 in the way that the yields on UK government stocks are calculated. Medium coupon yields are no longer produced; however the yield figures for fifteen year UK government stocks are published as FTSE UK Gilt Indices on the web site of the Financial Times.
Jon Golding, author of 'Tolley's Inheritance Tax' comments on its impact:
In what circumstances will this legislation be of relevance? Where someone dies without leaving a will or has a will that is wholly or partly not valid and they are survived by a married partner or civil partner. In your view, what does this legislation highlight?
The need to have a valid will in place for married couples or those in a formalised civil partnership.
What do you think are the main effects of the Order?
To give an increased formalised inheritance to surviving married and civil partners of someone who has left no will (or the will or part of it is invalid in anyway) where there are children of the deceased and or relatives who too can benefit from the intestacy.
Are there any tax implications from this legislation? Yes a greater portion of the estate under these new intestacy rules will go to the surviving married partner/civil partner and be exempt from IHT at that stage. This may mean in cases of small or moderate estates that there will be a larger amount of transferable nil rate band for the Personal Representatives of survivor to claim on their death.
Are there any aspects of this instrument that practitioners will be happy/unhappy with?
Clearly there will be potential beneficiaries in small to moderate estates who will get a smaller share than before. Also, it does not apply to cohabiting couples where the survivor has no rights of inheritance unless assets are held in joint names.
Do you have any other views on the Instrument?
It could have perhaps been aligned to the annual nil rate band, currently £312,000, so that it increases on a regular basis. It should be remembered that the rules of intestacy in Scotland and Northern Ireland are slightly different than these of England and Wales,
Hope value is not part of the price in leasehold enfranchisement
The House of Lords ruling in the joined appeals of Earl Cadogan v Sportelli [2007] EWCA Civ 1042; and Pitts v Earl Cadogan; Earl Cadogan v Atlantic Telecasters Ltd [2007] EWCA Civ 1280, [2008] RVR 244 has seen Lord Hoffmann dissenting from the majority led by Lord Neuberger on the vexed question of whether 'hope value'--an additional sum payable in the anticipation of selling to a special purchaser in the future--should be taken into account when arriving at the price to be paid by tenants on leasehold enfranchisement under the Leasehold Reform Act 1967 (the 1967 Act), sections 9(1) and (1A).
Dowden, solicitor and a member of the Property Litigation Association, says: "The result leaves 'hope value' in place, but only in very limited circumstances. It can be taken into account where tenants of a block of flats exercise their collective right to acquire the freehold in the building under the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act). The only 'hope value' that can be taken into account is that applicable to the possibility that non-participating tenants might negotiate an extension to their leases. It applies only to the possibility of a negotiated deal--not to the exercise of any statutory right to acquire an extension."
The decision could have a negative impact for some tenants who will have to pay more for the collective purchase of their freehold.
Various statutes since 1967 had conferred on owners of long leases of houses or flats rights to 'enfranchise' by buying out, individually or collectively with other lessees, the reversionary interests, or to extend their leases for defined periods. A key feature of the statutory provisions was a process for the assessment of the price at which the reversioner's interest, or the extended lease, was to be acquired. One valuation concept was 'marriage value' and related to that was 'hope value'.
Dowden explains: "Hope value is the uplift in value that might apply where a potential purchaser thinks that, in addition to its investment value, the freehold interest carries with it the potential benefit of a possible future sale of the freehold to the present tenant or a successor in title (or indeed the acquisition of the leasehold interest), thereby enabling a release of the marriage value in the future. That marriage value is the increase in value that occurs where a tenant acquires the freehold, or where a landlord acquires the leasehold interest so that the full value of the unencumbered freehold can be unlocked. The marriage value is the additional price that would be payable by a party in a position to unlock that value, as compared with a third party buyer who would have to take the freehold subject to the leasehold interest.
"The statutory method of valuing the freehold takes into account the marriage value that is attributable to the participating leaseholders' interests, but not that attributable to the non-participating leaseholders. The majority decision of the Lords means that the possible future marriage value relating to the non-participating leaseholders' interests can be taken into account as hope value under paragraph 3 of Schedule 6 to the 1993 Act."
Justifying this exceptional treatment of Schedule 6, Lord Neuberger commented: 'It would be both arbitrary and unfair, in my judgment, if a landlord, who can recover marriage value in relation to the participating tenants' flats, could not recover hope value in respect of the non-participating tenants' flats. It would be arbitrary because, in so far as they are purchasing the reversion to non-participating tenants' leases, the participating tenants are acquiring an investment, whereas, in so far as they are purchasing the reversion to their own leases, they are acquiring greater security in their homes.' His Lordship also saw the availability of hope value in the case of non-participating tenants as a means of preventing collusive action which would artificially reduce the price payable to the landlord.
