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A guide to the law and taxation of wills
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Contents... 1
The Formalities of a will.............................................. 6
The requirements of the Wills Act 1837....................................... 6
7
Inheritance Act 1975 11 Inheritance Tax (IHT) – Introduction................ 318 Basic Features................................................................................ 318 (Provision for Family and Dependants)........ 196
Age................................................................................................. 8
Jurisdiction of the Act................................................................... 196
Territorial Scope............................................................................. 319
In writing......................................................................................... 8
The nature of a claim................................................................... 198
Other Scope Issues....................................................................... 320
Execution of a will......................................................................... 14
The Role of the Court.................................................................... 199
Relationship with other Capital Taxes......................................... 321
The actions of the witnesses........................................................ 22
Classes of Claimants..................................................................... 199
Form of attestation....................................................................... 28
Matters that the court will take into account........................... 202
Who can act as a witness?......................................................... 30
The Net Estate............................................................................... 211
Privileged wills................................................................................ 30
The Act and the will draftsman................................................... 212
Incorporation of other documents by reference in the will.... 38
Wills Act 1963................................................................................. 38
8
Other Relevant Areas of Law................................. 218
Alterations, interlineations and obliterations............................. 42
A Abatement, ademption, lapse and satisfaction.................. 218
2
Testamentary Capacity............................................. 46
12 Inheritance Tax (IHT) – Exemptions and Reliefs.......................................... 322 Exemptions..................................................................................... 322 Reliefs............................................................................................. 324
Agricultural Property Relief.......................................................... 324
Business Property Relief................................................................ 333
Abatement.................................................................................... 218
Woodland Relief........................................................................... 340
Transferrable Nil Rate Band (TNRB)............................................. 344
Ademption.................................................................................... 218
Introduction................................................................................... 46
Lapse.............................................................................................. 219
The common law test of capacity............................................. 48
Satisfaction.................................................................................... 220
13 Tax & Practice.................................................................... 350
Level of comprehension.............................................................. 54
B Anti-Money Laundering/Counter Terrorism Financing.......... 222
The Mental Capacity Act 2005................................................... 56
C Civil Partnerships and Same Sex Marriage............................. 222
Interest in Possession..................................................................... 351
Time when capacity is needed.................................................. 58
D Cohabitation............................................................................. 223
Will Trusts for Testator’s Children................................................... 353
The Golden Rule............................................................................ 66
E Commorientes (those dying together)................................... 225
Family Wills - Gifts to spouse and the children........................... 366
Larke v Nugus requests................................................................. 72
F Donatio Mortis Causa................................................................ 227
Wills using Lifetime Pilot Trusts....................................................... 367
3
Undue influence & knowledge and approval...................................................................... 76
4
Basic Options................................................................................. 250
G Election...................................................................................... 230
Cohabitees – Partner and Children............................................ 369
H Forfeiture.................................................................................... 234
Disabled Person............................................................................. 370
I Funeral and the body of the testator....................................... 237
Undue influence............................................................................ 76
J Gender Recognition Act 2004.................................................. 239
14 Further Practical Tax Issues..................................... 372
Undue Influence and wills............................................................ 84
K Guardianship of minors............................................................. 240
Knowledge and Approval........................................................... 98
L Joint Ownership.......................................................................... 245
Exempt and Non-Exempt Gifts.................................................... 373
Severance..................................................................................... 248
Additional Charitable Giving Relief............................................ 374 Discretionary Will Trusts –s144 IHTA 1984...................................... 376
Revocation, Revival and Republication...... 102
Burden and Incidence................................................................. 372
Methods of severance................................................................. 249
Revocation.................................................................................... 102
Will instructions that may evidence an act of severance....... 255
Survivorship Clause - Commorientes.......................................... 379
Mental capacity and revocation............................................... 102
Post-death severance.................................................................. 259
Survivorship Clauses – Spouses.................................................... 381
s.20 Wills Act 1837.......................................................................... 103
Joint gifts in a will........................................................................... 260
By marriage or civil partnership................................................... 106
Joint wills......................................................................................... 262
15 Further Practical Tax Issues..................................... 382
Lost wills and the presumption of destruction........................... 109
M Mutual wills................................................................................ 262
Introduction................................................................................... 382
Conditional revocation................................................................ 111
N Perpetuities & Accumulations................................................. 267
Income Tax – Administration Period............................................ 382
Revocation of a privileged will.................................................... 113
O Prenuptial agreements............................................................ 270
Income Tax – Ongoing Trusts....................................................... 383
Destruction of revoked wills......................................................... 113
P Powers of Appointment............................................................ 270
Capital Gains Tax – Administration Period
Circumstances where revocation does not take place.......... 114
Q Proprietary estoppel................................................................. 272
(Taxation of Chargeable Gains Act 1992)................................. 384
Revival............................................................................................ 114
R Secret and half secret trusts..................................................... 273
Capital Gains Tax – Trusts
Republication................................................................................ 115
S Unincorporated Associations.................................................... 275
(Taxation of Chargeable Gains Act 1992)................................. 384
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The contents of a will.................................................... 118 9 Intestacy................................................................................. 278 Classifieds ....................................................................................... 385
Introduction................................................................................... 118
The basics of intestate entitlement............................................. 278
Commencement.......................................................................... 119
Distribution A: where there is a surviving spouse
Declarations.................................................................................. 120
or civil partner............................................................................... 278
Survivorship provisions................................................................... 124
Method B: where there is no surviving spouse or
Appointment of executors and trustees.................................... 125
civil partner.................................................................................... 279
Professional charging................................................................... 130
Personal Chattels.......................................................................... 280
Appointment of testamentary guardians.................................. 133
Spouse or civil partner.................................................................. 281 Civil Partner.................................................................................... 281
Funeral instructions....................................................................... 133
Specific gifts................................................................................... 133
Spouse............................................................................................ 282
Demonstrative Legacies.............................................................. 146
Children.......................................................................................... 284
General Legacy............................................................................ 147
Adoption........................................................................................ 284
Pecuniary legacies....................................................................... 148
Children of polygamous marriages............................................ 285
Annuities......................................................................................... 148
[3] Parents...................................................................................... 285
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Gifts of residue............................................................................... 150
[4] Brothers and sisters ................................................................. 286
Gifts in trust..................................................................................... 151
[5] Whole Blood and Half-Blood and step relationships........... 286
Gifts to Charities............................................................................ 154
The statutory trust.......................................................................... 287
friend? Sign up today to receive the
Vested and contingent interests................................................. 155
Spouse’s (or civil partners’) right to acquire the
Conditions...................................................................................... 158
latest updates.
matrimonial home........................................................................ 289
Administrative provisions.............................................................. 159
Construction of the terms of a will.............................................. 164
10 The Duty of Care.............................................................. 292
Principles of construction............................................................. 166
Negligence.................................................................................... 292
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Description of Persons.................................................................. 172
The duty of care in relation to wills............................................. 299
Rectification.................................................................................. 173
Who the duty applies to............................................................... 301
Letters of wishes............................................................................ 174
Time taken for a will...................................................................... 301
► Select ‘Publications’ from the top navigation
General Observations on Tax Issues and Legacies................... 178
The Cancellation of Contracts made in a Consumer’s
► Select ‘Wills Publication’
Home or Place of Work etc Regulations 2008........................... 305
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Domicile and the Foreign Element................... 180
Areas of concern for the duty of care....................................... 306
Introduction................................................................................... 180
The draftsman’s duty to assess the testator’s capacity........... 309
Domicile......................................................................................... 181
Negligence and tax advice........................................................ 314 Risk Management......................................................................... 315
Summary of principles.................................................................. 181
Commentary on principles.......................................................... 182
Declarations of domicile.............................................................. 194
“Deemed domicile”..................................................................... 195
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Wills................................................................................................. 188
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5
Chapter 1 The Formalities of a will
The requirements of the Wills Act 1837 1 1.01 Where a will is required to comply with the law of England & Wales, there are statutory formalities required in order to make a valid will. These may, at first glance, appear unnecessarily fussy, but they have been described as the first line of defence against fraud: “Darkness and suspicion are common features in will cases: the trust too often is the secret of the dead or the dishonest. Because it is often difficult, and sometimes impossible, to discover the truth, the law insists on two types of safeguard in will cases. The first type of safeguard is part of the substantive law – the requirements of proper form and due execution. Such requirements...are no mere technicalities. They are the first line of defence against fraud upon the dead. The second type of safeguard is the second line of defence. It is invoked where there are circumstances which give rise to suspicion; it is the safeguard of strict proof. In cases where no suspicion reasonably arises the court will allow inferences – presumptions as they are sometimes called – to be drawn from the regularity of a testamentary instrument upon its face, or the fact of due execution. But if there are circumstances, whatever be their nature, which reasonably give rise to suspicion, the court must be on its guard” 2 1.02 The statutory formal requirements are to be found mainly in s.9 Wills Act 1837 3:“Signing and attestation of wills No will shall be valid unless—
(a) it is in writing, and signed by the testator, or by some other person in his
(b) it appears that the testator intended by his signature to give effect to the
presence and by his direction; and will; and
(c) the signature is made or acknowledged by the testator in the presence of
two or more witnesses present at the same time; and
Issues of formal validity and essential validity of a will are also dealt with in Chapter 6 Scarman J in Re Fuld (No3) [1968] P 675 3 As substituted in Wills Act 1837 by s.17 Administration of Justice Act 1982 1
2
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(d) each witness either—
(i)
attests and signs the will; or
(ii)
acknowledges his signature, in the presence of the testator (but not
necessarily in the presence of any other witness), but no form of
attestation shall be necessary.”
1.03 The court has no discretion in the application of these requirements: “First….all four of the conditions in s.9 must be satisfied before a will can be said to be validly executed. Second, there is no discretion on the part of the court to override compliance with these conditions in order to give effect to the putative testator’s intentions or wishes……Fourth, since the validity of a will necessarily arises after the principal actor is dead, there are powerful policy reasons for insisting on their fulfilment.” 4 1.04 The strictness with which these formalities are applied means that the draftsman must approach them with care. There is a significant risk of a negligence claim where loss arises from the draftsman’s error with the formal requirements. 5
Age 1.05 A will made by a person under 18 will not be valid, 6 unless it is a privileged will. 7
In writing 1.06 A will must be in writing. ‘Writing’ is now defined as including: “…typing, printing, lithography, photography and other modes of representing or reproducing words in a visible form, and expressions referring to writing are construed accordingly”. 8 Therefore, the writing need not be on paper. Probate litigation is littered with wills written on unlikely objects such as an eggshell 9 or a wall.10 However, the will must be in a physical form and the definition above does not include an item that only exists in an electronic format. Electronic formats by way of computer file, video tape, etc. are not acceptable as writing for the purpose of a will (apart from the other difficulties with them of signature, etc.). Writing does not mean that it must be in the handwriting of the testator. 11 Barrett v Bem [2012] WTLR 567 CA at [18] per Lewison LJ See Chapter 10 on the Duty of Care s.7 Wills Act 1837 See later in this Chapter s.5 Schedule 1 Interpretation Act 1978 Re Barnes’ Goods (1926) 43 TLR 71 10 Re Slavinsky’s Estate (1989) 53 SASR 221 11 known as a holograph will when it occurs 6 7 8 9 4 5
8
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SHE HAS HER MOTHER’S EYES, HER FATHER’S NOSE.
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1.07 The writing does not have to be in conventional ink. In theory, any substance that is capable of leaving a visible mark on the paper, 12 or other physical substance, is acceptable. Even engraving the chosen terms on a hard surface is possible. Where a will is partly in ink and partly in pencil there is a rebuttable presumption that the part in pencil was only deliberative. 13 A will wholly in pencil is valid,14 but this is not to be recommended as it is inherently insecure and liable to erasure by others (or by the testator). 1.08 A will need not be written in English it can be
• in Braille
• any language 15
• code (provided that it is unambiguously decipherable from 16
extrinsic evidence)
• shorthand 17
For practical reasons, it is far safer for wills to be written in English as the meanings of words are usually certain and readily understood. While the client who does not have English as his first language might be tempted to ask for a will in another language (on the grounds that he would understand it better), there are potential pitfalls in departing from English words that have established meanings (in the context of wills). Using non-English words that will have far less certain meaning, in the context of English succession and trust law, could make the probate and administration process more difficult. 1.09 The writing need not be on a single sheet of paper (or other material). Where
• more than one sheet is used the individual sheets do not need to be
attached to each other, nor do they need to be individually signed by the
testator and witnesses.
• the individual sheets are not attached to each other, they must have been
together in the same room, in the possession or control of the testator, when
execution of the will takes place. 18
Moving a dry pen over a signature that was already made on the paper is not sufficient; Playne v Scriven (1849) 1 Robb 772 13 i.e. that the parts in pencil were merely something that was being contemplated; In the Goods of Adams (1872) LR 2 P&D 367 14 Goods of Usborne (1909) 25 TLR 519 15 Re Berger deceased [1989] 1 All ER 591 (Hebrew); Whiting v Turner (1903) 89 LT 71 (French) 16 Kell v Charmer (1856) 23 Beav 195 17 Orrin v Orrin (1921) The Times 20th December 18 Lewis v Lewis [1908] P 1 12
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• separate sheets are found together, there is a rebuttable presumption that
together they form the will of the deceased. 19
Execution of a will The actions of the testator 1.10 The testator is required to sign his will. In most cases the testator will sign with his usual signature. The signature does not have to be his full name, but should preferably be his usual form of signature that can, if necessary, be verified later against his signature on other documents. The name that the testator signs does not have to be his real name, provided that it can be established that it is a name that he uses or he is known by. 20 The name used should be that stated in the commencement of the will. While a different name would not invalidate the will, material differences in the names will invite enquiries from the Probate Registry as to the identity of the signatory. 1.11 In addition, the following means of signing have been found to be acceptable for execution of a will:
• signature by the testator’s mark 21
• an incomplete signature 22
• a signature in pencil 23
• signature by thumbprint 24
• signature by his initials 25
• a stamped name 26
• use of an assumed name 27
Marsh v Marsh (1860) 1 Sw & Tr 528 Re Clarke’s Goods (1858) 1 Sw & Tr 22; Re Redding’s Goods (1850) 2 Rob Eccl 339 21 In the Estate of Selwood (1964) 108 SJ 523; In the Estate of Holtam, Gillett v Rogers (1913) 108 LT 732 22 In the Goods of Chalcraft, Chalcraft v Giles [1948] P 222 23 Bateman v Pennington (1840) 3 Moo PC 223 24 Re Finn’s Estate (1935) 105 LJP 36; Borman v Lel [2002] WTLR 237 25 In the Goods of Savory (1851) 15 Jur 1042 26 Jenkins v Gaisford (1863) 3 Sw & Tr 93; Perrins v Holland [2010] WTLR 1415 CA; difficulties have arisen where a personal seal has been used without signature compare Smith v Evans (1751) 1 Wils 313 with In the Estate of Bulloch [1968] NI 96 – a seal with intent that it should operate as a signature might work 27 Re Redding’s Goods (1850) 2 Rob Eccl 339 19 20
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• use of an expression that sufficiently identifies the testator 28 • use of a seal with initials alongside it. 29
1.12 Where the testator is too physically frail to make his signature some degree of physical assistance from another person is permitted. 30 However, for this assistance to give a valid execution of a will, the testator must
• want to sign his will
• hold the pen and
• contribute some physical effort to the signature.
If the testator’s hand is wholly guided by another, with no physical input from the testator, the execution is not valid 31, as the resulting signature is not considered to be that of the testator. Where a testator is incapable of signing (or making his mark) 1.13 A will can be signed by someone other than the testator, but that person’s signature must be made:
1. in the presence of the testator
2. at his direction and
3. before the attesting witnesses (for all except privileged will see later in
this chapter) The first two elements are both essential to validity and if either or both are absent the will will be invalid. • “Presence” will have the same meaning for these purposes as it will have for
the presence of the witnesses. 32
• “At his direction” requires some form of positive communication from the
testator that he requires his will to be signed, not mere acquiescence to the
actions of the signer:
Re Cook’s Estate, Murison v Cook [1960] 1 WLR 353 (“your loving mother”); Rhodes v Peterson 1972 SLT 98 (“Mum”) 29 In the Goods of Emerson (1882) 9 LR Ir 443 30 Fulton v Kee [1961] NILR 1; Barrett v Bem [2012] WTLR 567 CA 31 Barrett v Bem [2012] WTLR 567 CA; Perrins v Holland [201] WTLR 1415 CA where physical assistance was given so that the testator could impress his stamp. 32 See later at XXXX 28
16
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17
1.14 “In my judgment the court should not find that a will has been signed by a third party at the direction of the testator unless there is positive and discernible communication (which may be verbal or non-verbal) by the testator that he wishes the will to be signed on his behalf by the third party.” 33 This observation underlines that the circumstances of the testator’s request for this to be done should be clearly observed and understood by the witnesses. This is in order to ensure that if required they can give appropriate evidence of what transpired. 1.15 The agent signing the will may use his own name or that of the testator. 34 In either case the testamonium and attestation of the will should be amended to reflect the facts, i.e. that:
1. the will had been read over to the testator and that he appeared to
understand it, or that he read it over himself, whichever is the case, and
2. the will was signed by another on behalf of the testator, and
3. it was signed at the testator’s direction, and
4. this was done in his presence.
“It is of course good practice that the attestation clause should show that the will was signed by another person signing his own or the testator’s name, by the direction and in the presence of the testator, and (as also in the case of a mark) that it had been read over to the testator and that he appeared thoroughly to understand it”;35 1.16 The person signing on behalf of the testator may be
• one of the attesting witnesses 36
• a beneficiary under the will 37
Barrett v Bem [2012] WTLR 567 CA at [36] per Lewison LJ Re Clarke’s Goods (1839) 2 Curt 239 – usually “John Smith on behalf of Charles Brown in presence and at his direction” 35 Barrett v Bem [2012] WTLR 567 citing Tristram and Coote Probate Practice (30th ed) at para 3.79. 36 Re Bailey’s Goods (1838) 1 Curt 914; although where possible using someone who is not an attesting witness would seem to give greater integrity in the execution and provide potential evidence of due execution from another 37 Permitting a beneficiary to sign on behalf of a testator is an omission from the Wills Act 1837 that was recently deplored by the Court of Appeal. The Court urged Parliament to change the law on this point; Barrett v Bem [2012] WTLR 567. 33 34
18
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The position of the signature 1.17 This is not currently stipulated by the Act. Originally, s.9 required signature “at the foot or end therefof”, but after 1st January 1983 there has been no requirement that the testator signs at in any particular position. s.9 now requires that the testator must intend by his signature to give effect to his will. This has led to some difficulties in determining intent from the testator’s actions. In Wood v Smith, 38 the Court of Appeal accepted that signing a name at the top of a page intended to give effect to the terms of the will written out below it. Best practice is not to test the boundaries of where a signature can be placed, but to place it naturally at the end of a will with the appropriate details of signature and attestation. Acknowledgement of signature 1.18 This can arise where the testator has signed his will without the presence of witnesses. He can then later, in the presence of two witnesses 39 acknowledge his signature 40 to them before the witnesses attest. 41 The witnesses must see the signature or at least have the opportunity of seeing it if they choose to. 42 Acknowledgement is by words, gestures 43 or conduct of the testator 44; but each of these must amount to an acknowledgement where the signature is capable of being seen. The witnesses then attest in the usual way as required by s.9.
[1992] 3 All ER 556; Weatherhill v Pearce [1995] 1 WLR 592 (misplaced testator’s signature in the attestation clause was found to be intended to give effect) 39 Re Hadler’s Estate, Goodall v Hadler (1960) The Times 20 October – the testatrix nodding while witnesses signed 40 Lim v Thompson [2009] EWHC 3341 (Ch) was a bizarre tale of purported wills and a reluctant witness. One purported will was clearly a photocopy of an original document although it was claimed to have a valid attestation. The signatures of the witnesses were clearly originals and not photocopies. The question was therefore could such a document constitute a will. In the court’s view a photocopy of a document previously signed by the testator, cannot be a document for the purpose of s.9 Wills Act 1837 and a testator cannot acknowledge the photocopy signature as it is not is signature, merely a facsimile. 41 Re Davies’ Estate, Russell v Delaney [1951] 1 All ER 920 42 Re Groffman [1960 1 WLR 733; Daintree v Butcher (1888) 13 PD 102 43 Davies, In the Goods of, (1850) 2 Rob 14 44 This may be as simple as proffering the will to the witness Weatherhill v Pearce [1995] 1 WLR 592 38
20
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The actions of the witnesses Attests and signs or acknowledges 1.19 The testator’s signature must either be made in the presence of his witnesses or, if made earlier, acknowledged by him in their presence. It is only his signature, or acknowledgement of his signature, that the witnesses must see and attest to. 45 They are not required to have any knowledge of the contents of the document (or even know that it is a will). 46 1.20 This act of the testator must precede the witnesses’ signatures, for if the witnesses’ signatures precede the testator’s signature, or acknowledgement, they are witnessing nothing. 47 Presence of two or more witnesses at the same time 1.21 Presence has caused much difficulty over the years. Safe practice is that witnesses must not only be present together, but also that their attention is drawn to what the testator is doing and that they clearly see his signature when it is made or acknowledged. On this basis they are present throughout and can, if necessary, give evidence as to actual sight of all events. 1.22 There is authority that the witnesses need not actually see the testator’s signature being made (e.g. they are looking away when he signs). It is sufficient for them to be able to see the act if they chose to. 48 Similarly the testator does not have to see the witnesses sign, it is sufficient that he could see them sign if he chose to look. 49 But, of course, better quality of evidence as to due execution should be forthcoming if the witnesses have actually observed. 1.23 Although the two witnesses must both be present together when the testator signs or acknowledges; they do not have to remain together when they then each sign. It is usual that they do but, provided each of their signatures is made in the presence of the testator it does not matter if they are not present for each other’s signature being made.
Brown v Skirrow [1902] P 3 Re Benjamin’s Estate (1934) 150 LT 417 47 Moore v King (1842) 3 Curt 243 48 Casson v Dade (1781) 1 Bro CC 99; Mulhall v Mulhall [1936] IR 712 49 Tod v Earl of Winchelsea (1826) 2 C&P 488 45 46
22
Pain Relief Foundation RELIEVING CANCER AND OTHER PAIN THROUGH RESEARCH CHRONIC PAIN DOES NOT KILL, BUT IT LEADS TO A LIFE-SENTENCE OF SUFFERING Pain is a vital alarm bell to the brain – it tells us that something is wrong. When the damage has been treated, the pain has normally done its job and goes away. But then there is chronic pain, and that is very different. Here are some hard facts to consider: • 1:7 people in the UK suffers from chronic pain – desperately debilitating pain which does not go away. • One in five chronic pain sufferers say that their pain is so bad that they just want to die • Pain stops sufferers enjoying activities like walking, shopping, sleeping, or playing with their children • Many thousands of chronic pain sufferers lose their jobs because the pain is so bad • A quarter of chronic pain sufferers are diagnosed with depression Many cancer charities and research organisations can’t fund work on cancer pain because their Trust Deeds specify only ‘research into the cause and cure of cancer’ and this, of course, excludes pain – so we do this work!! The aim of the Foundation is finding causes, improving treatments and spreading the word. But research costs money, and there is an urgent need for more and more research. The Foundation receives no funding from the NHS or any Government body. Its work relies entirely on donations; on the generosity of people like you.
LEAVE THE FOUNDATION A LEGACY IN YOUR WILL AND YOU WILL CONTINUE TO HELP SUFFERERS You can even leave a donation today. Just send your gift to Pain Relief Foundation at the following address: Pain Relief Foundation, Clinical Sciences Centre, University Hospital Aintree, Lower Lane, Liverpool, L9 7AL 0151 529 5820
secretary@painrelieffoundation.org.uk
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Registed Charity: 1156227
HERE’S TO THOSE WHO HERE’S TO THOSE WHO CHANGED THE WORLD CHANGED THE WORLD
HERE’S TO THOSE WHO CHANGED THE WORLD
WHAT WILL YOUR LEGACY BE?
Dr Elisabeth Svendsen MBE Founder of The Donkey Sanctuary
Help protect and care for abused donkeys (by byMike Hollist) remembering us in your will.
WHAT WILL YOUR LEGACY BE?
To receive a copy of our Leaving a Legacy guide ‘Your questions answered’ or to speak directly with Dr Elisabeth Svendsen our Legacy Team MBE Founder of The please contact 01395 578222 or Donkey Sanctuary email: marie.wilson@thedonkeysanctuary.org.uk (by Mike Hollist)
Help protect and care for abused donkeys by remembering us in your will.
Dr Elisabeth Svendsen MBE Founder of The Donkey Sanctuary (by Mike Hollist)
To receive a copy of our Leaving a Legacy guide ‘Your questions answered’ www.thedonkeysanctuary.org.uk/legacy or to speak directly with our Legacy Team please contact 01395 578222 marie.wilson@thedonkeysanctuary.org.uk Dr Elisabeth Svendsen MBE Founder of The Name: Mr/Mrs/Miss RETURN FORM TO: Donkey Sanctuary Address THE DONKEY SANCTUARY
WHAT WILL YOUR LEGACY BE?
Legacy Department (CD), Sidmouth, Devon, EX10 0NU. A charity registered with the Charity Commission for England and Wales No. 264818
Help protect and care for abused donkeys by remembering us in your will. 23 To receive a copy of our Leaving a Legacy guide ‘Your questions answered’ or to speak directly with our Legacy Team please contact 01395 578222 marie.wilson@thedonkeysanctuary.org.uk
A charity registered with (by Mike Hollist)
Postcode
the Charity Commission for England and Wales No. 264818
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0014_14_DS
Signs 1.24 As for a testator, the witness will usually sign by his usual signature, but his mark is acceptable. 50 In contrast to the statutory provision that the testator may direct another to sign for him in his presence, a witness must sign personally and cannot direct another to do so on his behalf. 51 1.25 As for a testator, a witness may acknowledge his signature. Because of the usual order of execution/witnessing of a will this provision seems a little odd. The law was changed 52 after Re Colling. 53 In this case, the testator, while in hospital, started to sign in front of two witnesses. One witness, a nurse, was called away before he had completed his signature. She returned after the testator had finished his signature and the other witness had signed. The testator acknowledged his signature in front of both witnesses and the witness who remained present throughout also acknowledged his signature and the nurse then signed. The will was held to be invalid and as consequence the law was then changed to permit a witness to acknowledge. As the law now stands the will in Re Colling would have been correctly executed. 1.26 In Re Rawlinson 54 the testator signed his will in the presence of one witness. The witness realised that a second witness was required. The second witness was brought in and the testator acknowledged his signature in front of both witnesses, the first witness acknowledged his signature and the second witness added her signature. 55
Beneficiaries as witnesses to the will 1.27 Where a beneficiary in the will acts a witness, the will is validly executed, but any gift to the attesting witness fails. 56 Similarly if a witness is married to a beneficiary again the will is valid, but the gift to the spouse is void. 57
It is likely that the decisions on what constitute a signature for a testator are equally applicable to witnesses’ signatures. 51 Pryor v Pryor (1860) 29 LJP 114 52 s.17 Administration of Justice Act 1982 amended s.9 53 Re Colling, Lawson v von Winckler [1972] 3 ALL ER 727 54 Re Rawlinson, Kayall v Rawlinson [2010] WTLR 1443 55 It is surprising that without legal assistance they managed to get this right and then do it exactly the same way six days later for the next will. 56 s.15 Wills Act 1837 – “utterly null and void”. Not understanding this point has given rise to successful negligence claims in Ross v Caunters [1979] 3 All ER 580 and Hill v van Erp (1997) 71 ALJR 487 57 s.15 Wills Act 1837 (extended to include civil partnerships by Schedule 4 Part 1 paragraph 3(a) Civil Partnership Act 2004) 50
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1.28 The loss of the legacy will not occur where
• The witness and beneficiary marry after the date of the will 58
• The legatee would not take the gift beneficially e.g. it does not apply to a
legacy to the trustee of the residuary estate 59
• Where the witness was a beneficiary under a secret or half secret trust in
the will 60
• Where the witness was to codicil confirming an earlier will that the testator
did not witness 61
• Where the terms of the will are subsequently republished by a later codicil
and other witnesses are used 62
1.29 If, there are more than two witnesses to the execution of a will, the benefit to an attesting witness will not be lost, if there is valid attestation without that witness’s signature. 63 In order for this to apply neither of the two witness whose attestation is relied on must receive benefit. A, B and C witness a will under which A and B both take benefit, both A and B will lose their legacies – whereas if only A took any benefit his legacy would continue as the will would be validly executed without any legatee/witness being taken into account. 1.30 A charging clause in favour of a professional person was treated as a legacy for these purposes.64 However, after the commencement of Trustee Act 2000 such a legacy is now disregarded for these purposes. 65 An executor is competent to act as a witness to a will that he is executor of, 66 but if he is also a beneficiary he will lose his legacy unless there are two other attesting witnesses. 1.31 A creditor can act as a witness to a will without affecting his rights as a creditor, secured or unsecured, against the estate. 67
Thorpe v Bestwick (1881) 6 QBD 311; although there is no decision on it, is reasonable to presume that this will be the case for civil partnerships as well 59 Cresswell v Cresswell (1868) LR 6 Eq 69; Re Ray’s Will Trusts, Public Trustee v Barry [1936] Ch 520 60 Re Young, Young v Young [1951] Ch 344 see Chapter 8 for secret and half secret trusts 61 Gaskin v Rogers (1886) LR 2 Eq 284 62 Re Trotter, Trotter v Trotter [1899] 1 Ch 764 – see Chapter 4 for republication 63 s.1 Wills Act 1968 (in respect of deaths after 30th May 1968) 64 Re Pooley (1888) 40 Ch D 1 65 s.28(4) after 31st January 2001 66 s.17 Wills Act 1837 67 s.16 Wills Act 1837 this also includes husband, will or civil partner of a creditor 58
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Form of attestation 1.32 Although s.9 directs that no form of attestation clause is necessary, it is highly recommended, on practical grounds, that one is used. Clearly, not requiring any form of attestation clause makes it easier for homemade wills to be valid. A testator who prepares his own will should not fail because of what could be considered to be a procedural trap if an attestation clause was required. 1.33 Using an attestation clause is recommended in order to save difficulties in obtaining probate. Without an attestation clause, reciting the manner in which the will was signed and witnessed (and thus in compliance with s.9), the Probate Registrar will require further evidence to show that s.9 was been complied with when the will was executed. Evidence 68 will be needed from the witnesses to the will (and any non-witnesses to the will who were present and therefore can give evidence as to what transpired). This shows the practical need to be able to trace witnesses if evidence is required later. Hence the convention (it is no more than this as it is not required by s.9) that the witnesses also clearly write out their names, occupations and addresses beneath their signatures. 1.34 An attestation clause helps to give rise to a strong presumption that the will was validly executed. 69 Although this presumption can be rebutted, recent decisions have indicated that the strongest evidence is required to do so. 70 1.35 The clearest evidence from the witnesses that they did not comply with s.9 would normally be required to rebut the presumption. In Channon v Perkins 71 the Court of Appeal applied the presumption of due execution, notwithstanding the evidence to the contrary from the witnesses to the will. The witnesses acknowledged that the wills bore their signatures, but both denied that they had attested a will. There was a gap of approximately seven years between execution and the death and a further two years before trial. The witnesses were “at a loss� to explain how their signatures got there. The court accepted that their signatures were not forged which then meant that it was more likely that they could not remember the events accurately. Not remembering the events of nine years before does not initially amount to evidence of the standard required by Sherrington that they did not have witnessed the will.
Affidavits of due execution Omnia praesumuntur rite esse acta; all things are presumed to be correctly done. 70 Sherrington v Sherrington [2005] WTLR 587 71 [2005] EWCA Civ 1808; [2006] WTLR 425 CA 68 69
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1.36 The presumption of due execution will probably not be applied if the method of execution used was not that recited in the attestation clause. It was not applied in Re Rawlinson 72 where the testator acknowledged his signature in the presence of the witnesses and did not sign in their joint presence and they did not sign in each other’s’ presence (as the attestation clause showed). 73 1.37 The witnesses must intend to witness the testator’s signature 74 and this is best shown through the conventional attestation of the will, although there is a rebuttable presumption that a signature at the end of the will is intended to be that of a witness.75 A signature obtained without this intention would not produce a valid attestation.
Who can act as a witness? 1.38 A blind person cannot be a witness. 76 1.39 A person who is not mentally competent to give evidence can be a witness, 77 but because of the difficulty of reliable evidence they should as far as possible be avoided. 1.40 A child can be a witness, but again should be avoided unless they are of sufficient age to be able to give a credible account of what occurred. 1.41 It is good practice to avoid using as a witness a person who could inherit part of the estate on intestacy. They have a conflict when it comes to evidence as to the validity of the will, because they stand to gain from the failure of the will.
Privileged wills 1.42 s.11 Wills Act 1837 provides that “any soldier being on actual military service” or “any mariner or seaman being at sea” can dispose of his personal estate as he could have before the commencement of the Act. 78 This section effectively excludes such estates from both the formalities and age restrictions in the Act i.e. they are privileged in not having to comply with the formalities as that privilege existed before the 1837 Act. Re Rawlinson, Kayall v Rawlinson [2010] WTLR 1443 The presumption of due execution was also rebutted in Ahluwalia v Singh [2012] WTLR 1 where the evidence of the testator’s signature being made or acknowledged in the witnesses joint presence was not credible 74 Re Sharman’s Goods (1869) LR 1 P & D 661 75 In the Estate of Bravda [1968] 1 WLR 479 76 In the Estate of Gibson [1949] 2 All ER 90 77 s.14 Wills Act 1837 78 The exemption of this class from the formalities of a will goes back to Statute of Frauds 1677 (and before then there was no prescribed format for a will) 72 73
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Therefore, provided the individual qualifies as one capable of making a privileged will (see later), the will
• can be made in any form as long as it has the intention 79 of disposing of his
property on his death
» the disposition need not be expressed as a will 80 (the testator need not
know that what he doing is making a will as long as the intention is there to
dispose of his property should he die 81).
» the words used must be intended to be acted upon, rather than said by
way of giving information 82
» the will therefore need not be writing, it can be oral 83
» no signature is required
» no witnesses are required, although an oral will (known as a nuncupative
will) does require evidence of its terms.
• will revoke an earlier formal will
• can be revoked without any formalities, as long as the privilege continues
• can be made by someone under 18 84
1.43 The use of the expression “personal estate” originally excluded realty from being disposed of in this way. Since 1918 this expression in the 1837 Act has been extended to include real estate. 85
In the Estate of Servoz-Gavin, Ayling v Summers [2009] WTLR 1657; Re Stable, Dalrymple v Campbell [1918] P 7 80 Re Stable, Dalrymple v Campbell [1919] P 7 (oral expression “If I stop a bullet, everything of mine will be yours”); Gattward v Knee [1902] P 99 (a letter home which contained instructions if he died); In the Goods of Spicer [1949] 2 All ER 659 (written instructions in the place provided at the back of a pay book); In the Estate of Rowson [1944] 2 All ER 36 (instructions to a solicitor for a will that was drafted but not executed before death); Re Wingham, Andrews v Wingham [1948] 2 All ER 908 and In the Estate of Rippon [1943] 1 All ER 676 (unattested or invalidly attested wills) 81 In the Estate of Knibbs deceased, Flay v Trueman [1962] 1 WLR 852; In the Estate of Beech deceased [1923] P 46 82 Re the Estate of Donner (1917) 43 TLR 138 83 Re Stable, Dalrymple v Campbell [1919] P 7 84 ss.1 and 3 (Soldiers and Sailors Act) 1918 (which removed doubts on this points in Re Wenher, Wernher v Belt [1918] 2 Ch 82); In the Estate of Newland [1952] 1 All ER 841 85 s.3 Wills (Soldiers and Sailors) Act 1918. 79
32
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1.44 Privileged wills are not often encountered, 86 indeed it was recently remarked by a judge that “The case has involved a forensic journey on a path along which most lawyers… never travel after our student days”. Notwithstanding this any probate practitioner needs to at least be familiar with the concept as privileged wills are not necessarily easily recognised and regrettably deaths at sea, or on actual service, are encountered.
The classes to which the privilege attaches 1.45 Soldiers, includes members of the RAF and naval or marine forces serving on land. 87 The privilege extends to all such service men and women, including those on active service but not involved in combat duties. It does not extend to serving personnel in peacetime. In Wingham it was said that “It does not, of course, include officers on half pay or men on the reserve, or the Territorials, when not called up for service. They are not actually serving. Nor does it include members of the forces serving in this country, or on routine garrison duties overseas, in time of peace, when military operations are not imminent. They are actually serving, but are not in actual `military` service, because no military operations are afoot. It does, however, include all our men serving - or called up for service - in the wars, and women too, for that matter. It includes not only those actively engaged with the enemy, but all who are training to fight them. It also includes those members of the forces who, under stress of war, both work at their jobs and man the defences, such as the Home Guard. It includes not only the fighting men, but also those who serve in the Forces, doctors, nurses, chaplains, Women’s Royal Naval Service, Auxiliary Transport Service, and so forth.” 88 1.46 The more difficult question for soldiers is what constitutes actual military service. It is accepted that Denning LJ’s view in Wingham 89 sets out the modern test:“The plain meaning of the statutes is that any soldier, sailor or airman is entitled to the privilege if he is actually serving with the armed forces in connection with military operations which are, or have been, taking place, or are believed to be imminent.90 …………………It includes them all, whether they are in the field or in barracks, in billets
Langan J in In the Estate of Servoz-Gavin, Ayling v Summers [2009] WTLR 1657 at [3] s.2 Wills (Soldiers and Sailors) Act 1918 this type of privilege does not extend to merchant seamen Re Newland [1952] P 71 88 Denning LJ in Re Wingham, Andrews v Wingham [1948] 2 All ER 908 at 913/4 89 Re Wingham, Andrews v Wingham [1948] 2 All ER 908 at 913/4 90 Gattward v Knee [1902] P 99; 86 87
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or sleeping at home. It includes them although they may be captured by the enemy or interned by neutrals. It includes them, not only in time of war but also when war is imminent. After hostilities are ended, it may still include them, as, e.g. when they garrison the countries which we occupy, 91 or when they are engaged in military operations overseas. In all these cases they are plainly `in actual military service`. Doubtless cases may arise in peace-time when a soldier is in, or is about to be sent to, a disturbed area or an isolated post, where he may be involved in military operations. 92 As to these cases, all I can say is that, in case of doubt, the serving soldier should be given the benefit of the privilege.” (Authors’ added emphasis) The underlined sentence (above) demonstrates, for understandable reasons, the liberal approach to the application of privilege that the court has taken. A mariner or seaman being at sea 1.47 “Mariner or seaman” includes all ranks of the Royal Navy and Royal Marines. 93 It also includes all members of the merchant marine. 94 1.48 “At sea” is an essential element of this privilege. There is no definition for this term, comparable to the definition for active service. The court has tended towards a liberal interpretation.
1. There is no requirement that this includes any form of hostilities as in the previous
active service category.
2. The concept of being at sea is sometimes expressed as maritime service.
Therefore the sailor on maritime service will attract the privilege, which he
would not if he was in a shore based post.
3. Maritime service may include being in port 95 in an estuary 96
4. The person need not actually be at sea and may be on leave, 97 under orders
to join a ship 98 or returning from such service.
In the Estate of Colman [1958] ! WLR 457 (soldier with BAOR (Germany) 9 years after cessation of hostilities) 92 Re Jones [1981] Fam 7 (peacekeeping duties in Ulster in 1978 93 s.2 Wills (Soldiers and Sailors) Act 1918 94 In the Estate of Servoz-Gavin, Ayling v Summers [2009] WTLR 1657 the exemption will apply to English merchant seamen sailing on foreign registered ships; In the Goods of Hale [1915] 2 IR 362 found that the privilege to those working on board merchant ships, in this case a female typist); In the Estate of Stanley [1915] 2 IR 362 (a nurse) 95 In the Goods of McMurdo (1868) LR 1 P&D 540 96 In the Goods of Patterson (1868) 79 LT 123 97 In the Goods of Lay (1840) 2 Curt 375 98 In the Estate of Yates [1919] P 93; In the Estate of Servoz-Gavin, Ayling v Summers [2009] WTLR 91
36
Please help give kidney patients a brighter future The NKF (National Kidney Federation) is run by kidney patients to support kidney patients. Life is not easy for Kidney Patients or for those that care for Kidney Patients. The NKF supports both patients and carers in practical ways, offering help and guidance. We also campaign tirelessly for improvements in renal health care provision throughout the United Kingdom. Please support us so that we can support them.
Phone: 01909 544 999 Email: nkf@kidney.org.uk www.kidney.org.uk
When mentioning legacy giving to your clients, you don’t need to make a song and dance about it. Just a little explanation of the options will do. After all it’s something many of your clients will care a lot about. 75% will have supported a charity in their lifetime. So please introduce it into the conversation when writing their Will. rememberacharity.org.uk Remember A Charity is part of the Institute of Fundraising, a registered charity in England and Wales (no.1079573) and in Scotland (no. SC038971).
37
Attestation and evidence 1.49 A privileged will needs no witnesses (that is part of the privilege). Where such a will is in writing evidence is required to show that it is written, or dictated, by the testator. For a nuncupative will evidence of the words being spoken (including where and when) is needed.
Incorporation of other documents by reference in the will 1.50 It is possible to incorporate an existing document into a will by reference to it, rather than transcribing the contents of the document into the will itself. Such documents will also be incorporated into the probate. 99 In order for incorporation to be valid:
1. The document must be referred to in the will
2. The reference to the document in the will must be sufficiently accurate to
3. The document must already be existence at the time of the will. Any attempt
identify which document is being incorporated for to authorise the substitution of any later document will not take effect
4. The document must still be in existence at the time of the testator’s death.100
It is possible that the incorporated document itself incorporates a further document, but in order for the second incorporation to be valid the points above on identification and existence apply to that document as well. 101
Wills Act 1963 1.51 A will may be formally valid in England & Wales, notwithstanding that its execution did not comply with the 1837 Act, if instead it complies with the 1963 Act. Generally, the England & Wales practitioner will not start with the intention of relying on the provisions of this Act, but it can be of use where wills were executed in an emergency. It can also assist where a client has failed to execute his will in accordance with the draftsman’s instructions and, usually by luck, has achieved a valid execution when this Act is considered. 1.52 The 1963 Act is not concerned with capacity, which under English succession law, remains an issue for the domicile of the testator. 102 Although they may be omitted if they are of excessive size or length Re Balme’s Goods [1897] P 261 100 Re Barton, Barton v Barton (1932) 48 TLR 205 - It is possible to save the gift if the terms of the missing document can be established from other evidence Sugden v Lord St Leonards (1876) 1 PD 154 101 Re Edwards Will Trusts, Dalgleish v Leighton [1948] 1 All ER 821 102 Re Fuld’s Estate (No 3), Hartley v Fuld [1968] P 675; for more on formal and essential validity see Chapter 6 99
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1.53 In the absence of s.9 of the 1837 Act being complied with, a will may also be validly executed if it is validly executed within the provisions of this Act. s.1 of the 1963 Act provides that a “will shall be treated as properly executed if its execution conformed to the internal law in force in”
1. The territory where it was executed, or
2. In the territory where, at the time of its execution or of the testator’s death, he
3. In the territory where, at the time of its execution or of the testator’s death, he
was domiciled, or
had his habitual residence, or
4. In a state of which, at either of those times, he was a national.
1.54 The effect of s.1 is to provide three additional tests for the valid execution of a will. These tests are concerned with the formal validity of the will only. 1.55 Additional provisions are to be found in s.2 and these provide a further four tests of formal validity.
(1)
Without prejudice to the preceding section, the following shall be treated as properly executed—
(a) a will executed on board a vessel or aircraft of any description, if the
execution of the will conformed to the internal law in force in the territory
with which, having regard to its registration (if any) and other relevant
circumstances, the vessel or aircraft may be taken to have been most
closely connected;
(b) a will so far as it disposes of immovable property, if its execution
conformed to the internal law in force in the territory where the property
was situated;
(c) a will so far as it revokes a will which under this Act would be treated as
properly executed or revokes a provision which under this Act would be
treated as comprised in a properly executed will, if the execution of the
later will conformed to any law by reference to which the revoked will or
provision would be so treated;
(d) a will so far as it exercises a power of appointment, if the execution of the
will conformed to the law governing the essential validity of the power.
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We are a small dedicated charity who’s aim has always been to re-home these beautiful dogs into a family home, for them to become the most adorable loving, gentle new family additions that we who know the breed, know they make. And, for those of them that cannot cope with the outside world (of which there are many) due to being either physically or mentally scarred, we keep these at the rescue for their natural life span, where they are treated with the love, care and respect they deserve and are given all they need, plus the safety so many of them become to rely on.