Lord Hoffmann's dissent was strident. Commenting in particular on the fine distinctions drawn by Lord Neuberger, he said: 'It seems to me that your Lordships have formed a view of what construction fairness to landlords requires and have determined to force the language of the statute to yield up such a meaning. I am less confident of what fairness requires [...] I am therefore not prepared to accept that the apparent mismatch between the inclusion of marriage value (for participating tenants only) and exclusion of hope value (for all tenants) produces such an obvious injustice as to require heroic methods of construction to avoid it. I would dismiss all the appeals.'
It is worth noting that the House of Lords dealt very shortly with the Cadogan estate's argument on human rights, Dowden says: "Cadogan's lawyers argued that the Court of Appeal's finding that hope value should be excluded be upheld, the law does not comply with Article 1 of the First Protocol to the European Convention on Human Rights and must be reinterpreted. Because the House of Lords found by a majority that the matter could be resolved by applying the ordinary principles of statutory interpretation, the Human Rights Act was not engaged."
Competence of professional trustees called to question
The competence of professional trustees is under the spotlight. Jan Miller talks to Paul Hewitt, partner, Charity Legacy and Contentious Trust and Succession Group, Withers LLP and Dan McCourt Fritz of Serle Court Chambers.
A particularly bitter recent dispute, Jones and others v Firkin-Flood and another [2008] EWHC 2417 (Ch), [2008] All ER (D) 175 (Oct) has been heavily publicised not just because of the money involved--some £14 million derived from a property and leisure portfolio--and its contested distribution between three siblings, but also because of the inadequacies of the appointed trustees, one of whom was a solicitor.
Paul Hewitt of Withers LLP says the trustees' conduct was sufficiently extraordinary for the judge to refer to "a total abdication of their duties [...] The lay trustees failed to ascertain the nature and extent of their duties and, quite shockingly, no trust accounts were ever prepared", he says. "Additionally, the trustees failed to supervise the management of the trust companies so completely that when "I" (the youngest beneficiary) decided independently to sell the trust companies in 2007 did not consider whether such a sale would be in the best interests of the beneficiaries."
The judge who ultimately directed three of the four trustees to stand down rejected a submission by the trustees' counsel that trustees should not be removed unless there is deliberate fault. "Their failure was described as not one of dishonesty or of deliberate breach but rather primarily of unfitness," Mr Hewitt says.
The judge found that the trustees were ignorant of their duties because the professional trustee failed to explain them. Mr Hewitt explains: "The judge identified Mr Jones, the professional trustee and a solicitor, whom the deceased had expected to provide appropriate advice and guidance to his lay colleagues, as being principally responsible for the trustees' collective abdication of duty." Because the three lay trustees did not know what their obligations were, most of their breaches of duty were breaches of omission rather than of commission.
Dan McCourt Fritz of Serle Court comments that trustees eager to avoid being dragged into disputes should heed the fundamental lessons that emerge from Jones v Firkin-Flood. "Clearly, trustees are less likely to be involved in litigation if they discharge their duties, and they are more likely to discharge their duties if they appreciate what they are. Lay trustees would therefore be well advised to consult the trust documents, an accessible text (eg Tolleys) and to speak to the professional advising them to gain an accurate understanding of their rights and obligations.
"Further, if lay trustees have any doubts as to the competence or adequacy of the professional trustee with whom they are working they should seek independent legal advice at the earliest possible opportunity."
Probate lawyers increasingly taking advantage of Inheritance Tax Relief
Probate lawyers have their ears to the ground when it comes to detecting changes in valuations of properties and stocks and shares. A year ago, John Murray, tax and trusts partner in Guilford-based Stevens & Bolton, was used to seeing properties go up 10 %in the nine months it typically took to sell after the death of the owner. Nowadays, the property is more likely to go down 10 per cent.
Like other lawyers operating in this field, Murray is taking regular advantage of provisions that allow the tax bill to be reduced if the eventual sales prices of land or buildings and securities are less than the IHT valuation. "The shares relief is being used left, right and centre," he says. Under the provisions the bill can be reduced for land and buildings sold within four years of the owner's dealth, and for securities sold within 12 months of the death.
"With the FTSE 100 having fallen over 40 %since its peaks at the end of last year the shares exemption is very commonly used,” he says.
He adds: "HM Revenue & Customs do look at these very carefully. It takes three to four weeks to get the refund." The property claims take slightly longer, he says. "The process to get the relief is slightly more laborious as you generally need more documentation." In one recent deal the HMRC insisted on seeing that the purchaser of the property had registered his ownership as well as seeing the contract documentation. Murray thinks that the HMRC staff working in this field are working flat out: "They have a huge amount on their plate."