We provide ongoing advice and support to all of our owners and every dog that has ever been re-homed, been in our care either now or in the future is always remembered with the love and respect they deserve. Email: dawn@greyhoundrescue.org.uk Website: www.greyhoundrescue.org.uk Telephone: 01205 290145 Mobile: 07811 296029 Donate If you just want to help retired and abandoned greyhounds with a donation, you can do that with paypal. Thanks!
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Alterations, interlineations and obliterations 1.56 “s.21 No alteration in a will shall have any effect unless executed as a will. No obliteration, interlineation, or other alteration made in any will after the execution thereof shall be valid or have any effect, except so far as the words or effect of the will before such alteration shall not be apparent, unless such alteration shall be executed in like manner as herein-before is required for the execution of the will; but the will, with such alteration as part thereof, shall be deemed to be duly executed if the signature of the testator and the subscription of the witnesses be made in the margin or on some other part of the will opposite or near to such alteration, or at the foot or end of or opposite to a memorandum referring to such alteration, and written at the end or some other part of the will.” 1.57 There is an initial, but rebuttable, presumption that all alterations to a will were made after it was executed. 103 This presumption does not extend to where there are gaps in the engrossed text that have been filled in after engrossment but before execution. 104 With a privileged will however, the rebuttable presumption is that any alteration while the testator 105 was still a privileged testator as thus able to make unattested alterations. 106 1.58 Where it is necessary to make handwritten amendments to the engrossed will:
1) the amendment should be added before execution and attestation
2) the testator and witnesses should then initial in the margin by each alteration
3) the will should then be executed
This will usually be sufficient to rebut the presumption that alterations were made after execution. 107 One leading text indicates that the above is not necessary if the attestation clause is amended to refer to the alterations directly by page and line stating that they were made before execution. 108
Cooper v Bockett (1846) 4 Moo PCC 419 Typically parts of names and addresses or the amounts of pecuniary legacies. 105 In the Goods of Newland [1952] P 71 106 In the Goods of Tweedale (1874) 3 P&D 242 107 Re Wingrove’s Goods (1850) 16 LTOS 108 Williams on Wills at 14.5 (10th edition Butterworths 2014) 103 104
42
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1.59 If amendments are to be made to a will after execution it is, of course, best to effect this by codicil or new will. Where this is not possible, the alterations should be executed in accordance with s.9 109 The method set out above in 1.58 can suffice, but care must be taken that s.9 is exactly complied with particularly as to the order of signatures or initials. 110 1.60 If alterations have been made, but they were not in accordance with s.9, a later codicil, validly executed, will republish the will as amended as at the date of the codicil if it refers to the amendments. 111 Without reference to the amendments, it is presumed that the alterations were made after the date of the codicil, although this may be rebutted. 112 1.61 Where unattested alterations have been made post-execution, the key principle is whether or not the original text is “apparent”. 113 If that part of the original text cannot be read that the will is admitted to probate with a blank for the text that is legible. 114 If a bequest has been obliterated, or even physically cut out of the will the effect on an unattested alteration is effectively to revoke that part of the document. 115 1.62 Apparent, in this context is whether or not the original text can be read without artificial assistance. Holding a document up to the light 116 or using a magnifying glass 117 are both permitted methods. Other methods of x-ray or chemical removal of layers of ink are not permitted.
Re Benn’s Goods [1938] IR 313 Re McVay Estate (1955) 16 WWR 200; Re Shearn’s Goods (1880) 50 LJP 15 111 Re Mills’ Goods (1847) 10 LTOS 230 112 Re Sykes’ Goods (1873) LR 3 P&D 26 113 The word used in s.21 Wills Act 1837 114 In the Goods of Ibbetson (1839) 2 Curt 337 115 s.21 Wills Act 1837 116 Ffinch v Combe [1894] P 191 117 In the Goods of Brasier [1899] 109 110
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45
Chapter 2 Testamentary Capacity
Introduction 2.01 In order for any testator to make a valid will, it is necessary for him to have a sufficient level of mental capacity (called testamentary capacity) in order to be able to understand what he is doing. This requirement of testamentary capacity is not a statutory requirement of the Wills Act 1837, it is a requirement of the common law. This is part of a wider requirement of the law that, in order for any person undertake any legal act, they must have the necessary mental capacity to understand that particular act:“….for a juristic act to be valid the person performing it should have the mental capacity (with the assistance of such explanation as he may be given) to understand the effect of that particular act…”. 1 2.02 The general principle that the court applies, for any transaction that a person undertakes, is that the level of mental capacity required is assessed on
1. the individual undertaking that particular transaction and
2. the complexity of the transaction that he is undertaking. 2
This is not to be regarded simply as making a will, or entering into a contract, at some generalised or abstract level. It means the particular task that is to be undertaken by that particular person. 3 As far as a will is concerned, this will mean that the level of capacity required will vary according to complexity, or simplicity, of the testator’s personal circumstances and his financial circumstances. • “Where the will is complex, or where the family circumstances are complex, or
calls upon the testator’s bounty are subtle, a greater degree of understanding
on the testator’s part will be required than where the will and the circumstances
are very simple”. 4
Hoff v Atherton [2005] WTLR 99 at [33] Masterman-Lister v Brutton [2003] WTLR 259 CA 3 “One cannot consider soundness of mind in the air, so to speak, but only in relation to the facts and the subject matter of the particular case” Gibbons v Wright (1954) 91 CLR 423 4 Tchilingrian v Ouzounian [2003] WTLR 709; Re Simon, Simon v Byford [2013] WTLR 1615; 1 2
46
47
• “A testator with a complex estate and many potential beneficiaries may need
a greater degree of cognitive capability than one with a simple estate and
few claimants”. 5
2.03 The above can mean that, at least to a limited extent, simplicity of drafting and simplicity of gifts in the will can aid the understanding of the testator. It is also to be noted that as the capacity assessed in this way the existence of mental illness does not, per se, prevent a will being made. It is the degree of mental incapacity that exists in that particular testator that matters. 6 It follows from this that a person who is detained, for example under the powers contained in Mental Health Act 1983, cannot be assumed to be incapable of making a will simply because he is subject to an order. Nor can it be assumed that simply because a person has been diagnosed with a mental illness that they cannot make a will.
The common law test of capacity 2.04 The test for testamentary capacity applicable today is still that derived from the appeal judgment of Cockburn CJ in Banks v Goodfellow in 1870:“It is essential to the exercise of such a power that the testator
1. Shall understand the nature of the act and its effects;
2. Shall understand the extent of the property of which he is disposing;
3. Shall be able to comprehend and appreciate the claims to which he ought to
give effect;
4. and with a view to the latter object that no disorder of the mind shall poison his
affections, pervert his sense of right, or prevent the exercise of his natural
faculties-that no insane delusion shall influence his will in disposing of his
property and bring about a disposal of it which, if the mind had been sound,
would not have been made.” 7
2.05 The test requires that a testator must pass each of the four parts of the test. A failure to pass any one will, irrespective of the results for the other three, mean an assessment of lack of capacity. In Kostic v Chaplin 8 it was said of this analysis that it was “helpful for the purposes of exposition to sub-divide the test into four
Re Perrins deceased, Perrins v Holland [2009] WTLR 1387 ChD at [40] Blackman v Man [2008] WTLR 389 7 (1870) LR 5 QB 549 at 565;although this is the original text, the numbering has been had by the authors; see Sharp v Adam [2006] 1059 CA and Kostic v Chaplin [2007] EWHC 2298 (Ch) 8 [2007] EWHC 2298 (Ch) Henderson J 5 6
48
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elements as the Court of Appeal did in Sharp v Adam……I should add that the four elements are, in my judgment separate requirements and element [4] is not a mere subset of element [3].” 9 The four limbs of the test are now therefore to be seen as independent of each other, as distinct tests, and the testator is required to pass each of them in order to have capacity. 2.06 Advice to the client to assist their understand of the act is permissible and may well represent a better route of establishing more about capacity. In Hoff v Atherton10 it was recognised that there will be testators whose capacity to understand what they are doing is “limited by defects in memory and comprehension, so that – absent some proper assistance by way reminder or explanation – it cannot be said that `his mind and memory [were] sufficiently sound to enable him to know and understand the business in which he was engaged at the time he executed his will`”.11 With such a testator, quite clearly the giving of advice (and the draftsman’s recording of the advice and the testator’s demonstration of understanding of the advice) will enhance the evidence for the will if it were to be challenged. This can also serve to strengthen the draftsman’s conclusion that his client has capacity if the client can demonstrate understanding of the advice. The opposite may be true in that the explanation given may lead to the draftsman identifying the client’s lack of understanding and the will cannot proceed. Notwithstanding this, advice is not an essential ingredient of the test of capacity. 2.07 In this area it is valuable for the draftsman to keep in mind the warning in Hall v Estate of Bruce Bennett 12 “The jurisprudence abounds with statements that it is not sufficient simply to show that a testator had the capacity to communicate his or her testamentary wishes. Those wishes must be shown to be the product of a sound and disposing mind”. Making the point that communication and understanding are not the same issue. Helping the testator understand with giving him advice should go no further and not lead the testator in his decisions after he has been helped to understand the issue.
At paragraphs 197-198, following the Court of Appeal in Sharp v Adam [2006] WTLR 1059 where, in upholding the decision at first instance, found that the testator had satisfied the test in limbs [1], [2] and [3], but failed on limb [4] - see para [69] of the CA judgment; Re Ritchie, Ritchie v Joslin [2009] EWHC 709 (Ch); also followed in Markou v Goodwin [2013] EWHC 4570 (Ch) 10 [2005] WTLR 99 11 Citing Stevens v Vancleve (1819) 4 Washington CC, in turn cited in Banks v Goodfellow (1870) LR 5 QB 549 12 [2003] WTLR 827 9
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2.08 The Banks v Goodfellow test is a not a medical test of capacity. The question of testamentary capacity is a legal question that is to be resolved by the court: “….the issue as to testamentary capacity is from first to last for the decision of the court. It is not to be delegated to experts, however eminent, albeit that their knowledge, skill and experience may be an invaluable tool in the analysis, affording insights into the workings of the mind otherwise beyond the grasp of laymen, including, for that purpose, lawyers and in particular judges.” 13 It is for this reason that the test was set out in the judgment in layman’s terms and not medical terms. 2.09 Medical opinions are not conclusive in determining testamentary capacity. They are views put forward for the court to consider and accept, or reject, as the court considers appropriate. Very often this will be after weighing them with, or against, other non-medical evidence. Medical opinions may be based on observation and testing during the testator’s lifetime, both before and after the will, or they may be an analysis of the testator’s medical history after his death. The Court of Appeal in Hawes v Burgess 14 expressed some concern about post-death analysis of medical records being used in preference to the views of the draftsman “My concern is that the courts should not too readily upset, on the grounds of lack of mental capacity, a will that has been drafted by an experienced independent lawyer. If, as here, an experienced lawyer has been instructed and has formed the opinion from a meeting or meetings that the testatrix understands what she is doing, the will so drafted and executed should only be set aside on the clearest evidence of incapacity.” 15 While this view is strongly expressed, it is no more than the weighing of the value of both types of evidence. The will draftsman’s evidence will depend on the extent to which he has carried out his job properly 16 and recorded fully his observations and conclusions. 17 The post-death medical report will similarly depend upon its own strength, particularly when it deals previously undiagnosed conditions or conditions where the implications of the symptoms were not appreciated in the testator’s lifetime.
Re Key, Key v Key [2010] WTLR 623; Allen v Emery [2005] EWHC 2389 (Ch) “Ultimately capacity is a question of fact like any other which the court must decide on the evidence as a whole” 14 [2013] WTLR 453 CA 15 [2013] WTLR 453 at [60] 16 Re Ashkettle [2013] WTLR 1331 “Any view the solicitor may have formed as to the testator’s capacity must be shown to be based on a proper assessment and accurate information or it is worthless” 17 Jeffrey v Jeffrey [2013] WTLR 1509 13
52
Charity Begins at home, and justice begins next door. Charles Dickens THE BARRISTERS' BENEVOLENT ASSOCIATION
THE BARRISTERS' BENEVOLENT ASSOCIATION 14 Gray's Inn Square London WC1R 5JP Tel: 020 7242 4761 Fax: 020 7831 5366 www.the-bba.com Registered Charity No: 1106768 Company limited by guarantee: 5284271
The Barristers’ Benevolent Association exists to support, help and comfort those members of the Bar in England and Wales and their families and dependants who are in need, in distress or in difficulties. During the recent past we have helped barristers and their families in every circuit, often saving not only dignity but careers.
Please do not hesitate to bring potential cases to our attention and remember us when things are going well and you can afford to make a gift. The BBA office staff will be more than happy to answer queries, either by telephone or by email – details are given on the Contact Us page of our website.
We are not nearly as well-known in the profession as we would like, and there are possibly people who qualify for our help but aren’t aware of our existence… we also feel that there are other people who would be willing to contribute to the welfare of their less fortunate colleagues but who are also unaware of us.
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2.10 The test of testamentary capacity is a common law test and as such it can be adapted and developed as the court sees fit, in order to make it more appropriate to modern needs or circumstances. Re Key 18 provides us with most important modern addition to the test. The Banks v Goodfellow test is in essence about the information that a person must be capable of understanding in order to make a will. Re Key went further and effectively added a fifth limb to the test - that of having the mental ability to take decisions regarding the will.
Level of comprehension 2.11 It is a mistake in seeking to assess the mental capacity of the elderly or infirm client for the draftsman to look for too high a level of understanding. The court has long recognised this problem 1. “It is not necessary that [the testator] should view his will through the eye of
a lawyer, and comprehend its provisions in their legal form. It is sufficient if
he has such a mind and memory as will enable him to understand the elements
of which it is composed, and the disposition of his property in its simple forms.” 19
2. “By the terms ‘a sound and disposing mind and memory’ it has not been
understood that a testator must possess these qualities of the mind in the
highest degree; otherwise, very few could make testaments at all; neither
has it been understood that he must possess them in as great a degree as
he may have formerly done; for even this would disable most men in the
decline of life”. 20
Re Key, Key v Key [2010] WTLR 6232. The Court heard expert evidence that in some cases of bereavement there could be a severe reaction that would, like depression, impair attention and concentration and the ability of a person to take things in and remember them. There was evidence given that this condition could lead to increased suggestibility, so that a testator would simply assent to suggestions of others, not caring to form his own views on the subject. (This is not to suggest that bereavement will cause loss of capacity in all cases). Although the court regarded this as an extension of the traditional test it could be argued that the inability to take decision because of mental illness fell within “that no disorder of the mind shall …. prevent the exercise of his natural faculties” (from the fourth limb of Banks v Goodfellow) 19 Harrison v Rowan (1820) 3 Washington 585 20 Den v Vancleve (1819) 2 Southard 660; see also Frizzo v Frizzo [2011] QCA 308 “The Banks v Goodfellow test does not require perfect mental balance and clarity; it is a question of degree” 18
54
Sir John Mills left a legacy of helping blind people
Your legacy could help them too
As Senior Vice President of the Greater London Fund for the Blind, the late Sir John Mills did so much to help raise the funds vital to improving the lives of visually impaired people. Having little sight himself, he knew only too well the problems that blind people can face - problems that we help to overcome through a wide range of services including rehabilitation, mobility training, counselling, home visits, recreation, employment and residential care. You can help them, too, by leaving a legacy to the Greater London Fund for the Blind in your Will. Your gift will help blind and partially sighted people from nursery school to nursing home. Thank you.
GREATER LONDON FUND FOR THE BLIND 12 Whitehorse Mews (CC), 37 Westminster Bridge Road, London, SE1 7QD
T: 020 7620 2066 F: 020 7620 2016 E: info@glfb.org.uk W: www.glfb.org.uk Registered Charity No. 1074958 55
3. “In judging the question of testamentary capacity the courts do not overlook
the fact that many wills are made by people of advanced years. In such
people, slowness, illness, feebleness and eccentricity will sometimes be
apparent—more so than in most persons of younger age. But these are not
ordinarily sufficient, if proved, to disentitle the testator of the right to dispose of
his or her property by will.” 21
Draftsman must be careful to judge understanding at the correct level of comprehension.
The Mental Capacity Act 2005 2.12 There has been some uncertainty expressed about what is the test of testamentary capacity after the coming into force of this Act. The statutory Code of Conduct that accompanies this Act contained the following observation:“What other legal tests of capacity are there? 4.31 The Act makes clear that the definition of ‘lack of capacity’ and the two-stage test for capacity set out in the Act are ‘for the purposes of this Act’. This means that the definition and test are to be used in situations covered by this Act. Schedule 6 of the Act also amends existing laws to ensure that the definition and test are used in other areas of law not covered directly by this Act. For example, Schedule 6, paragraph 20 allows a person to be disqualified from jury service if they lack the capacity (using this Act’s definition) to carry out a juror’s tasks. 4.32 There are several tests of capacity that have been produced following judgments in court cases (known as common law tests). These cover:
• Capacity to make a will (Banks v Goodfellow (1870) LR 5 QB 549
• Capacity to make a gift (Re Beaney (deceased) [1978] 2 All ER 595
• Capacity to enter into a contract (Boughton v Knight (1873) LR 3 PD 64)
• Capacity to litigate (take part in legal cases), (Masterman-Lister v Brutton & Co
21
and Jewell Home Counties Dairies [2003] 3 All ER 162 (CA)) and
• Capacity to enter into marriage. (Sheffield City Council v E & S [2005] 1 FLR 965
Re Griffith, Easter v Griffith (1995) 217 ALR 284
56
Redwings
I survived prostate cancer. You can help more men survive too. I was just 45 when I was diagnosed with prostate cancer. But I was one of the lucky ones. I’m still here with my wife and two young sons. ---------------
But this doesn’t change the fact that one man dies every hour of prostate cancer in the UK. A gift in your Will can fund research into better diagnosis and treatments and help save lives.
If you love horses, remember them!
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Join me and join Men United - our army of supporters in the fight against prostate cancer. We can win this.
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THE ENTERTAINMENT INDUSTRY’S CHARITY
solicitors Group (137x93.5).indd 1
8/28/2014 1:00:24 PM
Patron: HM The Queen Hon. Life President: Laurie Mansfield Chairman: Giles Cooper Vice Chairman: Phil Dale Established 1908 · Registered Charity No. 206451
The Entertainment Artistes’ Benevolent Fund (EABF), also known as The Royal Variety Charity, helps out ‘behind the scenes’ to bring essential comfort and support to those who have dedicated their lives to the entertainment of others. WE ARE HERE TO HELP >> The public face of the EABF is Brinsworth House, a dual registered residential and nursing home in Twickenham. This beautiful Grade II listed building is a safe and secure home for elderly residents; our team of professional nursing staff and qualified healthcare assistants provide care and attention 24 hours a day to meet the residents’ needs. In addition, the EABF operates a nationwide Grant system for those who have fallen on hard times through illness, accident or misfortune; wherever they are based in the UK.
DONATE >> The Fund’s largest fundraising event remains the ever popular Royal Variety Performance. However, in these very difficult economic times, your donations and legacies are even more vital to us to ensure the continuation of our much valued work. Please give whatever you can, by visiting our website www.eabf.org.uk
CONTACT THE EABF >> Entertainment Artistes’ Benevolent Fund, Brinsworth House, 72 Staines Road, Twickenham TW2 5AL For all enquiries, donations or residential matters contact us: T 020 8898 8164 F 020 8894 0093 E enquiries@eabf.org.uk W www.eabf.org.uk
Celebrating 100 years of care for members of the entertainment profession
57
THE ROYAL VARIETY PERFORMANCE
4.33 The Act’s new definition of capacity is in line with the existing common law tests and the Act does not replace them. When cases come before the court on the above issues, judges can adopt the new definition if they think it is appropriate. The Act will apply to all other cases relating to financial, healthcare or welfare decisions.22 2.13 The above passage in the Code has been considered by the court, In Re MM23 Munby J (as he then was) said of the above underlined passage: “The meaning of the observation is clear and the sentiment unexceptional. It is not being said – it could not properly be said—that a judge sitting in the (new) Court of Protection and exercising the statutory jurisdiction under the Mental Capacity Act 2005 is in some mysterious and undefined way entitled to disregard the statutory test in s 3. Certainly not. What is being said is that judges sitting elsewhere than in the Court of Protection and deciding cases where what is in issue is, for example, capacity to make a will, capacity to make a gift, capacity to enter into a contract, capacity to litigate or capacity to enter into marriage, can adopt the new definition if it is appropriate – appropriate, that is, having regard to the existing principles of the common law.” 2.14 However, in two later cases 24 the court has applied the test from the Act, without, apparently, having the question of the Act’s application argued in court and without any detailed analysis of the question of which was the correct test. Subsequently, the application of the Act was the subject of full judicial consideration in one case concerning a will 25 and another concerning lifetime gifts. 26 In both judgments, after full and thorough consideration it was held that the Act had not supplanted the common law test. The position will probably not be fully resolved until the question is considered by a higher court but, until such a review occurs the weight of decided cases is against the Act have replaced Banks v Goodfellow.
Time when capacity is needed 2.15 For a will to be valid, testamentary capacity is required at the time of execution of the will. 27 But, there is attached to this requirement a very practical issue for
Authors’ emphasis Re MM, Local Authority X v MM (an adult) [2007] EWHC 2003 (Fam) at para 80; considered and approved in Saulle v Nouvet [2008] WTLR 729. A similar conclusion was reached in Scammell v Farmer [2008] WTLR 1261 (which was followed in Pearve v Beverley [2014] WTLR 85) and in Saulle v Nouvet [2008] WTLR 729. 24 Fisher v Diffley [2013] EWHC 4567 (Ch)and Bray v Pearce (unreported Chancery 6th March 2014). There is also an obiter remark in Perrins v Holland [2009] WTLR 1387 to similar effect. 25 Walker v Badmin (Chancery 20/11/14) 26 Kicks v Leigh [2014] EWHC 3926 (Ch) 27 Arthur v Bokenham (1708) Mod Rep 148; Banks v Goodfellow (1870) LR 5 QB 549 22 23
58
LOTS ROAD AUCTIONS
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Valuations Service
A free verbal valuation is available to all clients with goods brought to us (preferably Monday and Tuesday). We can also make a provisional valuation via email valuations@lotsroad.com. Our Valuations Team cover both contemporary and antique departments and are happy to assess a very wide range of items. Written valuations for insurance or probate purposes can be provided by an experienced valuer with full inventories prepared for all residential and commercial artefacts. Fees
There is a minimum charge of ÂŁ300 per half day, plus ÂŁ100 per hour therafter. Travel expenses will also be accounted for (all prices exclude VAT) House Clearance Service
We can arange all complete house contents clearance together with a third party expert.
It is Lots Road Auctions policy that all items considered to be unsuitable for auction, on the authority of the owner will be given to charities that require second hand furniture. Get in touch
71 Lots Road, Chelsea, London SW10 0RN Tel: +44 (0)20 7376 6800 Fax: +44 (0)20 7376 6899
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Email: info@lotsroad.com
the draftsman. The draftsman must also be concerned with the capacity of the testator at the time that he gives instructions for his will. “A diagnosis of mild or even moderate dementia is not of itself an obstacle to satisfying the requirements of testamentary capacity… a testator may lack capacity on a particular day, but may possess it on a particular day many months later. What is crucial is the condition of the testator on the day he gives his instructions and the day he makes the will.” 28 2.16 A draftsman cannot proceed with the testator’s instructions unless he is reasonably satisfied that his client has testamentary capacity. If the client does not have testamentary capacity, 29 it is highly improbable that the testator could give valid instructions for a will, agree a retainer with the draftsman or a contract to prepare a will from those instructions. 2.17 The draftsman must not ignore issues of capacity at the signing of the will, relying instead upon his view that his client had testamentary capacity when he gave the instructions. Checking on capacity at the time of signing the will is more than merely good practice. It is a matter where his evidence will be highly relevant to the validity of the will. Where the draftsman is aware of possible issues of capacity, even though he has satisfied himself that his client has capacity when giving instructions, it would weaken his evidence as to capacity if has not supervised the execution of the will and recorded his observation as to capacity at that meeting. Treating the execution solely as matter of formalities is always dangerous; it must involve consideration of capacity (as well as knowledge and approval). Of particular concern will be any decrease in capacity between instructions and execution. Therefore, recording any apparent deterioration of behaviour, communication or understanding is important to support the draftsman’s decision to proceed with execution or not. 2.18 In order to reduce the risk of deterioration in capacity between these two dates, the draftsman should seek to minimise the period for the elderly or infirm. 30 Where there is a reduction in mental capacity 31 between taking instructions and execution of the will, and the testator is judged to no longer have testamentary
Carr v Beaven [2008] EWHC 2582 (Ch) Re Barker-Benfield, Hansen v Barker-Benfield [2006] ETLR 1141; see also Chapter 10 on the draftsman’s duty to assess capacity 30 See also Chapter 10 on the draftsman’s duty of care in the area of time taken to prepare a will. 31 This rule could also apply where the loss of capacity is due to the effects of alcohol Chana v Chana [2001] WTLR 201 28 29
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The Vascular Research Charity
JOIN US. AND LET’S BEAT VASCULAR DISEASE, TOGETHER Vascular disease is as common as both cancer and heart disease and accounts for 40% of deaths in the UK, many of which are preventable.
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capacity, the will could still be validly executed, provided the testator has sufficient capacity to understand
i. that he is executing his will
ii. it is the will for which he has previously given instructions 32 and
iii. the will has been drawn in accordance with those instructions
2.19 This is known as the rule in Parker v Felgate. 33 In this case, the court, directed that 3 questions must be addressed by the jury 34
1. If a person has given instructions to a solicitor to make a will, and the solicitor
prepares it in accordance with those instructions, all that is necessary to make
it a good will, if executed by the testator, is that she should be able to think thus
far, “I gave my solicitor instructions to prepare a will making a certain disposition
of my property. I have no doubt that he has given effect to my intention, and I
accept the document which is put before me as carrying it out.”
2. Even if she could not recollect all that had gone between her and the solicitor,
was she in a condition, that if each clause of this will had been put to her,
and she had been asked, “Do you wish to leave So-and-So so much?”, or
“Do you wish to do this?” (as the case might be) that she would have been
able to answer intelligently “Yes” to each question?
3. A person might no longer have capacity to go over the whole transaction, and
take up the thread of business from the beginning to the end, and think it all
over again, but if he is able to say to himself, “I have settled that business with
my solicitor. I rely upon his having embodied it in proper words, and I accept
the paper which is put before me as embodying it”. 35
These questions should be asked in order of priority and any one question answered “yes” is sufficient for the will to be valid. The jury found, in respect of the testatrix, that the first two questions were answered “no”, but the third was answered “yes” and the will was therefore found to be valid.
If the will was prepared from instructions given through an intermediary this rule may not apply (see below in this Chapter) 33 (1883) 8 PD 171 Despite being known as the rule in Parker v Felgate this case was not the start of the rule, the Court of Appeal in Re Perrins (deceased), Perrins v Holland [2010] WTLR 1415 CA drew attention to five pre-1837 cases (starting with Seeman v Seeman (1752) 1 Lee 181) which showed its earlier application. 34 Juries were still involved in testamentary cases at this time 35 (1883) LR 8 PD 171 32
62
A legacy that keeps on giving. By leaving a gift to Emmaus, you’re making a real difference to the lives of people who have experienced homelessness and social exclusion. Emmaus offers more than just a bed for the night, by combining a stable home and meaningful work, we know it is much more likely people will overcome their homelessness in the long term. Our research shows for every £1 invested with Emmaus there is an £11 social, economic and environmental return on investment, with savings to healthcare, the benefits bill and a reduction in reoffending. With your support, we can help even more people to overcome homelessness.
To find out more about Emmaus, go to www.emmaus.org.uk or contact us on 01223 576103 or email fundraising@emmaus.org.uk
Emmaus, 76-78 Newmarket Road, Cambridge, CB5 8BZ. Charity number: 1064470.
lebrating Ce
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The Stamford Valuation Office 1, The George Mews Station Road, Stamford Lincolnshire PE9 2LB E: stamford@goldingyoung.com T: +44 (0) 1780 751666
2.20 Having sufficient capacity at the time of execution of the will, applying this rule, will not lead to a valid will unless capacity at the time of instructions can be shown as well. 36 2.21 In Re Perrins, Moore-Bick LJ re-phrased the test as: “Where the testator loses some of his faculties between giving instructions and executing the will, however, the position is different. One must then ask
1. Whether at the time he gave the instructions he had the ability to understand
and give proper consideration to the various matters which are called for, that
is, whether he had testamentary capacity,
2. Whether the document gives effect to his instructions,
3. Whether those instructions continued to reflect his intentions and
4. Whether at the time he executed the will he knew what he was doing and thus
had sufficient mental capacity to carry out the juristic act which that involves.
If all those questions can be answered in the affirmative, one can be satisfied that the will accurately reflects the deceased’s intentions formed at a time when he was capable of making fully informed decisions.” 37 2.22 A more succinct summary is to be found in Re Flynn: “However, if a litigant is successfully to avail himself of this principle he must, I think, satisfy the court at least that the testator at the time of execution was capable of understanding and did understand that he was executing the will for which he had previously given instructions.” 38 2.23 The rule has not been applied often in reported cases in the past, but recently it has appeared more often. 39 The recent cases illustrate its increased relevance to our aging population.
Re Barker-Benfield, Hansen v Barker-Benfield [2006] WTLR 1141 at [54]; Richards v Allan [2001] WTLR 1031 37 Re Perrins (deceased), Perrins v Holland [2010] WTLR 1415 CA at [55] 38 [1982] 1 WLR 310 at 320 per Slade J; cited in Re Baker, Baker v Baker [2008] WTLR 565 39 See Kenny v Wilson (1911) 11 State Reporter (NSW) 460; In the Estate of Wallace: Solicitor of the Duchy of Cornwall v Batten [1952] 2 TLR 925; Re Flynn [1982] 1 WLR 310; Clancy v Clancy [2003] WTLR 1097; Re Baker, Baker v Baker [2008] WTLR 565; Markou v Goodwin [2014] WTLR 605; the principle was also considered in Richards v Allan [2001] WTLR 1031 (by reference to Re Flynn) but could not be applied; see also Catling v Catling [2014] WTLR 955 where the rule was not applied because of the inherent improbability of the draftsman’s evidence regarding his instructions; recent unreported cases include Barrett v Kasprzyk 3rd July 2000 and Otuka v Alozie 19th December 2005. 36
64
Support our work and give those living with Parkinson’s hope of a better future.
Over Over 40 40 people people in in the the UK UK lose lose their their sight sight each each day day The gift of sight is precious. The gift of sight is precious. Your Your gift gift today today and and aa legacy legacy when when the the time comes will help fund vital time comes will help fund vital research research into into the the causes causes of of blindness blindness and and treatments for for eye eye disease. disease. treatments Please make make a a donation donation today. today. Please
Patient-led, we fund ground-breaking research driving towards a cure for Parkinson’s. We are pioneering new methods which have the potential to stop, halt or even reverse Parkinson’s. Help us find a cure.
Tel: Tel: 0117 0117 929 929 0024 0024 Email: info@nerc.co.uk Email: info@nerc.co.uk www.nerc-charity.org.uk www.nerc-charity.org.uk National Eye Research Centre, National Eye Research Centre, Bristol Bristol Eye Eye Hospital, Hospital, Dept TSG, Lower Maudlin Street, Bristol BS1 Dept TSG, Lower Maudlin Street, Bristol BS1 2LX. 2LX.
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Charitable Charitable Incorporated Incorporated Organisation Organisation No: No: 1156134 1156134
Wills and Probate Jul14.indd 1
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N.E.D.D.I -
New European Distressed Donkey Initiative
He needs your help… He needs your help… “Byremembering remembering “By N.E.D.D.I.ininyour yourwill will N.E.D.D.I. you enable us to you enable us to continueto tocare carefor for continue donkeys like like donkeys Butterworth.” Butterworth.”
HELPING HOMELESS PEOPLE TRANSFORM THEIR LIVES 020 7592 1850 info@passage.org.uk passage.org.uk
legacy, of ofof enormous help to to AA legacy, ofwhatever whateversize, size,will willbebe enormous help NEDDI’s work caring for rescued donkeys in our sanctuary. NEDDI’s work caring for rescued donkeys in our sanctuary. We also also work conditions for donkeys in Britain, We worktotoimprove improve conditions for donkeys in Britain, Europe and Africa. Established in 1990 we are based in UK, Europe and Africa. Established in 1990 we are based in and operate a sanctuary in northern France. We also support UK, and operate a sanctuary innorthern France. We also road-side clinics for working donkeys in Kenya. support road-side clinics for working donkeys in Kenya.
01208 816640 www.neddi.org N.E.D.D.I.
The New European Distressed Donkey Initiative Ltd. 65
A NON-PROFIT MAKING COMPANY, The New Distressed Donkey Initiative Ltd. POEuropean Box 56, Wadebridge, Cornwall PL27 9BJ LIMITED BY GUARANTEE. PO Box 56, Wadebridge, Reg. No. 3098847 Cornwall PL27 9BJ
01208 816640 A NON-PROFIT MAKING COMPANY,
The Golden Rule 2.24 One of the significant practical issues for the draftsman to consider when dealing with questions of capacity for the ill or infirm is the Golden Rule set out by Templeman J (as he then was) in Re Simpson. 40 He observed: “In the case of an aged testator or a testator who has suffered a serious illness, there is one golden rule which should always be observed, however straightforward matters may appear and however difficult or tactless 41 it may be to suggest that precautions be taken: the making of a will by such a testator ought to be witnessed or approved by a medical practitioner who satisfied himself of the capacity and understanding of the testator, and records and preserves his examination and finding. There are other precautions which should be taken. If the testator has made an earlier will this should be considered by the legal and medical advisers of the testator, and if appropriate, discussed with the testator. The instructions of the testator should be taken in the absence of anyone who may stand to benefit, or who may have influence over the testator. These are not counsels of perfection. If proper precautions are not taken injustice may result or be imagined and great expense and misery may be unnecessarily caused.” 2.25 There is no doubt that this passage contains sensible that will often assist the draftsman. The problems that the draftsman has with this is that it is expressed as a rule and that it was set out before the modern duty of care of the draftsman was developed. 42 2.26 This is not in fact a rule of law, despite its name. It is a guide to good practice. The more recent views of the court on this Rule have made this point clear • “too briefly reported to be of much assistance, contains prudent guidance for
solicitors and does not purport to lay down the law” 43
• “not itself a touchstone of validity and is not a substitute for the established tests
of capacity and knowledge and approval” 44
(1977) 121 Sol Jo 224, better recorded at (1977) 127 NLJ 487 Templeman J had earlier made similar comments and had described them as “the golden if tactless rule” Kenward v Adams (1975) The Times, 29th November. 41 In Tchiligirian v Ouzounian [2003] WTLR 709 it was observed of this that “All too frequently, of course, it is tact which prevails in practice”. 42 After White v Jones [1995] 1 A ER 691 – see Chapter 10 43 Hoff v Atherton [2005] WTLR 99 CA 44 Catermole v Prisk [2006] FLR 697 40
66
Who will tell your story?
www.each.org.uk
Remember the British Museum in your Will, and you can help protect and conserve an astounding collection of over 8 million objects that will tell the story of human civilisation for generations to come. For more information: +44 (0)20 7323 8421 legacymanager@britishmuseum.org britishmuseum.org/legacy
The Treehouse St. Augustine’s Gardens, Ipswich, IP3 8NS Milton Church Lane, Milton, Cambridge, CB24 6AB Quidenham Quidenham , Norwich, Norfolk, NR16 2PH
Statue of Ramesses II, the ‘Younger Memnon’. From the Ramesseum, Thebes, Egypt, 19th Dynasty, about 1250 BC.
Registered company 03550187 Registered charity number 1069284 VAT number 784571785
Imagine a new life-changing centre for deafblind people...in Lenzie...on this land. Please help Deafblind Scotland turn this muddy field, brick by brick, donation by donation, into a “Field of Dreams” come true for deafblind people .
Donate Tel: 0141 777 5848 drena@deafblindscotland.org.uk www.deafblindscotland.org.uk
21 Alexandra Avenue Lenzie Glasgow G66 5BG
67
Charity Number: SC031167
• “It is undoubtedly a desirable precaution, and one which can save a great
deal of trouble in the future, for a solicitor to observe the golden rule where
there is the possibility of dispute as to testamentary capacity. Failure to do
so, however, is not determinative; the rule is no more than prudent guidance for
a solicitor......Ultimately capacity is a question of fact like any other which the
court must decide on the evidence as a whole” 45
• “Compliance with the Golden Rule does not, of course, operate as a
touchstone of the validity of a will, nor does non-compliance demonstrate its
invalidity. Its purpose…. is to assist in the avoidance of disputes, or at least in
the minimisation of their scope” 46
These quotation make it clear that compliance with the Golden Rule will not be proof of testamentary capacity, just as non-compliance is not proof of incapacity 47 2.27 The modern view would seem to be that the draftsman need not follow the Golden Rule where he is satisfied as to his elderly or ill client’s capacity 48 or where time will not permit compliance with it. 49 Where it is not followed, a record of why it was considered and rejected will be useful in the event of later challenge. Such a record serves to show the draftsman’s awareness of the issue and his reasons for not following Templeman J’s guidance. 2.28 But, having said this, it would be foolish for a draftsman to ignore the Rule or be unaware of its significance. 50 Rimer J, in Re Morris, Special Trustees of the Great Ormond Street Hospital v Rushin 51 said of the solicitor that her conduct was “deplorable” – “She claimed to have experience of probate matters, and her activities at the meeting on 22nd February 1996 were also devoted to Mrs. Morris’s will. It should have been obvious to her that his was a case in which in accordance with the guidance of Templeman J in Re Simpson deceased…and embarrassing though it might have been to press for it, she should have insisted that some
Allen v Emery [2005] All ER D 175 at [24] Re Key, Key v Key [2010] WTLR 623; Cowderoy v Cranfield [2011] WTLR 1699 “non- compliance with the Golden Rule does not demonstrate a lack of capacity”; Re Edonya, Knight v Edonya [2009] EWHC 2181 (Ch) “a precaution based on good sense” 47 Sharp v Adam [2006] WTLR 1059; Buckenham v Dickinson [2000] WTLR 1093 48 Scammell v Farmer [2008] WTLR 1261 49 Wharton v Bancroft [2012] WTLR 693 – “His job was to take the will of a dying man. A solicitor so placed cannot simply conjure up a medical attendant” 50 Re Key, Key v Key [2010] WTLR 623 “…. Failure to comply with the …….the Golden Rule has greatly increased the difficulties to which this dispute has given rise and aggravated the mistrust into which his client’s children have subsequently fallen.” 51 [2001] WTLR 1137 45 46
68
PART OF THE ‘REMEMBER A CHARITY’ CAMPAIGN
Help the Homeless
• 6th Floor, 248 Tottenham Court Road, London, W1T 7QZ • Tel: 020 7323 7411 • Fax: 020 7636 1428 • Website: www.help-the-homeless.org.uk • Email: HTH@help-the-homeless.org.uk • Registered Charity No: 271988 (England & Wales) • Registered Company No: 1238563
Help the Homeless was founded in 1975. We started with two national appeals and, as a result of the careful management of funds; we have been able to give grants totalling almost £2million to date. Registered Charity No. SC041299
We are a cost efficient charity with very low overheads enabling us to distribute a large proportion of out funds to organisations nationwide that help some of the UK’s most deprived people come off the streets and into safe accommodation. The organisations we help vary from small groups to established residential or training facilities working with homeless people and helping them get back to being contributing members of society. For more information about us please see our website: www.help-the-homeless.org.uk
OneKind (formally Advocates for Animals) is a leading UK based animal protection charity, working to end animal suffering through campaigns, research and education. For over 100 years, OneKind has carried out public awareness and educational campaigns, produced scientific research and reports, and regularly exposed both legal and illegal cruelty to animals. Many of our campaigns have helped to bring about changes to the law to make the world a better place for animals.
Help the Homeless depends on the generosity of its supporters to continue working with the homeless charities. Any donation, contribution or legacy will be most gratefully received and put excellent use – please help us.
By supporting OneKind, you are choosing to make a lasting difference to the welfare of animals. 10 Queensferry Street, Edinburgh EH2 4PH www.onekind.org | tel: 0131 225 6039 BFF LEGACY AD MAY 2015:Layout 1
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Keep the future wild
Children only get one chance at childhood...
With the help of a kind legacy the Born Free Foundation rescued Bella from a terrible zoo in Romania. She had endured long, freezing winters, was blind in one eye, and her spine and back legs were permanently crippled. One by one her beloved mate and cubs had died.
...you can make sure it’s one free from abuse and neglect.
Now Bella has recovered in a spacious forest enclosure at a rescue centre in Malawi, where she enjoys warm sunshine. And at last this lonely lioness has a companion, Simba the lion rescued from a circus in France. Your legacy to Born Free could help us rescue other animals like Bella and Simba. Our wildlife charity saves lives, stops suffering, rescues individuals and protects rare species.
Photography by Jon Challicom. The child pictured is moldel. © 2014 NSPCC. Registered charity England and Wales 216401 and Scotland SC037717. J20141389.
Peace of Mind is our simple guide to making or updating your Will. For your free booklet or to find out how your Will could help Born Free call 01403 240170 or visit www.bornfree.org.uk After you’ve remembered your loved ones, you could help us protect children by leaving a gift in your will.
Before Born Free
To find out more call 0207 825 2939, email legacyinfo@nspcc.org.uk or visit nspcc.org.uk/giftsinwills
69
And after
Charity No 1070906
medical assistance was invoked as to Mrs. Morris’s capacity to enter into this unusual transaction and make the proposed will.” In Re Key, 52 Brigg J (as he then was) laid much of the blame for a will dispute at the door of the draftsman “Contrary to the clearest guidance in well-known cases, academic texts and from the Law Society…. [he] accepted instructions….without taking any proper steps to satisfy himself of [his client’s] testamentary capacity”. He continued “[his] failure to comply with what has come to be well-known in the profession as the Golden Rule has greatly increased the difficulties to which this dispute has given rise and aggravated the depths of mistrust into which his client’s children have subsequently fallen”. 2.29 A major difficulty for the practitioner is the inconsistent approach of the court to compliance with the Golden Rule. As the preceding paragraph illustrates, noncompliance has been used to castigate the draftsman for his conduct. On the other hand there are occasions where the Rule has been ignored when looking at the conduct of the draftsman. 53 Despite this latter point, the Golden Rule is an issue that has to be taken seriously and be understood by all draftsmen. It can be followed, or not, depending upon the careful judgment of the draftsman. Reasons for or against following it should carefully recorded in order that the draftsman’s care with the subject can, if necessary, be demonstrated to the court. 2.30 To find that meticulous compliance with the Golden Rule should be determinative of a will’s validity was a view rejected by the Court of Appeal in Sharp v Adam. 54 It is however worth considering the remaining comments attached to that view in the judgment: - “The opinion of a general practitioner, unimpeachable in itself and supported by that of one or more solicitors, may nevertheless very occasionally be shown by other evidence to be wrong. The golden rule is a rule of solicitors’ good practice, not a rule of law giving conclusive status to evidence obtained in compliance with the rule. Nevertheless, where a testator’s apparent mental state is observed and recorded at the time when he actually executes the will in complete compliance with the rule and with the care with which it was in the present case; and where professional people concerned reached a properly informed and recorded conclusion that the testator does have testamentary capacity, it will require very persuasive evidence to enable the court to dislodge that conclusion.” This makes it clear that the rule, although merely a statement of good practice, has value and compliance, where the medical practitioner and solicitor
Re Key, Key v Key [2010] WTLR 623 Hawes v Burgess [2013] WTLR 453 CA 54 Sharp v Adam [2006] WTLR 1059 at [27] per May LJ 52 53
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One of the few remaining registered equine welfare charities in Wales, Lluest Horse and Pony Trust rescues, rehabilitates and re-homes some of the worst cases of neglect, cruelty and abandonment. Gooseberry the Shetland was abandoned. When admitted, he was severely emaciated but so heavily laden with worms that his tummy was grossly distended. His long coat was completely matted and it was pulling painfully on his skin. It had to be gently and painstakingly cut off. Now almost unrecognisable, Gooseberry has been re-homed to live a happy and fulfilled life. But it is only with your support that we can continue our vital work as we rely entirely on voluntary donations. You can make a genuine, lasting difference to the lives of our rescued equines, and the people they help, by making a donation or remembering us with a legacy in your will. Every penny donated means that we can continue to help those equines in desperate need.
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Lluest Horse and Pony Trust Beili Bedw Farm, Llanddeusant Llangadog, Carmarthenshire SA19 9TG
have acted properly, will not often be rejected. 55 Justification of the Golden Rule was offered in Cowderoy v Cranfield 56 with the observation that a person who is not medically qualified “may fail to detect defects in mental capacity which become apparent to a trained and experienced medical examiner who understood the legal test for testamentary capacity”. A view with which it is difficult to take exception, but the second half of that extract is as important as the first.