Experienced practitioners will be aware of the traps in this area but some younger people may not have worked before in a time of falling share and property price. "To claim loss relief the property has got to be sold by the executors and not by the beneficiaries," he says. This means that he tends to keep the title in the name of the deceased or to transfer it to the executors but would be much less likely to transfer it to the beneficiaries. If more than one property is sold by the executors then the sums involved have to be amalgamated for the purposes of the relief calculation--even if that means including properties that were sold at a higher price than the valuation at death. And, as the HMRC outlines on its website, "you cannot withdraw a claim for relief if it proves to be disadvantageous following any subsequent sale."
According to Murray, this relief could help many families who receive legacies from an estate big enough to pay IHT. IHT is payable at 40 %on the excess of an estate over the nil-rate band, currently £312,000. The average house price has fallen £26,400 from £198,500 in September 2007 to £172,100 in September this year, according to the Halifax. If the whole of the house were in the part of the estate subject to IHT, a refund could be claimed of £10,560, based on these prices.
Until now Murray has seen few cases where there has been concern that the loss relief for properties could be lost by falling foul of the four-year deadline. This could be more of a problem in the future, especially if buyers become aware of this kind of problem and use it as a bargaining tool.
Articles
Wills and probate: stop press:
Journal Name: New Law Journal
Author: Michael Tringham
Citation: 159 NLJ 64
Issue Date: 16 January 2009
Summary: Discusses a number of recent developments in probate law. Subjects discussed include, the launch of referral services and will registries to protect against the danger of being unable to find a will, possible problems associated with the retirement of older practitioners because there is now more of an emphasis on commercial rather than private client work and problems caused in Guernsey by Norman customary law that means illegitimate children automatically have a share in property.
Keeping it safe
Journal Name: Taxation
Author: Camilla Vivian
Citation: Taxation, 15 January 2009, 32
Issue Date: 15 January 2009
Summary: Considers whether or not offshore trusts remain useful for wealth management in 2009. Discusses inheritance tax advantages, the income tax and capital gains tax benefits which have been watered down but remain. Also considers possible future changes that may increase tax revenue from non-domiciles and offshore trusts in light of the current economic downturn and the various non-tax benefits of offshore trusts.
Legal update: probate
Journal Name: Law Society Gazette
Author: Lesley King
Citation: (2008) LS Gaz, 18 Dec, 11
Issue Date: 23 December 2008
Summary: Covers bankruptcy and inheritance tax problems caused by falling values. Many practitioners are finding that falling stockmarket and land prices are causing inheritance tax (IHT) headaches for families. IHT valuations are made at the date of death so, in the current climate, families may find they are being forced to pay tax on a value that can no longer be realised. A further problem is that, once the IHT value is fixed, no account is taken of falls in value unless relief is available under the Inheritance Tax Act 1984.
Wills and probate: the right to inherit
Journal Name: New Law Journal
Author: Michael Tringham
Citation: 158 NLJ 1747
Issue Date: 15 December 2008
Summary: Assesses the increase in disputes relating to wills. Although bigger legacies are one factor--in 2007-2008 over 30,000 estates were worth more than £300,000--it's not only the amount at stake that tempts litigants. Fragmented family structures – multiple marriages and cohabitations – mean that children from a first marriage or long finished relationship can feel left out.
Exit strategies
Journal Name: Trusts and Estates Law & Tax Journal
Author: Elizabeth Neale
Citation: Trusts and Estates Law & Tax Journal, November 2008, 18
Issue Date: 1 November 2008
Summary: Trusts and Estates Law & Tax Journal, November 2008: Continues an analysis of the inheritance tax (IHT) "relevant property" regime, in the second of two articles on the subject. Considers how the risks inherent in the complexities of the relevant property regime (RPR) affect the way in which the IHT charges are calculated. The RPR is straightforward in concept.
Valiant survivors
Journal Name: Taxation
Author: Louise Somerset
Citation: Taxation, 20 November 2008, 549
Issue Date: 20 November 2008
Summary: Discusses the future of offshore trusts in light of the legislative changes made by the Finance Act 2008. Considers the limited benefits of offshore trusts for UK domiciled settlors and beneficiaries and contrasts with the greater benefits for non-UK domiciliaries. The non-tax benefits of offshore trusts are examined.
Islamic principles on adoption: Examining the impact of illegitimacy and inheritance related concerns in context of a child's right to an identity
Journal Name: International Journal of Law, Policy and the Family
Author: Shabnam Ishaque
Citation: IJLP&F 2008 22 (393)
Issue Date: 1 December 2008
Summary: Revolves around the importance of surnames and the role these play, not only in context of history and culture but also in regards to the social reality along with a sense of being for such children in their particular environment. Core values are universal and thus can provide a window into entering a dialogue with the ultimate aim of protecting the child. It should be recognized that Islamic principles are open to differing interpretations and thus can adapt through a consensus (ijma) to address the problems that did not exist in their historical context.
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