Larke v Nugus requests 2.31 As well as potential scrutiny by the court, the draftsman’s conduct and notes can be the subject of close scrutiny in the earlier stages of a dispute as to the validity of a will. The potential for this should inform the actions of the draftsman particularly when dealing with the elderly or infirm. 2.32 Where there is a genuine dispute as to the validity of a will Brandon LJ expressed the following views: “...in my judgment the principle which applied is that, where there is litigation about a Will, every effort should be made by the executors to avoid costly litigation if that can be avoided and, when there are circumstances of suspicion attending the execution and making of the Will, one of the measures which can be taken is to give full and frank information to those who might have an interest in attacking the Will as to how the Will came to be made. In a case of this kind, where suspicion attaches to the Will because certain persons, who have only recently come into the life of the testatrix, take a substantial benefit under the Will, then clearly the circumstances in which the instructions for the Will were given are of utmost importance, and it is information as to that matter, even more that information as to the formalities of attestation, that is needed. So I do not think that the matter turns solely on the recommendation of the Law Society; I think it also turns on the principle that I have endeavoured to state.” 57 In the same case Buckley LF added “In my view it is also clear that the statement is not intended to be confined to matters concerned with the execution of the Will in the narrow sense of the terms
However, it was rejected in Sharp v Adam. In Re Ritchie, Ritchie v Joslin [2009] EWHC 709 (Ch), Behrens J found that a delusion prevented the testatrix from having capacity and thereby found against the evidence of the solicitor and GP. He noted at [187] that the doctor based his opinion on a medical examination five weeks earlier on an unrelated medical matter. His assessment was made as to her circumstances and orientation based on his questions. He was not aware that she was intending to cut her children out of her will. He therefore made no formal assessment of testamentary capacity and his assessment was not made in the light of the unusual terms of the will. 56 [2011] WTLR 1699 at [137] 57 Re Moss, Larke v Nugus [2000] WTLR 1033 CA authors’ added emphasis 55
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73
“execution”. In my judgement it should extend to all matters surrounding the making of a disputed Will which are relevant to the question in the action and, in my view, should consequently extend to the circumstances leading up to the preparation and making of the Will.” 2.33 Disclosure of all relevant written material will usually also include a list of questions about what occurred. In order to be able to deal with these, good notes are important as is, of course, proper conduct regarding the preparation of the will. Disclosure of relevant information in this way is not confined to solicitor draftsmen. In Catling –v- Catling. 59 The will draftsman was not a solicitor and it was accepted that the principle set out in Larke v Nugus “is a general statement of best practice that is not confined to solicitors”. 2.34 A common error is for a dissatisfied party simply to demand information about the making or execution of a will under the guise of a Larke v Nugus request, without showing any evidence that a “serious dispute” exists as to the validity of a will. The current Law Society Guidance makes it clear that a serious dispute must be more than the entering of a caveat. It would not be necessary for a disappointed beneficiary to have caused a formal letter of claim to be sent (some of the information or allegations to be contained within a letter of claim would, in part, be dependent upon the receipt of replies to a Larke v Nugus letter). The will draftsman and executors could however at least expect a disappointed beneficiary to set out with particularity allegations that may be made about the validity of a will – without which any enquiries may be regarded as nothing more than unnecessary inappropriate interference in the administration of an estate – a mere fishing expedition.
59
[2014] EWHC 180 (Ch) at[42]
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HT07-14 HT07-14 WP11-14
Chapter 3 Undue influence and knowledge and approval
3.01 Matters of undue influence and knowledge and approval are frequently alleged at the same time that a claim of lack of testamentary capacity is made. They form in effect a three-pronged attack, although they are quite distinct areas. Each of them touches on the validity of a will in different ways and each involves the application of different principles. A connecting factor is that evidence for one may have relevance for the other two.
Undue influence 3.02 The doctrine relating to undue influence comes from the need for the court “to protect people from being forced, tricked or misled in any way by others into parting with their property…. and the equitable doctrine of undue influence has grown out of, and been developed by, the necessity of grappling with insidious forms of spiritual tyranny and with infinite varieties of fraud”. 1 This doctrine was not fashioned to protect a person from the result of their own foolish actions – these remain a person’s own responsibility. 2 The doctrine was developed instead to prevent the abuse of the individual by another. 3 Undue influence should be understood as being distinct from what is commonly referred to as fraud - fraud deceives a testator whereas undue influence coerces him. 4 3.03 In Etridge the view was set out that this is “to ensure that the influence of one person over another is not abused. In everyday life people constantly seek to influence the decisions of others. They seek to persuade those with whom they are dealing to enter into transactions, whether great or small. The law has set limits to the means properly employable for this purpose.” 5 This passage highlights that influence and persuasion are permissible and indeed are part of ordinary interaction between people. It is when the influence goes beyond these acceptable limits that the court will intervene. Allcard v Skinner (1887) 36 Ch D 145 Allcard v Skinner (1887) 36 Ch D 145 3 “the victimisation of one party by another” National Westminster Bank plc v Morgan [1985] AC 686 at 705 per Lord Scarman; Johnson v Buttress (1936) 56 CLR 113 4 Theobald on Wills (17th edition Sweet & Maxwell) at 3-031 5 Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44 1 2
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Facing Africa is a small registered charity, established in 1998 that sends two teams of highly experienced and skilled plastic, maxillo-facial and cranio-facial surgeons to Ethiopia every year to carry out complex and lengthy reconstructive surgery on children who suffer unimaginable pain, distress and outcast by their own rural communities caused by a little-known disease called “noma”. Noma is a flesh eating disease that attacks children under the age of 6 years. Within 3 to 4 weeks a victim can have half his/her face missing. They cannot eat, drink, speak or smile and children become outcasts from their schools, communities and often their own families. Each Facing Africa mission is made up of 16 - 20 volunteers from the UK, Holland, Ireland, Germany and France who spend 2 weeks in Ethiopia helping these poor victims to have new faces and new lives. Each mission costs around £ 75,000 and covers flights, hotel accommodation for the team, drugs, consumables, disposables, surgical instruments and the cost of looking after the patients for 6 - 8 weeks from the time they leave their villages till they have fully recovered from their operations and are free of all infections and complications. Every patient is followed up either for inspections or further surgery. Each mission usually does between 30 - 40 reconstructions. Facing Africa House Facing Africa has built its own pre’ and post operative care centre just outside Addis Ababa with 3 separate buildings with dormitories for up to 40 patients, hot showers, toilets, dining and recreation rooms, laundry room, playing fields and is staffed by 8 of our own wound care nurses from Europe and Ethiopia. Facing Africa House
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3.04 In Daniel v Drew 6 it was observed “…. that in all cases of undue influence the critical question is whether or not the persuasion or the advice, in other words the influence, has invaded the free volition of the donor to accept or reject the persuasion or advice or withstand the influence. The donor may be led but she must not be driven and her will must be the offspring of her own volition, not a record of someone else’s. There is no undue influence unless the donor if she were free and informed could say ‘This is not my wish but I must do it’”. 3.05 The practical problem presented by this is twofold
1. It is difficult to draw exactly the line that is crossed from persuasion to undue
2. The line is drawn at a different point for each individual, depending upon their
influence and
personal circumstances. 3.06 This practical problem was commented on in Etridge: “The circumstances in which one person acquires influence over another, and the manner in which influence may be exercised, vary too widely to permit of any more specific criterion.” 7 This follows on from earlier warnings on the same point: “There is no precisely defined law setting limits to the equitable jurisdiction of a court to relieve against undue influence. This is a world of doctrine, not neat tidy rules”. 8 As a consequence, the court has not tried to set out a definition.9 The lack of a definition does have the virtue of allowing the court to examine novel circumstances and, where appropriate, bring them within the accepted scope of undue influence. 3.07 Royal Bank of Scotland v Etridge (No.2) 10 was the leading modern examination of undue influence by the House of Lords. The principles that are to be found in this judgment were later summarised in Thompson v Foy 11 : i) The objective of the doctrine of undue influence is to ensure that the influence
of one person (“the donee”) over another (“the donor”) is not abused.
Daniel v Drew [2005] WTLR 807 applied in Thompson v Foy [2009] EWHC 1076 (Ch) Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44 8 National Westminster Bank plc v Morgan [1985] AC 686; 9 “no court has ever attempted to define undue influence” Allcard v Skinner (1887) 36 Ch D 145; “It is impossible to define….I certainly do not propose to do so” Governor & Company of the Bank of Scotland v Bennett [1997] 1 FLR 801 10 [2001] UKHL 44 11 [2009] EWHC 1076 (Ch) 6 7
78
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Comment: Abuse does not necessarily mean overt threats or actual violence,
although these will sometimes be present: “….it is not necessarily require
deliberate exploitation, sharp practice; the doctrine will apply where there
has been a failure of the obligation of candour and fairness owed by A to B
and a preference by A of his interests to those of B” 12
ii) If the donee intends to enter into a transaction, but the intention was produced
by means which lead to the conclusion that the intention thus procured ought
not fairly to be treated as the expression of the donor’s free will, the law will not
permit the transaction to stand.
Comment: It is not merely the transaction that needs to be looked at, but how
the donor’s intention to enter into it was formed. The donor might genuinely
intend to do some act to bring an end to the pressure, that intention might
have been former by the lack of candour or fairness (see (i) above)
iii) Broadly there are two forms of unacceptable conduct The first comprises overt
acts of improper pressure or coercion such as unlawful threats. The second
form arises out of a relationship between two persons where one has acquired
a measure of influence, or ascendency, of which the ascendant person then
takes unfair advantage.
iv) The principle is not confined to abuse of trust or confidence. It also extends to
the exploitation of the vulnerable. 13
v) Disadvantage to the donor is not a necessary ingredient of undue influence.
However, it may have evidential value, because it is relevant to the questions
whether any allegation of abuse of confidence can properly be made, and
whether abuse actually occurred.
vi) Whether a transaction has been brought about by undue influence is a
question of fact.
Comment: See later in this chapter for the difficulties of proving undue influence
and the inferences that might be drawn from circumstantial evidence.
vii)The legal burden of proving undue influence rests on the person alleging it.
The evidence required to discharge the burden of proof depends upon
the nature of the undue influence alleged, the personality of the parties,
Evans v Lloyd [2013] WTLR 1137 [2001] UKHL 44 at [11] “Several expressions have been used in an endeavour to encapsulate the essence: trust and confidence, reliance, dependence or vulnerability on the one hand and ascendancy, domination or control on the other. None of these descriptions is perfect. None is all embracing. Each has its proper place”. 12 13
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MCW Probate Research Finding the inheritor for you
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their relationship, the extent to which the transaction cannot readily be
accounted for by the ordinary motives of ordinary persons in that relationship,
and all the circumstances of the case.
viii)If the claimant proves (a) that the donor placed trust and confidence in the
donor or that the donee acquired ascendancy over the donor, and (b) that
the transaction calls out for explanation, the claimant has discharged an
evidential burden, which will also enable an inference of undue influence to
be drawn and thus satisfy the legal burden, unless the donee produces
evidence to counter the inference which would otherwise be drawn.
ix) This is simply a question of evidence and proof. At the end of the day, after
trial, there will either be proof of undue influence or that proof will fail and it
will be found that there is no undue influence. In the former case, whatever
the relationship between the parties and however the influence was exerted,
there will have been found to have been an actual case of undue influence.
In the latter there will be none.
x) Proof that the donor received advice from a third party before entering into
the impugned transaction is one of the matters a court takes into account
when weighing all the evidence. The weight, or importance, to be attached to
such advice depends on all the circumstances. In the normal course,
advice from a solicitor or other outside adviser can be expected to bring home
to a donor a proper understanding of what he or she is about to do. But a
person may understand fully the implications of a proposed transaction,
for instance, a substantial gift, and yet still be acting under the undue
influence of another. Proof of outside advice does not, of itself, necessarily
show that the subsequent completion of the transaction was free from the
exercise of undue influence. Whether it will be proper to infer that outside
advice had an emancipating effect, so that the transaction was not brought
about by the exercise of undue influence, is a question of fact to be decided
having regard to all the evidence in the case.
xi) The nature of the advice required is that someone free from the taint of
undue influence should put before the donor the nature and consequences
of the proposed transaction. It is not necessary for the adviser to recommend
the transaction. An adult of competent mind is entitled to enter into a
financially unwise transaction if he or she wants to.
82
95 1920-2015
years ago we began caring for ex-service personnel... we still do. Help us to continue our work.
Founded in 1920 for the ‘comfort, cheer and entertainment’ of ex-servicemen wounded in WWI, The Not Forgotten Association continues to help and support serving and ex-service men and women with injuries or disabilities of any kind. Anyone who has served or is currently serving in the Armed Forces, regular or reserve, whatever their age, may be eligible for our help. Each year we help more than 10,000 beneficiaries through our unique programme of events and activities, including: Concerts in ex-service care homes Adventure activity breaks Outings, visits and day trips Individual and group holidays Televisions and TV licences Lunches and afternoon teas with entertainment Royal Christmas and Summer Garden Parties Of course, these activities come at a cost and as a non fundraising charity we rely totally on the generosity of others who recognise the value of our work. We are therefore hugely grateful to those organisations and individuals who support us through their donations, grants, fundraising activities and legacies. Every contribution will help us to ensure that those who have served their country and are now suffering from injury, disability or illness are not forgotten.
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Charity No 1150541 Š Giles Price
For the wounded Remembrance Day is every day 83
3.08 From the above it is clear that there are two types of undue influence:
• actual undue influence and
• presumed undue influence.
Actual undue influence is relevant to wills and presumed undue influence will apply to lifetime transactions. The two are separate issues and presumed undue influence has no application to wills.
Undue Influence and wills 3.09 Sir J P Wilde’s direction to the jury in Hall v Hall 14 which sets out the key elements for undue influence and wills: • “To make a good will a man must be a free agent.” • “But all influences are not unlawful. Persuasion, appeals to the affection or ties
of kindred, to a sentiment of gratitude for past services, or pity for future
destitution, or the like, - these are all legitimate, and may be fairly pressed on a
testator.” Too often the claimant tries to found his claim on the basis that
appeals to the testator or persuasion applied is sufficient when in manifestly is
not. The claimant needs to distinguish carefully between this and undue
pressure being placed on the testator.
• “On the other hand, pressure of whatever character, whether acting on the
fears or the hopes, if so exerted as to overpower the volition without convincing
the judgment, is a species of restraint under which no valid will can be made.”
Pressure occurs when the influencer goes beyond appeals or persuasion.
However, not all pressure will amount to undue influence unless it reaches
the point where it “overcomes the volition”. Short of this point pressure may be
distasteful but it is not undue influence. As previously noted, identifying the point
at which persuasion passes to undue pressure is often the real issue.
• “Importunity or threats, such as the testator has not the courage to resist, moral
command asserted and yielded to for the sake of peace and quiet, or of
escaping from distress of mind or social discomfort, these, if carried to a degree
in which the free play of the testator’s judgment, discretion or wishes, is
overborne, will constitute undue influence, though no force is either used
or threatened.”
14
(1868) 1 P & D 481 – at this time the validity of a will was tried before a jury.
84
Foundation for Liver Research
The Heartbeat Home for Horses Limited is a registered charity, whose aim is to care for horses who otherwise would face a very uncertain future.
1 in 10 people will suffer from some form of liver disease
Our aim is to provide a lifeline for these needy, homeless animals, allowing them to relax in comfortable surroundings in retirement, with lots of tender loving care.
Unfortunately that is likely to include someone you know and love and you may have already experienced the distress and heartache of someone who has faced the pain of liver disease.
• Heartbeat horses are often large, 16hh+ - it can be difficult to find a retirement home for them
Our scientists are working to improve methods of diagnosis and treatment for a variety of liver conditions including liver cancer, alcoholic liver disease, fatty liver disease and viral hepatitis. Earlier diagnosis often means that treatments will have a better chance of success; newer treatments will hopefully be more effective and with less side effects. We would love to cure liver disease but for now we have a more immediate aim - to improve diagnosis and treatments for those affected.
• Heartbeat Horses are NOT re-educated, or re-homed, or adopted • Heartbeat Horses retire to enjoy a good quality of life • Heartbeat will not put a healthy horse to sleep • We need to expand, due to the long waiting list of horses waiting to retire, or worse • We have CCTV in the stables, to monitor horses who are unwell
The Foundation depends on donations to fund this research. A donation in your Will helps us continue our work.
Many of Heartbeat guests would not be alive today, if they had not been able to retire to the Heartbeat Home for Horses.
Help us fight liver disease Foundation for Liver Research Institute of Hepatology, Harold Samuel House 69 –75 Chenies Mews London WC1E 6HX Tel: 020 7255 9830 www.liver-research.org.uk http://www.facebook.com/F4LiverResearch @F4LIverResearch
www.retiredhorses.org.uk Telephone 01986 798387 (Home) 01728 602 739 (Shop) Email woodyates@hotmail.co.uk Registered Charity No.1106722
A small place in a will today can help transform hundreds of lives tomorrow Woodside Animal Centre take in and care for stray and unwanted pets, aid the recovery and return of injured wildlife to their natural habitat plus care and rehabilitate animal victims of cruelty. Over the last ten years alone Woodside Animal Centre has successfully rehomed over 36,000 animals and proudly boasts one of the lowest animal return rates in the UK.
Please Note: Although Woodside Animal Centre is proud to be part of the RSPCA independent branch network, we are a separate self-funding charity totally reliant on the donations we gratefully receive from the generous people of Leicestershire. If you wish to make a bequest to Woodside Animal centre please ensure the charity number 222621 is included in any documentation.
Centre Number 01162 336677 Cruelty Number 0300 1234 999 www.rspcaleicester.org.uk
Please Donate 85
www.backuptrust.org.uk
Comment: The key element here is overcoming the testator’s free will and it is
identifying whether or not this happened that is essential. When put in the
context of the elderly or the infirm, this element is highly relevant. Those who are
more frail, either physically, mentally or both, may well have a lower point at
which resistance ceases and they do as the influences requires.
• “In a word, a testator may be led but not driven; and his will must be the
offspring of his own volition, and not the record of someone else’s.” 15
3.10 In Re Edwards,16 there is a modern summary of the current law on undue influence as it relates to wills 3.11 (i) “In a case of a testamentary disposition of assets, unlike a lifetime disposition, there is no presumption of undue influence.” For a will, as said earlier, there is no presumption of undue influence arising out the relationship between a testator and another, no matter what the relationship involved might be.17 This is a more stringent approach to undue influence for wills than that set out in Royal Bank of Scotland plc v Etridge (No2) 18 for other transactions. This different test for undue influence and wills is of longstanding, but why this should be so is less than clear 19 and has on occasion been the subject of comment by the court. However, it would require statutory reform, or a review by the Supreme Court, if it is to be altered. 3.12 Issues of undue influence can arise between spouses 20 (or any other occasion when two people are seen together for mirror image wills). The problems for the draftsman in such meetings will usually centre on how he can establish the extent to which the wishes of both parties are their own. The questions for the draftsman will usually be
• Is one party letting the other speak for both because they are already in
agreement and it is easier that way?
Authors’ editing for emphasis Re Edwards, Edwards v Edwards [2007] WTLR 1387 Ch D 17 Boyse v Rossborough (1857) 6 HLC 3 “Undue influence cannot be presumed”; Parfitt v Lawless (1872) LR 2 P&D 462; Craig v Lamoureaux [1920] AC 349; Tchiligirian v Ouzounian [2003] WTLR 709; Hubbard v Scott [2012] WTLR 29; Re Edwards, Edwards v Edwards [2007] WTLR 1387 18 [2001] UKHL 44 19 Buckenham v Dickson [2000] WTLR 1083 has some discussion of this particularly in the context of spouses 20 the first instance decision in Gill v Woodall [2009] EWHC B34 (Ch) found there was undue influence although this was not found on Appeal 15 16
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RSPCA Bristol Branch Clinic & Bristol Dogs and Cats Home Registered Charity No. 205858
The largest Branch Clinic in the country, we treat thousands of animals every year, providing a 24 hour veterinary service for lost, sick and injured animals, subsidised treatment for people on a low income and a first aid centre for wildlife casualties. Bristol Dogs and Cats Home provides care, shelter and a re-homing service for nearly 2,000 unwanted, abandoned and mistreated cats, dogs and small animals every year. Although a branch, we are independent from the National RSPCA and with costs of over £32,000 a week, we rely entirely upon public donations to give animals in need a life free from pain or neglect.
Animals in Distress is a local animal welfare charity and Rescue Centre that cares for and rehomes over 600 cats, dogs, rabbits and guinea pigs in South Devon every year. We are passionate about the welfare of the animals in our charge and always treat them with dignity and kindness. We are committed to keeping them healthy and secure until they are in their new, forever homes. Animals in Distress receives no government funding thus relies on the generosity of supporters to care for the animals who are in such desperate need. One third of Animals in Distress’ work is funded by gifts left in Wills. Without the incredible generosity of our legacy supporters we simply wouldn’t be able to provide the animals with the care and accommodation that they need and deserve. For more information about how you can remember Animals in Distress in your Will, please contact Katie Swan on 01803 812121 or katie@animalsindistress.uk.com
www.animalsindistress.uk.com
For further information contact us on 0117 9714197 or visit our website at
www.rspca-bristoldogsandcatshome.org.uk
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• Is one speaking for both, without prior discussion, because that party takes all
the decisions and the other habitually acquiesces?
• Is the party that is silent, silent through fear or pressure? 21
3.13 The draftsman’s aim therefore is encourage the participation of both parties in the discussion
• without this, it will be difficult to establish the independence of each party
• without this it will be difficult to establish testamentary capacity of both
• where there have been previous relationships for either party, the draftsman is
looking to encourage openness of intention towards provision for children of
those relationships, without making either party think they are being disloyal, or
untrusting, towards the new partner (and issue from the new relationship).
With most wills, the draftsman will be looking to take instructions in the absence of any other party, especially one with an interest in the terms of the will. However, attempting to so with husband and wife is often seen as impertinent.
ii) “Whether undue influence has procured the execution of a will is therefore a
question of fact.” 3.14 In Re Wilkes 22 it was said that: “Undue influence means coercion to make a will in particular terms.....The proof of motive and opportunity for the exercise of such influence is required, but the existence of such, coupled with the fact that the person who has such motive and opportunity has benefitted by the will to the exclusion of others, is not sufficient proof of undue influence. There must be positive proof of coercion overpowering the volition of the testator”. 23 3.15 The reference to coercion is significant as the presumption of undue influence cannot apply to a will, coercion becomes an alternative description for undue influence in the context of a will. 24 Coercion may involve violence, imprisonment, threats, emotional blackmail or simply persistent mental pressure that overcomes the free will.
Or not understanding what is going on? [2006] WTLR 1097 23 In Vaughan v Vaughan [2005] WTLR 401 “The plea of undue influence will only succeed when it is shown by admissible evidence that the testator was coerced into doing that which he did not wish to do” 24 Hall v Hall (1868) 1 P&D 481; Wingrove v Wingrove (1885) 11 PD 81; Re Good, Carapeto v Good [2002] WTLR 801 21 22
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Victoria and Albert Museum
The world’s greatest museum of art and design
The V&A is the world’s greatest museum of art and design. It is a charity that receives some government funding, but we depend on the generosity of supporters to satisfy our mission to enrich people’s lives and inspire and inform the millions of visitors who enter our doors each year. All legacies, regardless of size, will be invested in the V&A’s FutureFund, our endowment fund to safeguard the work of the Museum for future generations. This will help support our work across: -
Collections and conservation
-
FuturePlan’s transformation of galleries, collection displays and visitor facilities
-
Exhibition and education programmes
-
New acquisitions
If you wish to help the V&A fulfil its mission and protect our heritage, you may wish to consider a gift in your Will, once family and friends are provided for. For more information, please click here and request a legacy booklet. Alternatively, please contact Susan Hughes, Legacies Manager at legacy@vam.ac.uk or 020 7942 2716
Life’s Urgent Care for the Young LUCY Air Ambulance for Children is a dedicated air transfer service for critically ill children. Registered Charity No: 1138457 Patron: Zara Phillips Lucy stands for 'Life’s Urgent Care for the Young' and Lucy Air Ambulance for Children is the UK’s first dedicated air transfer service to fly critically ill infants and children from local hospitals to the relevant centre of excellence, supported by professional staff trained for in flight care. Lucy works alongside the NHS to deliver the highest standards of service to give the best survival chances.
Where Deaf people participate and have equal access to the Greater Manchester Community
Providing for your loved ones is the most important thing to consider when writing a Will. However, once they have been considered you may wish to leave a legacy to support our work. One way of doing this is to include a residuary legacy to Lucy Air Ambulance – this is a percentage of your estate after everyone else has been provided for.
www.lucyairambulance.org.uk
0161 273 3415 www.manchesterdeafcentre.com 89
3.16 Fact in this area is usually difficult to prove. Those who want to gain unfairly from undue influence will not do it openly, particularly not in front of those who will lose out if the undue influence succeeds. They will instead look to exert their power away from the eyes of those who oppose them, or others inclined to assist those who would oppose them. For this reason, direct questions to a testator (e.g. Are you unduly influenced by anyone else in making this will) are useless. 25 Firstly the testator will not understand the meaning of undue influence in this context. Secondly the testator will rarely be sufficiently liberated from the influence at the interview to admit the influence and confess that he doesn’t want the will he has just given instructions for. Thirdly the testator is usually scared to tell the extent and reason for the influence (and his doubts about it). The draftsman’s work will therefore involve
• being alert to any signs that the testator is hesitant or lacks rational grounds for
the terms he has decided on
• being alert to irrational explanations of family relationships
• being alert to frequent references to what a particular beneficiary might want
or expect him to do
• considering how the will instruction meeting came to be set up
• ensuring that where others are unavoidably present that there participation is
minimal (even this may not be enough if their very presence is sufficient to continue pressure on the testator.
• asking questions to establish a better understanding of what the testator’s own
views are 3.17 The questions, and recorded observations, should be less direct and aimed at establishing as much detail of the surrounding circumstances as the draftsman can. This is in order to establish as full a picture as possible of all relevant circumstances that might excite the suspicion of the court. Simple questions about undue influence will rarely be adequate.
25
In Schrader v Schrader [2013] WTLR 701 the instruction form recorded “I have asked and received confirmation that [the testatrix] was not being put under any undue pressure or influence as to the distribution of the property. I confirmed this with [her] while [the son] was out of the room”. The judge observed that he did not think this attempt “to ascertain whether there was pressure on her, the fruits of which are recorded on her instruction form, are a particularly strong counter-indication in this case. If the more subtle form of undue influence is being applied, its victim would hardly be likely to answer “yes” to the question”.
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3.18 Fact often becomes established by a sufficient aggregate of circumstances that amounts to proof in the opinion of the court. In Schrader v Schrader 26 a claim of undue influence was accepted by the court. The background to the matter was:
1. The testatrix had a will prepared by solicitors in 1990 which left some specific
2. In May 2005, one son moved in with her to act as her carer after she had a fall
gifts to grandchildren and divided residue between her 2 sons.
(his house was sold by his trustee in bankruptcy around the same time).
3. In April 2006 she executed a new will. The son made all the arrangements for
this will using a will writing company. This will differed from the 1990 will in
leaving her house to the son. The house was the main asset of the estate and
therefore she was substantial excluding the other son from benefit.
3.19 The court found that the testatrix had both testamentary capacity and knowledge and approval of the contents of the will. However, the court further found that that there was undue influence, on the part of one son in the making of this will. The finding of undue influence was not based on direct proof, but was based on the aggregate of the following circumstances 27:
i. The testatrix was vulnerable. She was in her mid-90s and was less capable than
before her fall.
ii. She was very dependent upon the son since her fall. This was not total
dependence and she clearly had a mind of her own, but she would have been
very worried at the prospect of the son moving out and ceasing to care for her.
iii. Not using the previously used solicitors raised issues. The explanation given by
the son was unsatisfactory. Turning to a will writer instead ensured that the
will would be prepared with no prior knowledge of the testatrix and
her circumstances.
iv. The testatrix’s reason for leaving the house to the son was factually incorrect
and the source of that information was found by the court to be the
son himself.
v. The absence of any evidence that the testatrix would have wanted to alter he
will in respect of the house.
vi. The son was a forceful man with a strong physical presence, but there was no
finding of threat or violence. He had a grievance that he perceived he had
been not been treated equally with his brother. The judge referred to his
“hatred” of his brother. [2013] WTLR 701 Drawing inference from the circumstances – Re Good, Carapeto v Good [2002] WTLR 801; Cowderoy v Cranfield [2011] WTLR 1699 26 27
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vii. The son’s evidence regarding the will was unsatisfactory. He was involved far
more than he admitted and despite his denials was involved directly in
amendments to the draft will.
The cumulative effect of these points was in the court’s view sufficient to support the finding of undue influence. “(iii) The burden of proving it lies on the person who asserts it. It is not enough to prove that the facts are consistent with the hypothesis of undue influence. What must be shown is that the facts are inconsistent with any other hypothesis. In the modern law this is, perhaps, no more than a reminder of the high burden even on the civil standard, that a claimant bears in proving undue influence as vitiating a testamentary disposition.” 3.20 It is not sufficient for a claim of undue influence merely to show that someone has the ability to influence another unduly: “……it is not sufficient to establish that a person has the power unduly to overbear the will of the testator. It must be shown that in the particular case the power was exercised, and that it was by means of the exercise of that power that the will was obtained”. 28 3.21 Further, it is not enough to prove that the facts are consistent with a claim of undue influence, but the facts must also be shown to be inconsistent with any other rational hypothesis. 29 In Hubbard v Scott 30 the judge observed: “Undue influence is not the only hypothesis with which the making of the 2009 will is consistent. There is another perfectly rational explanation. The testator was elderly and lonely. The visits of the claimants and their mother had become less frequent. He had no-one else to whom he wanted to leave his estate. There was no-one at all for whom he was, or felt, obliged to provide. He described himself to [the solicitor] as an orphan. [The defendant] came into his life and he became fond of her. In all these circumstances I find that undue influence is not made out.” 3.22 In Cowderoy v Cranfield, 31 took a slightly different approach. Having noted the requirement to be inconsistent with any other hypothesis, the view was expressed that, taking note of the considerable evidence surrounding the circumstances of the will, it was more appropriate simply to ask “whether the party asserting undue
Craig v Lamoureux [1920] AC 349 Boyse v Rossborough (1857) 6 HLC 2 30 [2012] WTLR 29 31 [2011] WTLR 1699; cited with approval in Schomberg v Taylor [2013] WTLR 1413 28 29
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influence has satisfied me to the requisite standard of that the will was executed as a result of undue influence”. This suggests that the weight of other evidence may well overcome the possibility of hypotheses being rational. 3.23 In order to establish undue influence a five question test was proposed in Killick v Poutney. 32 In order to answer the question “had the plaintiff established his case?” the court suggested that five points were to be satisfied
1. Was the defendant in a position to exercise influence over the testator?
2. Did the defendant exercise influence over the testator?
3. Was the influence exercised undue?
4. Was the undue influence exercised in relation to the disputed will?
5. Was it by means of the undue influence that the will was executed?
These are a good start point in evaluating the strength of any claim. “(iv) In this context undue influence means influence exercised either by coercion, in the sense that the testator’s will must be overborne, or by fraud.” 3.24 In Wingrove v Wingrove this was otherwise expressed as: “To be undue influence in the eye of the law there must be – to sum it up in one word – coercion. It must not be the case in which a person has been induced …….. to come to a conclusion that he will make a will in a particular person’s favour, because if the testator has only been persuaded or induced by considerations which you may condemn, really and truly to intend to give his property to another, though you may disapprove of the act, yet it is strictly legitimate in the sense of its being legal. It is only when the will of the person who becomes a testator is coerced into doing that which he does not desire to do, that is undue influence” 33 3.25 Coercion for this purpose may arise from a variety of conduct. At one extreme it could be imprisonment or actual physical violence and the other it may more subtle constant pressure with no violence threatened at all. It will include conduct such as • threatened violence, • bullying, • persistent verbal pressure, particularly against the ill of enfeebled
[2000] WTLR 41 (1885)11 PD 81 ; Parfitt v Lawless (1872) LR 2 P&D 462 undue influence for a will “raises the question of coercion and that only” per Lord Penzance; Hubbard v Scott [2012] WTLR 29 “persuasion without more is not coercion”
32 33
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• threatened withdrawal of help and services to the testator, or • ostracism of the testator by family. 3.26 In Walker v Walker 34 this theme was developed: “… actual undue influence…. may take many forms and may be subtle. It is need not just be an instant act of pressure, intimidation or domination, but may take the form of control, domination, or emotional pressure over a period of time, so that a person is so controlled, crushed, or so intimidated or dominated that they will do almost anything to please another, to prevent anger, or to avoid conflict, to have a peaceful existence…..”. The suggestions here that undue influence may be “subtle” or use “pressure over a period of time” highlight that matters of undue influence may well be neither blatant nor immediately apparent. As noted earlier, the draftsman cannot expect undue influence to be clear and openly apparent. “(v) Coercion is pressure that overpowers the volition without convincing the testator’s judgment. It is to be distinguished from mere persuasion, appeals to ties of affection or pity for future destitution, all of which are legitimate. Pressure which causes a testator to succumb for the sake of a quiet life, if carried to an extent that overbears the testator’s free judgement, discretion or wishes, is enough to amount to coercion in this sense.” 3.27 The tipping point at which at which pressure then overcomes free will is very hard to identify and it will vary according to the person being influenced. 35 The draftsman must recognise this. It will therefore not always be possible to be sufficiently certain that this tipping point has been crossed and that the will instructions are a result of undue influence. What is importance is that the possibility is investigated where circumstances warrant it. A decision as to proceed with the will, or refuse the instructions, needs to be decided after a careful weighing of the factors discovered. “(vi) The physical and mental strength of the testator are relevant factors in determining how much pressure is necessary in order to overbear the will. The will of a weak and ill person may be more easily overborne than that of a hale and hearty one. As was said in one case simply to talk to a weak and feeble testator may so fatigue the brain that a sick person may be induced for quietness sake to do anything. A drip drip approach may be highly effective in sapping the will.”
[2007] All ER (D) 418 “It is difficult to determine in any case the point at which the influence of one mind upon another amounts to undue influence” National Bank of Montreal v Stuart [1911] AC 120 34 35
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3.28 This point links closely with the previous point. Clearly “not all influence is undue influence. Even very strong persuasion and `heavy family pressures` are not, of themselves, sufficient”. 36 Pressure which caused the testator to succumb for the sake of a quiet life, if carried further, to the extent that it overcame his free judgment, discretion or wishes, is enough to amount to coercion. It is hard to determine this because there is no abstract set of criteria against which all influence could be judged. 3.29 Whether or not actions amount to undue influence will be dependent heavily on the individual circumstances of each case. Circumstances will include
• the mental capacity of the person being influenced
• the physical strength of the person being influence, particularly in the context
of terminal or debilitating illness
• the extent to which the person being influenced is isolated from friends,
relatives, neighbours and advisers (including previously used advisers who are
familiar with the circumstances of the person)
• the strength of character of the person influencing them
• the physical or emotional needs of the person being influenced
• the nature and manner of the influence exerted
• the duration and frequency of the influence being exerted
• the value, or significance, of the benefit conferred on the person influencing
the testator 3.30 The influence needed to be undue influence may be much slighter in cases where the testator is of limited mental or physical strength; “…a person in the last days or hours of life may have become so weak and feeble, that a very little pressure will be sufficient to bring about the desired result, and it may even be, that mere talking to him at that stage of illness and pressing something upon him may so fatigue the brain, that the sick person may be induced, for quietness sake, to do anything. This would be coercion, though not actual violence”. 37
Governor & Company of the Bank of Scotland v Bennett [1997] 1 FLR 801; Re Devillebichot, Brennan v Prior [2013] WTLR 1701 where there was “plenty of evidence” of opportunity to influence the testator and that this was opportunity was taken, but no of was coercion or pressure sufficient to amount to undue influence. 37 Wingrove v Wingrove (1885)11 PD 81; Schomberg v Taylor [2013] WTLR 1413 36
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The will of a vigorous healthy person of normal capacity, would by contrast, normally require greater pressure. Much will depend upon the strength of character of the individual. For example, in the case a will, the testator who has impaired capacity, but still retains sufficient capacity for his will, is less likely to be able to resist undue influence than would be the case of a person with a mind that is sharp and vigorous. Similarly, physical frailty, particularly through illness, may mean that the person being influence has less will to resist the process. 38 “(vii) There is a separate ground for avoiding a testamentary disposition on the ground of fraud. The shorthand used to refer to this species of fraud is .fraudulent calumny. The basic idea is that if A poisons the testator’s mind against B, who would otherwise be a natural beneficiary of the testator’s bounty, by casting dishonest aspersions on his character, then the will is liable to be set aside.” and “(viii) The essence of fraudulent calumny is that the person alleged to have been poisoning the testator’s mind must either know that the aspersions are false or not care whether they are true or false. In my judgement if a person believes that he is telling the truth about a potential beneficiary then even if what he tells the testator is objectively untrue, the will is not liable to be set aside on that ground alone.” 3.31 Taken together, these two points deal with a more rare type of undue influence. The only recent reported case is Re Edwards, 39 where there were complex family relationships and the claimed undue influence by fraudulent calumny was alleged by one son against the other son regarding their mother’s will. This took the form of persistent untruths about the conduct of the other son aimed at persuading the testatrix to exclude him from her will. The judge concluded that one son had exerted undue influence by fraudulent calumny against the other son in order to obtain a will. 40 “(ix) The question is not whether the court considers that the testator’s testamentary disposition is fair because, subject to statutory powers of intervention, 41 a testator may dispose of his estate as he wishes. The question, in the end, is whether in making his dispositions, the testator has acted as a free agent.”
Hampson v Guy (1891) 64 LT 778; Hubbard v Scott [2012] WTLR 29 “persistent pestering of a frail person….is more likely to overbear his will than mere pestering of someone who is hale and hearty”; Pearce v Beverley WTLR [2014] 85 where the donor was “infirm and vulnerable” 39 Re Edwards, Edwards v Edwards [2007] WTLR 1387; also Re Boyes deceased [2013] EWHC 4027 (Ch) where the claim failed 40 Which divided the estate equally between A and B 41 e.g. Inheritance (Provision for Family and Dependants) Act 1965 38
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3.34 When considering undue influence and a will
• undue influence is not influence that is solely bad or immoral 42
• influence is not judged from a moral standpoint or as an issue of fairness 43 in the
terms of the will
• it is judged from fact
• it is concerned with a degree of coercion to overcome the free will of
the testator 44 These are points that can too often be lost on the family members who will quite understandably tend to look at a family as a matter of morality and fairness. Undue influence over part of a will 3.35 Where it can be shown that only part of a will resulted from undue influence, that part of the will can be rejected by the court and probate then granted to the remainder 45. This should only be done where it is possible to sever the part that is rejected without altering the meaning of what is left. 46
Knowledge and Approval 3.36 It is a requirement for a valid will that a testator knows and approves of the contents of his will. Knowledge and approval has been defined in several recent cases, all to the same effect • “Knowing and approving of the contents of one’s will is traditional language for
saying that the will “represented [one’s] testamentary intentions.”” 47
• “Knowledge and approval of the contents means only that the testator knows
that he is making a will, knows what the terms of it are and intends that those
terms should be incorporated into and given effect by the will.” 48
Wingrove v Wingrove (1885)11 PD 81 where Sir James Hannen referred to “a young man…. caught in tolls of a harlot” being subject to an evil or immoral influence, but that was insufficient without coercion – “….even very immoral considerations either on the part of the testator, or of someone else offering them, do not amount to undue influence unless the testator is in such a condition, that if he could speak his wishes to the last, he would say, “this is not my wish, but I must do it”; Baudains v Richardson [1906] AC 169 43 Re Edwards, Edwards v Edwards [2007] WTLR 1387 44 Hall v Hall (1868) 1 P&D 481; Wingrove v Wingrove (1885) 11 PD 81 45 Billinghurst v Vickers (1810) 1 Phill. 187 46 Rhodes v Rhodes (1882) 7 App Cas 192 47 Gill v Woodall [2011] WTLR 251 CA citing Fuller v Strum [2002] WTLR 199 CA at [59] 48 Ark v Kaur [2010] EWHC 2314 (Ch) WTLR (w) 2010-10
42
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• “….that he understood what he was doing, and its effect (that is to say that he
was making a will containing certain dispositive provisions) so that the
document represents his testamentary intentions.” 49
3.37 In order for a will to be valid, the testator must know and approve of its contents 50 at the time that he executes it. 51 Knowledge and approval
• is not a statutory requirement for a will,
• is it not a part of the test of testamentary capacity
• is a separate requirement for the validity of a will and
• comes from the necessity of showing that a will is “the result of the testator’s
own intelligence and volition”. 52
3.38 A person will not have knowledge and approval of his will, if it has been signed by mistake. Where such a mistake is made by a husband and wife, for example signing each other’s wills in error, the position may different. This occurred in Marley v Rawling. 53 The intention to execute their own wills, and knowledge and approval of the contents, existed and but for the mistake they would have executed the correct documents with knowledge and approval. It was found that the wills could be saved by rectification 54 which entailed swapping the entire typed text between the two documents. 3.39 There is no requirement that a testator understands the legal effect of his will, as he is reliant on his will draftsman as to the legal operation of the words that he has used. 55 The fact that the will might not operate as was explained to him does not negate his knowledge and approval of what is contained in it. 56
Wharton v Bancroft [2012] WTLR 693 at [28] Hastilow v Stobie (1865) LR 1 P&D 64; Guardhouse v Blackburn (1866) LR 1 P&D 109; Fuller v Strum [2002] WTLR 199 CA 51 Hastilow v Stobie (1865) LR 1 P&D 64; Guardhouse v Blackburn (1866) LR 1 P&D 109; knowledge and approval, when the rule in Parker v Felgate is applied is, is required at the time of the instructions Re Perrins [2010] WTLR 1415 CA 52 Theobald on Wills 17th edition at 3-015 53 [2014] WTLR 299 SC 54 s.20(1)(a) Administration of Justice Act 1982 55 Re Morris, Lloyds Bank Ltd v Peake [1971] P 62 56 Morrell v Morrell (1882) 7 PD 68; Re Morris, Lloyds Bank Ltd v Peake [1971] P 62; Kell v Jones [2013] WTLR 507. Where the explanation reflected the testator’s intention but was incorrect it will open up the possibility of a negligence claim against the draftsman – applying the general principle of the draftsman’s duty of care from White v Jones [1995] 1 All ER 691 49 50
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3.40 Testamentary capacity can exist in the absence of knowledge and approval.57 The question of whether or not knowledge and approval can exist where capacity is lacking is less clear (although the point is perhaps less important). The point has been considered twice in recent years by the Court of Appeal. 3.41 In Perrins 58 it was found that capacity was not a prerequisite of knowledge and approval. Earlier in Hoff v Atherton, it was observed that “capacity…. is a prerequisite to a finding of knowledge and approval. A testator cannot be said to know and approve the contents of his will unless he is able to, and does, understand what he is doing and its effects”. 59 In Perrins, the Court of Appeal would not agree with this comment, except insofar as it would be true that if a court found there was no capacity it would not normally be necessary to go on to consider knowledge and approval. 60 It does seem logical that a person may have actual understanding of what they are doing by their will even though they lack the necessary capacity to make one. For example, a testator might clearly know and approve of what he has put in his will even though he cannot make one because he failed the second, third or fourth limbs of the test of capacity. It might be much harder to say this if he failed the first limb.
Franks v Sinclair [2007] WTLR 439 Perrins v Holland [2010] WTLR 1415 CA following Battan Singh v Amirchand [1948] AC 161 “A testator may have a clear apprehension of the meaning of the draft will submitted to him and may approve it, and yet if he was at the time through infirmity or disease so deficient in memory that he was oblivious of the claims of his relations, and if that forgetfulness is an inducing cause of his choosing strangers to be his legatees, the will is invalid.” – this was followed in Re Wallace [1952] 2 TLR 925; Re Flynn [1982] 1 WLR 310 and Clancy v Clancy [2003] WTLR 1097. See also Re Loxton, Abbott v Richardson [2006] WTLR 1567 at [196] and Markou v Goodwin [2014] WTLR 605 59 [2005] WTLR 99 CA this was followed in Re Key, Key v Key [2010] WTLR 623 “A conclusion that a testator lacks capacity necessarily compels a conclusion that he did not know and approve the contents of his will……he could not approve his will, even though he may have manifested an apparent assent to it, after hearing it read over to him.” (the testator lacked testamentary capacity) 60 [2010] WTLR 1415 CA 57 58
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Knowledge and approval of only part of a will 3.42 The possibility that knowledge and approval may be lacking for only part of a will is established, but there must be evidence that clearly addresses the probability of a person approving part of the document (and executing it) while not approving another part of the same document. “I do not doubt that it is possible for a court to find that part of a will did have the knowledge and approval of the deceased and that another part did not……Where a will has been duly executed by a deceased of testamentary capacity who knew he was making a will and is shown to have known and approved of a specific part of the will, the court must consider how real is the possibility that the deceased did not know and approve of the remainder of the will and that requires a careful examination of all the circumstances including the directions and dispositions of the will.” 61
61
Fuller v Strum [2002] WTLR 199 CA at 212H and 213A per Peter Gibson LJ
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Chapter 4 Revocation, Revival and Republication
Revocation 4.01 The principle statutory provisions for revocation of a will are contained in the Wills Act 1837 • s.20: by later will or destruction • s.18: by marriage • s.18B: by civil partnership
Mental capacity and revocation 4.02 The valid revocation of a will requires the requisite level of mental capacity,1 and this is the same level of understanding as is required to make a will. In the leading case on this point, Re Sabatini,2 it was argued that there should be a lower level of capacity for revocation, at least for revocation by destruction, as it should be sufficient for the testator to understand that the person receiving benefit under the will no longer merited the testator’s bounty. This argument was rejected and it was found that the capacity required was as for the execution of a will. It follows from this that valid revocation requires
• an understanding the nature of the act of revocation for a will and
• understanding of the effect of revoking the particular will, but there is no
authority that this requires an understanding of what the distribution on
intestacy would be for the testator’s estate any more than a testator would
need to have such an understanding when making a will
The exception to this requirement of mental capacity is where the revocation is by operation of statute when entering into a marriage or civil partnership. (see below at 4.14)
Brunt v Brunt (1873) 15 PD 20; see Re Aynsley (The Times 6th February 1973) for invalid revocation by destruction due to lack of capacity (Megarry J (as he then was) reassembled the pieces of the will) 2 Re Sabatini (1970) 114 SJ 35 1
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4.03 Just as a testator may not delegate the making of his will to another, 3 revocation may not be delegated. 4
s.20 Wills Act 1837 4.04 “s.20 No will to be revoked but by another will or codicil, or by a writing executed like a will, or by destruction. No will or codicil, or any part thereof, shall be revoked otherwise than as aforesaid, or by another will or codicil executed in manner herein-before required, or by some writing declaring an intention to revoke the same, and executed in the manner in which a will is herein-before required to be executed, or by the burning, tearing, or otherwise destroying the same by the testator, or by some person in his presence and by his direction, with the intention of revoking the same.” 4.05 Revocation requires animus revocandi (the intention to revoke) and without this none of the acts of revocation specified in s.20 will be effective. Any act of destruction through, accident, error, mistaken belief that the will is useless or not valid, by the testator will not revoke his will and copy can be proved in its place. 5 4.06 Where revocation is by destruction, intention to revoke has been held to require that the testator carries through the act of destruction i.e. does all that he intended to do to destroy the will. Thus stopping in the middle of the act, and not completing the tearing up of the will, has been found to be an invalid revocation. 6 4.07 The exception to this requirement of intention is where revocation is by operation of statute when entering into a marriage or civil partnership. (see below at 4.14)
Re Morris, Lloyds Bank Ltd v Peake [1970] 1 All ER 1057 Stockwell v Ritherdon (1848) 1 Rob Eccl 661 5 In the Goods of Taylor (1890) 63 LT 230; Probate can still be obtained in the absence of a copy. In the often cited, Sugden v Lord St Leonards (1876) 1 PD 154 the terms of the will were established by the recollection of the testator’s daughter who had read its contents over to him several times. (Lord St Leonard was a former Lord Chancellor who had published A Handy Book on Property Law). Re Ciebrant, van Kwagen v RNLI [2009] WTLR 69, the evidence, from memory, of the drafting solicitor as to the terms of the will was accepted, notwithstanding the absence of the will file. In both these case the circumstances were sufficient to rebut the presumption of revocation. 6 Doe deceased, Perkes v Perkes (1820 3 B & Ald 489) 3 4
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By will, codicil or other document 4.08 A valid will or codicil that contains a revocation clause will revoke previous wills or codicils such as the standard form “I hereby revoke all previous wills”. The word “will”, as used here, means any will, codicil or other testamentary document unless the context excludes this construction. 7 s.20 also allows for revocation by some other document, not being a will, that is executed in the same manner as will i.e. following the formalities of s.9. The document can take many forms, for example, a letter, 8 a memorandum recorded on the will executed in the manner required by s.9. 4.09 A clause revoking all previous wills can have its dangers, if the draftsman has not ascertained accurately the terms of existing wills. Where the testator owns foreign property, particularly real property, there is a likelihood that a will has been made in the jurisdiction where the property is situate. It should be part of the instruction process to identify this and ensure that the revocation clause to be used in the new will is appropriate i.e. that it specifically does not revoke the foreign will (where this is required) or that it does revoke it (where this is required 9). 4.10 Where a later will is validly executed, but it lacks a revocation clause, 10 it is a matter of construction to what extent it revokes any previous wills or codicils. 11 As general propositions the following apply in these circumstances:
1. Where the provisions of the later will are wholly inconsistent with, or repetitive of,
2. Where the provisions of the later will are only partly inconsistent with, or
the earlier will then the earlier will is revoked in its entirety
repetitive of, the earlier will then the earlier will is not revoked in its entirety.
3. In the case of 2 (above) the terms of the later will prevail where there is
inconsistency or repetition but in addition, the parts of the earlier will that are
unaffected remain valid. 12
s.1 Wills Act 1837 Re Durance’s Goods (1872) LR 2 P&D 406 the letter was correctly signed and attested and directed the destruction of the will. The revocation was by the letter not the destruction. 9 This is preferred to simply using an unamended revocation clause as it makes it clear that the revocation of the foreign will is intended. This is of course subject to the requirements of the foreign jurisdiction on revocation. 10 Nothing within s.20 leads to a will being revoked simply by creating a later will; “declaring an intention to revoke” is expressly required 11 The later will declaring itself to be the testator’s last will is not, by itself, sufficient to revoke a previous will; Simpson v Foxon [1907] P 54; Kitcat v King [1930] P 266; 12 Probate will therefore be required to the parts of both wills that are valid 7 8
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The costs of construing a will under the circumstances of 2 and 3 are not inconsiderable and will be worse where the construction is disputed. As the testator’s intention is what the draftsman is trying to establish in taking in taking his instructions, omitting a revocation clause is potentially an act of negligence. 13 By destruction 4.11 “Burning” or “tearing” 14 are words that clearly connote some form of actual, or physical destruction of the will or codicil. The following words in the Act, “or otherwise destroying” are to be read ejusdem generis with burning and tearing so that otherwise destroying also requires some form of actual destruction and does not admit symbolic destruction. Thus, writing across the will “revoked” or “cancelled” is not sufficient to revoke the will. 15 Notwithstanding this fairly simple concept, there have been a number of issues for the court to consider as to what constitutes destruction.
1. The complete scratching out of the testator’s signature, or the cutting off of the
signature will amount to destruction, as will the cutting off of the witnesses
signatures. 16 Partial erasure of the testator’s signature has been held to be
insufficient, 17 but complete obliteration has been found to be effective revocation of the will. 18
2. Tearing off some part of the will, other than the testator’s and witnesses’
signatures, will not be an act of revocation of the whole will, but will merely act
to revoke what is written on the part torn off. 19
4.12 The revocation of a will by destruction does not revoke any subsequent codicils to it that were executed before the act of destruction. 20
Where the omission could be rectified as being a clerical error or a failure to understand the testator’s instructions (s.20 Administration of Justice Act 1982)the costs of the rectification may well be borne by the draftsman 14 Tearing in this context includes cutting; Hobbs v Knight (1838) 1 Curt 768 15 Stephens v Tapsell (1840) 2 Curt 458; Cheese v Lovejoy (177) 2 PD 251 16 Re Morton’s Goods (1887) 12 PD 141; Re Dallow’s Goods, Evans v Dallow (1862) 31 LJPM & A 128 – this seems a rather liberal approach to the words in the statute, but, but nonetheless a practical one 17 In the Goods of Godfrey (1893) 69 LT 22 18 Re Adams [1990] 1 Ch 601 19 Re Woodward’s Goods (1871) LR 2 P & D 206; Re Everest [1975] 1 All ER 672; Re Nunn’s Estate [1936] 1 All ER 555 20 In the Goods of Savage (1870) 2 P&D 78 13
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Destruction by another 4.13 s.20 sets out revocation by destruction as being by the testator, but it also permits a testator to request that the act of destruction is carried out by another on his behalf. There are two distinct requirements necessary for this to be effective revocation:
1) the testator must direct that this is to be done on his behalf 21 and
2) the act of destruction must be carried out in his presence. 22
If either element is absent there will be no valid revocation. For this, “presence” is likely to have the construction as it will for executing and witnessing a will (see 1.21).
By marriage or civil partnership 4.14 For both of these events, revocation is by operation of statute. 23 Therefore, revocation by marriage, or civil partnership, will not require any intention to revoke the will. 24 Revocation in this way will revoke not only formal wills, but also privileged wills. 25 A marriage that is a sham marriage 26 is still a valid marriage,27 as is a marriage of convenience. 28 4.15 s.18(1) provides that a will is revoked the testator’s marriage. Similarly s.18B(1) provides for revocation on the testator entering into a civil partnership.29 In both sections provision is made for a “disposition in a will in exercise of a power of appointment shall take effect notwithstanding the testator’s subsequent marriage
Gill v Gill [1909] P 157 (destruction was by testator’s wife in fit of anger, but the testator did not request the revocation, although he said afterwards that he would make a new will - the revocation was ineffective); Re Booth [1926] P 118 22 Re Dadd’s Goods (1857) Dea & Sw 290 (where the will was taken out of the testatrix’s presence and destroyed in another room in her house – found to be invalid revocation) 23 s.18 (marriage) and s.18B (civil partnership) Wills Act 1837; but divorce, or dissolution of a civil partnership, does not have the same effect; s.18A and s.18C. But see also the new s.18(2) and s.18D (introduced by the Marriage (Same Sex Couples) Act 2013 (Consequential and Contrary Provisions and Scotland) (No.2) Order 2014) where a civil partnership is later converted to a marriage following s.9 Marriage (Same Sex Couples) Act 2013 24 Israell v Rodon (1839) 2 Moo PCC 51; Marston v Roe d Fox (1838) 8 Ad & El 14; (it is assumed that, although this question has not been before the court in the context of a civil partnership, a court would approach a civil partnership on the same basis) 25 Re Wardrop’s Estate [1917] P 54 26 As defined by s.24(5) Immigration and Asylum Act 1999 27 R(K) v London Borough of Lambeth [2003] EWHC 871 (Admin) 28 Vervaeke v Smith [1983] 1 AC 145 29 The section refers to a “the formation of a civil partnership between the testator and another person” 21
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unless the property so appointed would in default of appointment pass to his personal representatives.” 30 It is not thought that this provision will be applied often. 4.16 A will is not revoked if it was previously made in expectation of a particular marriage or civil partnership and the testator intended the will not be revoked by that marriage or civil partnership. 31 This intention must be apparent from the will itself and is not to be inferred from surrounding circumstances. s.18 provides:“(3) Where it appears from a will that at the time it was made the testator was expecting to be married to a particular person and that he intended that the will should not be revoked by the marriage, the will shall not be revoked by his marriage to that person. (4)
Where it appears from a will that at the time it was made the testator was
expecting to be married to a particular person and that he intended that a disposition in the will should not be revoked by his marriage to that person,—
(a) that disposition shall take effect notwithstanding the marriage; and
(b) any other disposition in the will shall take effect also, unless it appears
from the will that the testator intended the disposition to be revoked by
the marriage.” 32
s.18(3) operates to prevent the entire will being revoked, while s.18(4) operates to prevent only a part of the will being revoked. Where only part of the will is saved, it will not have any other parts of will saved (such as administrative provisions) unless these are specifically referred in the contrary intention. 33 4.17 A contrary intention used in a will to prevent revocation on marriage or civil partnership should be as clear as possible, particularly in the way that it identifies the intended spouse/civil partnership. The less clear the words, the greater the risk that they will not be sufficiently certain to prevent revocation if the marriage takes place. 4.18 An important exception to the requirement of capacity, at the level of testamentary capacity, being required to revoke a will, is revocation by entering into a marriage or civil partnership. Significantly, the level of mental capacity required to enter into a valid marriage is a much lower level of capacity than that needed to make, or revoke, a will – s.18(2) and s.18B (2) ss.18 and 18B Wills Act 1837; see also Court v Despallieres [2010] WTLR 437 where no particular marriage or civil partnership was contemplated and this was ineffective to prevent revocation on forming a civil partnership. 32 These provisions appear in similar form s.18B in respect of civil partnerships 33 Williams on Wills (9th edition Lexis Nexis) at 17.6 makes the point that a contrary intention sufficient to save part of the will may well tend to operate to save the whole will 30 31
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• “Was the [person] …. Capable of understanding the nature of the contract into
which he was entering, or was his mental condition such that he was incapable
of understanding it? To ascertain the nature of the contract of marriage a man
must be mentally capable of appreciating that it involves the responsibilities
normally attaching to marriage. Without that degree of mentality, it cannot be
said that he understands the nature of the contract” 34
• “the contract of marriage is a very simple one which does not require a high
degree of intelligence to understand. It is an engagement between a man
and a woman to live together and love one another as husband and wife to
the exclusion of all others”. 35
• “There are many people….who may be of limited or borderline capacity but
whose lives are immensely enriched by marriage. We must be careful not to set
the test of capacity to marry too high, lest it operate as an unfair, unnecessary
and indeed discriminatory bar against the mentally disabled”. 36
In addition, it is necessary for a person to also have the mental capacity to consent to sexual relations as this is usually taken to be implicit in a marriage. 37 Capacity to enter into a marriage is to be tested as at the time of the ceremony. 38 The test for capacity to marry makes no judgment about the wisdom or suitability of the chosen partner. 39 4.19 Given the lower level of mental capacity that is required, entering into a marriage or civil partnership is an occasion that can revoke a will when the testator lacks both the capacity to revoke the will and the capacity to make a new will. Therefore, for a person who marries, but lacks testamentary capacity, previous wills will be revoked and the new spouse will, by operation of statute, acquire significance inheritance rights on his intestacy. 40
In the Estate of Park, Park v Park [1954] P 112 Durham v Durham (1885) 10 PD 80; see also In the Estate of Park, Park v Park [1954] P 112 (where the testator was found to lack capacity in respect of the will he made on the day of his marriage which made some provision for his new wife. The marriage was valid and she inherited a greater amount on his intestacy). It is assumed here that the court will follow the same test of capacity to marry for the capacity to enter into a civil partnership. 36 Sheffield City Council v E (An Alleged Patient) [2004] EWHC 2808 (Fam); ABC v XZ [2013] WTLR 187 37 X City Council v MB, NB and MAB (By his litigation friend the Official Solicitor) [2006] EWHC 168 (Fam) at [56] and s.30 Sexual Offences Act 2003 38 Harrod v Harrod (1854) 1 K & J 4 39 Sheffield City Council v E (An Alleged Patient) [2004] EWHC 2808 (Fam) 40 s.46 Administration of Estates Act 1925 34 35
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4.20 Where either party to the marriage or civil partnership, is incapable of understanding 41 the nature of the contract they have entered into, the marriage or civil partnership is voidable, not void. A marriage, 42 or civil partnership, that is voidable, whether subsequently annulled or not, revokes a previously made will 43 (unless that will was made in expectation of the marriage or civil partnership). This result is arrived as s.16 Matrimonial Causes Act 1973 provides that a decree of nullity for a voidable marriage only annuls that marriage in respect of time after the decree and not before it. 44 This point does not apply to a void marriage, as a void marriage does not revoke a will. 45 4.21 Revocation of a will by marriage or civil partnership can have the potentially unwelcome result that a will
• is capable of being revoked by marriage not only where there is a lower level
of understanding than is required to make a will, but
• also where there is a lower level of understanding than is required to form a
valid marriage or civil partnership.
Lost wills and the presumption of destruction. 4.22 Where a will or codicil is last traced to the testator’s possession 46 and, despite all reasonable searches and enquiries, it cannot be traced after his death, it is presumed that he has destroyed the will with the intention of revoking it. 47 It is not necessary for it to be shown how it was destroyed. 48
“did not validly consent to its formation (whether as a result of duress mistake unsoundness of mind or otherwise)” s.12(c) Matrimonial Causes Act 1973 and also s.50(1)(a) Civil Partnership Act 2004 42 Re Roberts, Roberts v Roberts [1978] 3 All ER 225 (it is assumed that, although this question has not been before the court in the context of a civil partnership, a court would approach a civil partnership on the same basis). 43 A marriage that is voidable, but is not annulled by the time of one party’s death leaves the remaining party as a surviving spouse, i.e. a voidable marriage cannot be annulled after the death of one party; see Morley-Clarke v Brooks [2011] WTLR 297 (a marriage voidable for lack of capacity and non-consummation where the surviving spouse was entitled on intestacy as the spouse). 44 For civil partnerships a nullity order, made under s.37(1) Civil Partnership Act 2004 similarly does not take effect retrospectively; see s.37(3) 45 Mette v Mette (1859) 1 Sw & Tr 416 (where the testator married his deceased wife’s half- sister (at this time this was a proximity of relationship that rendered a marriage void); Re Roberts, Roberts v Roberts [1978] 3 All ER 225; for the definition of a void marriage see s.11 Matrimonial Causes Act 1973 (for civil partnerships s.49 Civil Partnership Act 2004) 46 If the will has been handed to a third party to hold for the testator, this presumption cannot apply; Chana v Chana [2001] WTLR 205; in d’Eye v Avery [2001] WTLR 227 it could not be shown that the will was ever in the testator’s possession. 41
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4.23 This is a rebuttable presumption, 49 of which it has been said that - “It was clear from the old authorities that those presumptions were not intended to be regarded as rigid statutory rules, when they would produce absurd results, but as indications of the inferences which would always be drawn by the court from a given state of evidence. The court would approach the question by considering what was the most probable explanation of the absence of the will on the testator’s death.” 50 In arriving at a view of what the most probable explanation is, the court have accepted different explanations. • In Nicolls v Hudson, 51 it was the cumulative effect of 6 different factors which
lead to rebuttal of the presumption (including in these were disordered state
of the deceased’s papers; his concern for his childrens’ inheritance pointed
against revocation; a death bed assurance to a child, the actions of
the widow) • Wren v Wren 52 and Rowe v Clarke 53 both involved the disordered state of the
deceased’s papers which were likely to have led to loss not revocation
• In Re Dickson 54 the presumption would have been inconsistent with the actions
and statements of the testator.
• Re Zielinski 55 where the evidence pointed to destruction by another who had a
motive for that act. 56
• In Re Szylowicz’s Estate 57 the testator was a patient in hospital and was
physically incapable of destroying his will and the presumption did not apply.
4.24 The presumption is both as to act and intention, therefore if it can be shown that after taking possession of the will, the testator lost testamentary capacity,
Allan v Morrison [1900] AC 604; Animus revocandi; an essential requirement for valid revocation s.20 Wills Act 1837 48 Patten v Poulton (1858) 1 Sw & Tr 55 49 Patten v Poulton (1858) 1 Sw & Tr 55; Welch v Phillips (1836) 1 Moo PCC 299; Booth v Booth [1926] P 118; Chana v Chana [2001] WTLR; Re Zielinski deceased, Korab-Karpinski v Lucas- Gardiner [2007] WTLR 1655 50 In the Estate of Yule deceased (1965) 109 Sol Jo 317 51 [2007] WTLR 341 52 [2007] WTLR 531 53 [2006] WTLR 347 54 Re Dickson, Dickson v Dickson [2002] WTLR 1395 55 Re Zielinski deceased, Korab-Karpinski v Lucas-Gardiner [2007] WTLR 1655 56 In Re Webb, Smith v Johnston [1964] 2 All ER 91 the will was shown to have been destroyed in an air raid 57 (1978) 19 SASR 263 47
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the presumption of revocation by destruction does not apply, 58 as this would otherwise involve a further presumption that the will was destroyed when he had capacity (and thus the necessary intention). Instead, it must be shown that the will was destroyed by the testator while he had capacity, with intention of revoking it. The burden of proof for this will lie on the person alleging revocation.59 It must be assumed, on the same basis, that where a valid will is made in a lucid interval in an existing mental illness, and the will is retained in the testator’s possession, the presumption will not apply. 4.25 Where a will is found in the possession of the testator at his death, but it has been mutilated or torn, there is a rebuttable presumption that this was done by the testator with the necessary intention to revoke it. 60
Conditional revocation 4.26 The conditional revocation of a will has been more traditionally known as dependent relative revocation, but this label has almost certainly deterred some from understanding the concept. In Re Hope Brown’s Goods, 61 Langton J observed sensibly that “the name of this doctrine is overloaded with unnecessary polysyllables. The resounding adjectives add very little, it seems to me, to any clear understanding of what is meant. The whole matter can be quite simply expressed by the word ‘conditional’”. 4.27 Care needs to be taken where the testator’s intention to revoke is conditional, i.e. the testator only revoked his will because of a particular belief. 1. In Re Southerden’s Estate, Adams v Southerden 62 the testator had made a will
leaving his whole estate to his wife. He later destroyed this will in the belief that
his wife would inherit everything on his intestacy and therefore the will was
unnecessary. The testator later died and his wife did not inherit the whole estate
on his intestacy. It was held that the revocation by destruction was invalid as his
It would be unreasonable to presume not only that the testator revoked his will by destroying it and that this action was carried out during whatever part of the period the testator had sufficient capacity to revoke. 59 Sprigge v Sprigge (1868) LR 1 P & D 608 60 Williams on Wills (9th edition LexisNexis) at [18.27} adds to this presumption that the destroyed or mutilated will must be found in a place where “the testator would naturally put it”. The sensible implication being that if it was not in such a place there is a greater possibility that destruction or mutilation was not by the testator. The passage on this subject in Williams was cited with approval in Re Adams [1990] 2 All ER97. 61 [1942] P 136. The doctrine is said to go back to Onions v Tyrer (1716) 1 P Wims 343 or possibly Thomas v Howell (1692) 1 Salk 170. 62 [1925] P 177 58
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intention to revoke was conditional on his belief as to the intestate distribution.
Had the whole of his estate passed to his wife on his intestacy, the revocation
would have been valid as his condition would have been met.
2. In Re Carey, 63 the testator destroyed his will saying that he had nothing to
leave, apparently forgetting that he stood to inherit his sister’s estate (which
he then did). It was held that the revocation was conditional upon his having
nothing to leave and as this condition was not satisfied the revocation
was ineffective. 3. In Campbell v French 64 a testator revoked legacies to two great nieces in North
America because ‘they being all dead’. They were not dead and the
revocation was held to be ineffective as in was conditional on the belief that
the beneficiaries were dead.
4. A more complex condition was present in Re Janotta’s Estate 65 where a will was
revoked in the erroneous belief that this would revive the previous will 66
5. Revocation of a will where the testator intends to replace it with a new will,
but dies before making that will has been held to be conditional revocation. 67
Under these circumstances, much will depend upon the precise intention of the
testator and to establish this it is necessary to differentiate between
a. the testator who unconditionally wants to revoke a will and, as a separate
action, will then have a new will prepared 68 and
b. the testator who conditionally revokes his will, this intention being
conditional upon a new will replacing it.
Whichever applies is a question of fact and extrinsic evidence is admissible in determining the intention. 69
1977 LS Gaz R 189 (1797) 3 Ves 321 65 [1976] 2 WWR 312 66 Re Bridgewater’s Estate [1965] 1 All ER 717; See 4.35 for revival 67 Dixon v Treasury Solicitor [1905] P 42; In the Estate of Bromham, Wass v Treasury Solicitor [1952] 1 All ER 110 68 Re Jones [1976] 1 All ER 593 69 Re Finemore [1992] 1 All ER 800 63 64
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Revocation of a privileged will 4.28 Privileged wills are dealt with at XXXXXX. s.11 Wills Act 1837 which provides for privileged wills being made, makes no provision for them being revoked. Cleary, s.20 will apply to the revocation of such a will, 70 but logically, in addition, informal revocation would be appropriate in circumstances where a will could be informally created. This was confirmed in Re Gossage. 71 A person who has made a valid privileged will while under 18 can formally revoke it while still under 18 72 if he is no longer in circumstances that enable to make a privileged will. 4.29 A privileged will is revoked by subsequent marriage or civil partnership, 73 unless it is shown that this was not intended.
Destruction of revoked wills 4.30 Should wills that have been revoked, other than by destruction, be destroyed or retained? The case for destruction is generally pragmatic in that it is claimed to save storage and removes the risk of confusion where there are later wills. The case against destruction is much more to do with later challenges to wills:
1. If the validity of the revoking will is challenged successfully, having the previous
will still in existence makes the probate process simpler. It also provides clear
evidence of the dispositions. This is less easy, the less certain the evidence as to
what the terms of the destroyed will were.
2. Having a succession of wills available in the event of a probate dispute also
provides clear evidence of the history of the testators dispositions – evidence
of dispositions that have remained constant as well as what changes have
occurred and when.
3. The signatures on previous wills also provide a ready source of comparisons
against signatures on any contested documents and reflect any changes in the execution of the signature.
4. A destroyed will cannot be revived.
Ultimately the decision on the destruction of revoked wills is one for the testator to make (they are his documents) but the reasons for retention seem to be stronger than for destruction and advising the testator accordingly seems to provide better advice. With the exception of revocation by destruction where the privileged will is nuncupative (a verbal will) 71 Re Gossage’s Estate, Gossage v Gossage [1921] P 194 72 s.3(3) Family Law Reform Act 1969 73 Re Wardrop [1917] P 54 70
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Circumstances where revocation does not take place 4.31 s.19 Wills Act 1837 Revocation of a will is not to be presumed on the grounds of a change to the circumstances of the testator. There are few, or no, reported cases of relevance here, but practical experience underlines the necessity of a client understanding this point and the importance of reviewing a will where there are significant changes in his circumstances. 4.32 ss.18A 74 and 18C Wills Act 1837 The provisions for revocation of a will on forming a marriage or civil partnership are not mirrored by similar provisions on divorce or dissolution of a civil partnership. On divorce, or dissolution of a civil partnership, a previous will is read as though the divorced spouse or civil partner, had predeceased the testator. This applies to any dispositive provisions, an appointment of executor, an appointment of trust and any power of appointment in favour of the divorced spouse. 4.33 This presumption is applied subject to any contrary intention that appears in the will. Both sections contain an express statement that these provisions are without prejudice to the divorced spouse’s rights under the Inheritance (Provision for Family and Dependants) Act 1975 Slaying the testator 4.34 This does not revoke a will, but there is a rule of public policy that, in general, a killer shall not profit from his crime. This considered more fully in Chapter 8
Revival 4.35 Revival is the process of resurrecting a will or codicil that has been revoked other than by destruction. 75 It is achieved by compliance with s.22 Wills Act 1837 which permits revival by
1. Re-executing the original document complying with the requirements of
s.9 Wills Act 1837 or
2. Executing a codicil that expressly declares the revival of the will 76 (mere
reference to the earlier will is not sufficient without the intention to revive77)
As amended by the Law Reform Succession Act 1995 A will that has been destroyed cannot be revived; In the Goods of Mulock [1933] IR 171; Re Reade’s Goods [1902] P 75 74 75
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4.36 Revival is not achieved in any other way. Thus, • if will 1 has been revoked by will 2, revocation of will 2 will not revive will 1 unless
the will or codicil revoking will 2 expressly revives will 1 (as required by s.22). 78
• where will 2 only revoked part of will 1, and will 3 revoked the remainder of will 1, revival of will 2 will only result in the parts of will 1 that were not revoked by will 2 being revived. To revive all of will 3 will require a clear intention to both parts. 79 4.37 The effect of revival is that the revived will then operates as from the date of its revival. 80 The important implication of this is that by operating from this date unattested alterations after the original execution will be effective.
Republication 4.38 “The term “republication has been an anachronism since s.13 of the Wills Act 1837 made republication of a will unnecessary. It might be better if the term “confirmation” came into general use instead, because this is the sense in which republication has been used since 1837.” 81 Before the 1837 Act a will spoke from its date as regards real property and therefore could not deal with real property acquired by the testator after the date of the will. The custom was to republish the will after any additional realty was acquired. 4.39 Republication may most obviously be achieved by validly re-executing an existing will. 82 Alternatively, it can be republished by a validly executed codicil. It is necessary, in this case, for that codicil to make specific reference to the will that is being revived. This is usually done with some form of direct statement confirming the terms of the will. 83 Republication can be achieved by a reference to the will 84 that indicates, albeit by inference, that the will is being confirmed.
If any codicils to the will were also revoked and it is intended that they should be revived, they should be expressly recited. 77 In the Goods of Dennis [1891] P 326 78 Re Brown’s Goods (1858) 1 Sw & Tr 32; In the Goods of Steele (1868) LR 1 P & D 575 79 s.22 Wills Act 1837 80 s.34 Wills Act 1837 81 Theobald on Wills 17th edition (Sweet & Maxwell) at 9-010 82 s.9 Wills Act 1837; Dunn v Dunn (1866) 1 P&D 277 83 e.g. “I hereby confirm the said will in all other respects” (where the codicil has made some amendment) 84 “This is the first codicil of my will of …..” 76
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4.40 Effects of republication
1. The will generally operates as from the date of its republication and is construed
accordingly. 85 An exception to this is that this will not be applied to invalidate a
gift that was valid at the original date of the will where the testator’s intention
was that the gift should remain valid. 86
2. Description of persons will be as the date of republication 87
3. Description of property will be as the date of republication
4. Unattested post-execution alterations to the will are validated
5. Incorporation by reference will be updated, if a later document is intended to
6. Gifts to attesting witnesses of the republished will can be validated if the other
be incorporated by reference (and qualifies to be incorporated)
witnesses witnessed the republishing document
Goonewardene v Goonewardene [1931] AC 647; not necessarily in an inflexible way Re Hardyman, Teesdale v McClintock [1925] Ch 287; Re Moore [1907] 1 IR 315 86 Re Hardyman [1925] Ch 287 87 Re Hardyman, Teesdale v McClintock [1925] Ch 287 illustrates the danger of drafting with descriptions rather than names. A gift in the will to the wife of the testatrix’s cousin caused difficulty. The will had been republished after the cousin’s wife had died and he had remarried – his new wife was the beneficiary. 85
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Chapter 5 The contents of a will
Introduction 5.01 There is no legal requirement as to the order of provisions that should be used when preparing a will. Modern practice, and practicality, suggests using an order that has familiarity, logic and intelligibility. Applying this approach will usually result in careful grouping of similar provisions together and using an order for the groups that makes sense. 5.02 A will is primarily about communication and the approach to drafting must be to ensure, as far as possible, that what is prepared is as easily understood as possible by the client, his executors and his beneficiaries: “The draftsman will not be judged on literary content, but on precision, accuracy and effectiveness of communication. The discipline of using tried and tested set forms is of enormous benefit to clients and draftsmen alike and the use of plain language can help a clear thinker to express himself precisely. Certainly, the muddled thinker should not attempt to excuse himself by hiding behind dated drafting practices and language. Such practices, including sheltering behind tortuous or unnecessary technical words and phrases, often serve only to conceal lack of thought.� 1 5.03 A modern will generally follows an order similar to that set out below:
1. The commencement
2. Declarations by the testator relevant to the will and its contents
3. The appointment of executors and, where necessary, trustees
4. The appointment of testamentary guardians where appropriate
5. Particular funeral instructions and authorisation of any exceptional expenditure
on funeral arrangements and monuments
Parker’s Modern Will Precedents Michael Waterworth (7th edition Tottel 2011) paragraph 1.10
1
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6. Dispositions usually start with the specific and end with the general
a) specific legacies and devises (whether in trust or not)
b) general legacies (whether in trust or not)
c) gift of residue
7. Administrative provisions
8. Testamonium and attestation.
5.04 This, or a similar, order is used for good reason - there is a logic to it. In addition, to this being a familiar order, draftsmen and executors know their way around a will set out in this way. Laying out wills in an unfamiliar or illogical order makes it much easier for someone reading it to misunderstand, or miss, provisions.
Commencement 5.05 ‘This is the last will of me, [name], [occupation] of [address].’ There is no legal requirement that a will starts by stating that it is a will, but it is helpful to do so as it enables quick and clear identification of what the document is at its outset. A reader does not have to read further in order to know what it is. Address, occupation or honours awarded to the testator can be added for clarity in identification of the testator, particularly where others of the same family have the same name or address, but again none of these is prescribed by law. 5.06 Care needs to be taken to use the full and correct name of the testator. This is again not a legal requirement, but it assists with precise identification of the person making the will. The full and correct name also assists by providing a connection to documents of title, contracts, debts, etc. of the estate. Where the testator is known by a different name, one that has been informally adopted by him, it helps if this is also recited. This again aids identification and links him to assets that may be in the informally adopted name. Testators can use names for professional reasons or simply be known by names that are widely used by friends and family. Others, with names less easily recognisable to the English tongue, may use names for business purposes that are easier to use. The important point is to recite those names that will relate to assets and debts.
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5.07 ‘I hereby revoke all former wills.’ The Wills Act 1837 does not require this statement unless it is the intention that all previous wills are to be revoked 2 (which will usually be the case). The reference to “wills” covers all types of testamentary documents 3 and it is therefore unnecessary to add “codicils” or “other testamentary documents” to this statement. 5.08 This usual statement of revocation needs to be considered carefully in the light of any existing wills that are not to be revoked, for example wills specifically dealing with assets in particular foreign jurisdictions, as inadvertent revocation should be avoided. Revocation in this way might not occur, but the expense and uncertainty of any dispute is best avoided by clarity in the revocation clause. 4 Given the potential for damage caused by any inadvertent revocation, it is in the client’s interests for him to arrange for the English draftsman to have copies of the foreign wills. This will ensure that from an English perspective either no damage has been caused by the foreign revocation provisions or that none has been done by the English revocation provisions.
Declarations 5.09 Immediately after the commencement and revocation, it is helpful to find general declarations of importance regarding the terms or effect of the will. By placing these at the start of the will the declarations inform the reader as to the way in which the later terms of the will are to be understood. Declarations typically cover
1) territorial extent of will
2) domicile of the testator
3) non-provision within the will for a relative or dependant
4) non-contestation of the will, or its provisions, by the beneficiaries
2 3 4
See 4.08 et seq s.1 Wills Act 1837 In Re Wayland’s Estate [1951] 2 All ER 1041 it was found that such a clause in an English will did not revoke the prior Belgian will on the grounds that there was no intention to revoke. However this was probably only arrived at because of the lack of clarity in the wording of the revocation clause. There is also the recent decision in Lamothe v Lamothe [2006] WTLR 1431 which involved an English will and one from Dominica. The court considered the issue of whether or not the Dominican will was intended to revoke the English will notwithstanding that the usual revocation clause was used. It was decided that it was intended to revoke the English will, but implicit in this is that a court could look at intention.
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5) contemplation of a marriage or civil partnership
6) the effect of divorce on the will
7) declaration of mutual wills
[1] Territorial extent of the will 5.10 There is no requirement that a single will must deal with all of the assets of the deceased throughout the world. A will may state that it does deal with all of the assets whatsoever and wherever they are situate in the world, but it can also be restricted to dealing with the assets in just one jurisdiction or all assets apart from any in a named jurisdiction. What is required will usually be dictated by the professional advice given to the testator. This advice, in turn, will be based on the draftsman’s knowledge of what the assets are and where they are, together with the domicile of the testator, as established during the gathering of information part of the will instruction meeting. [2]
Declaration as to the domicile of the testator 5
5.11 These declarations are of limited effect, as it is for a court to determine the domicile of the testator at the time of death, not the date of the will, in the event of dispute. Such a declaration could have some use where the testator wishes to place on record his belief in his domicile, but few testators understand domicile sufficiently to have a view that would carry much weight with the court. The real issue that affects the value of such simple declarations is that they usually offer no evidence of why the testator held that belief and what relevant factors was he taking into account. 5.12 It may well be of more practical value, for the draftsman to collate all relevant information as to domicile in a declaration, signed by the testator, and kept with the will. Such statements are of use to a court and their usefulness is will be greater if they appear in the words of the testator, rather than as documents obviously drafted by a legal adviser.
5
See Chapter 6 for more detail on domicile
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[3]
Declaration of non-provision 6
5.13 Such declarations should be approached with great care. They are usually in the form of a short statement as to why no provision has been made for a spouse, exspouse or other closely related person. The purpose being to show that the testator has acted reasonably, in making no provision for the person in his will, the event of an Inheritance (Provision for Family and Dependents) Act 1975 claim. In practice such statements will normally carry little weight, particularly if a court decides that the provision, or lack of it, was unreasonable. 7 They may even be counterproductive if what is said offers evidence of the testator acting unreasonably. 8 [4] Non-contestation clauses 5.14 This is usually in the form of a provision that if any beneficiary challenges the validity of the will, or the provision made for them in the will, then their benefit under the will will be forfeit. 9 This type of provision is, obviously, intended to deter beneficiaries from challenging the terms of the will. However, the value of any such provision is questionable as a deterrent. In the case of a beneficiary eligible to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975, the loss of benefit caused by making the claim merely adds strength to the claim being made (which is then on the basis of no provision being made for the claimant). For larger gifts, the incentive to deter an I(PFD)A 1975 claim becomes greater. For any beneficiary, it could be said that the larger the original gift the greater the incentive not to challenge. 5.15 A more extreme version of a non-contestation clause was used in Nathan v Leonard. 10 This provided that if any beneficiary challenged the will, all of the beneficiaries would lose their legacies. There had been some question as to whether or not a provision such as this was void for being contrary to public policy. The court held that this provision was not contrary to public policy. The court further found that this provision would have been valid in this particular will, had it not been void for uncertainty on the basis of its drafting. A condition will not be valid if the condition not to dispute is not limited to the interest given but extends to the assets and liabilities of the estate generally. 11
See Chapter 7 for more detail on I(PFD)A 1975 Ilott v Mitson [2011] 779 CA 8 Re Gold, Gold v Curtis [2005] WTLR 673 9 Cooke v Turner (1846) M&W 727 and Evanturel v Evanturel (1874) LR 6 PC 1 for the validity of these clauses 10 [2002] WTLR 1061 11 Rhodes v Muswell Hill Land Co (1861) 29 B 560 6 7
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[5]
Contemplation of a marriage or civil partnership
5.16 Given the effect of ss.18 -18B Wills Act 1837 a testator who intends to marry or enter into a civil partnership may well be advised to ensure, where necessary, that his will is not to be revoked on marriage or civil partnership. The clearest way of establishing this is by declaring that the will is not to be revoked on marriage or civil partnership. Such a declaration should not be in general terms, and it must make reference to the particular person the testator is expecting to marry or form a civil partnership with.12 5.17 The nature of the statement used might be affected by the exact nature the testator’s intentions, for example, should the terms of the will benefit his intended partner if the marriage/civil partnership does not take place? Does the testator intend that provision for his intended partner should alter if the marriage takes place? [6]
Divorce or dissolution of a civil partnership
5.18 A testator might require that his will is not amended in its effect by his divorce or dissolution of his civil partnership. 13 This can be achieved by a clear statement of intention that the statutory provisions in this regard are no to apply. [7]
Declaration of mutual wills 14
5.19 Where there is a separate agreement between the parties to make mutual wills, each will should contain a reference to that agreement. Where there is no separate agreement, but the terms of the will reflect what they have agreed on, the will should contain a declaration of their agreement that these are mutual wills made pursuant to their agreement. 5.20 If the mutual will agreement deals with a specific bequest of land the agreement must comply with s.2 Law of Property (Miscellaneous Provisions) Act 1989.
s.18 Wills Act 1837 refers to “a particular person�; Court v Despalliers [2010] WTLR 437; see also Chapter 4 13 ss.18A and 18C Wills Act 1837 14 For more detail on mutual wills see Chapter 8M 12
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5.21 Where a husband and wife, or civil partners, make mirror image wills that are informally agreed between them, and do not have any binding mutual agreement behind them, a declaration that the wills are not mutual wills could be considered. It could help to avoid arguments about the possibility of the wills being mutual to add a declaration to each will stating that they are not made in conformance to an agreement to make mutual wills. This is the simplest approach to ruling out the possibility of there being mutual wills. Whether or not any declaration of non-mutuality is needed is debatable, given that mutual wills will not be inferred just because the wills have substantially similar terms. 16 On balance a short declaration of non-mutuality has an attraction of some extra safety in avoiding any misunderstanding later about what was meant to have been done.
Survivorship provisions 5.22 There may often be found a survivorship provision attached to individual gifts in the will, or as part of a general declaration concerning all beneficiaries of a will. This type of provision will usually require that the beneficiary survives the testator by a stated period in order to take the benefit from the bequest. 5.23 The traditional approach to using such provisions is that they should be used where the beneficiary and the testator habitually travelled together and therefore the risks of death at the same time while travelling were greater. Commonly they were used for spouses’ wills or parents who had children living with them. The actual risk of travel together may not be high, but it is often perceived as high by testators and in consequence testators can attach great importance to the point. 5.24 The survivorship period used in these provisions (usually 28 or 30 days or one calendar month) is a compromise between not passing funds unnecessarily to another estate and making funds available to the survivor within a reasonable time. The maximum period that can be used without adverse IHT consequences is 6 months. 17
Re Oldham [1925] Ch 75 s.92 IHTA 1984 – where the gift is conditional upon survivorship for a period not exceeding six months, a death within the period the gift is treated as being one to the alternate beneficiary arising on the death of the testator. A period greater than 6 months will create a settlement for IHT purposes. 16
17
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5.25 Survivorship provisions have two aspects to them – control of devolution and tax. 18 The devolution aspect comes from the testator’s natural reluctance to want his estate to pass into the hands of a beneficiary who dies soon afterwards. Apart from unnecessary IHT possibly arising on the death of the beneficiary, the beneficiary will receive no practical benefit although his beneficiaries will (and they may not be high in the testator’s priorities).
Appointment of executors and trustees 5.26 The office of executor is one of importance and, once a grant has been issued, the office cannot be retired from, except by leave of the court. 19 A named executor cannot assign his office to another. 20 An executor can, by power of attorney, appoint his attorney to administer the estate on his behalf. 21 Further, an executor can delegate some functions to his agent during an administration. 22 5.27 A person may renounce his appointment as executor at any time after the death of the testator and before he receives a grant of probate. This renunciation is not in favour of anyone else, it is simply him divesting himself of his right to apply for a grant of probate. The right to take out a grant of Probate will then be determined by any alternate provisions in the will or, failing this, Letters of Administration with will annexed to the estate will then be issued to an applicant. Priority for such an application is to be determined by the Non-Contentious Probate Rules 1987. An executor’s right to renounce is unqualified in the sense that he need not give any reasons for his decision, nor need he seek any approvals or otherwise justify his decision. 5.28 If a named executor has intermeddled 23 in the administration renunciation will not be an option. Whether or not he has intermeddled will depend upon the precise circumstances of the estate, the actions he had taken and the extent to which he has held himself out to others as acting as executor.
See also Chapter 14 s.50 Administration of Justice Act 1985; s.6(2) Public Trustee Act 1906 20 Re Skinner [1958] 1 WLR 1043 21 Rule 31 Non-Contentious Probate Rules 1987 22 Part IV Trustee Act 2000 23 Intermeddling is the executor holding himself out as acting as the executor or undertaking acts which are the acts of an executor. This is not the same as an executor de son tort, which is where a person, who is not appointed as executor, intrudes into the administration and undertakes acts of the nature of an executor (See Executors, Administrators and Probate: Williams Mortimer and Sunnucks (20th edition Sweet & Maxwell) Chapter 7 18 19
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5.29 There is no requirement that for a will to be valid it must contain the appointment of an executor. It is, of course, sensible for the testator to exercise his prerogative and appoint at least one executor. The main advantage, apart from the testator being able to make his own selection, is that an executor, as opposed to an administrator, takes his title from the will and thus the title to the estate vests in him at the date of death (the grant of probate in due course provides proof of this title). 24 5.30 The will should identify the executors with precision to avoid the appointment being void for uncertainty. Thus executors should be identified by name, not description or office, and expressions which permit uncertainty (e.g. any two of my children) must be avoided. 5.31 Where a spouse or civil partner is appointed, if that marriage or civil partnership is dissolved or annulled, the appointment is treated as though the former spouse or civil partner had died on the date of dissolution or annulment. 25 5.32 It is usual, but not essential, to appoint the same executors or trustees for all purposes in a will. However there are estates which have assets which can require the appointment of separate executors. The usual example of this is where there are literary works to be administered. The complexities of administration of a part of the estate under a separate grant should not be underestimated and avoided where it is not essential. It is sometimes suggested that separate executors can be used to administer the business interests of the testator, but perhaps where that is being considered it is more suitable to reconsider the choice of the main executors. The choice of executor 5.33 The choice of executor is personal to the testator and he is free to choose any individual, individuals or corporation to undertake the task. 26 He should have discussed the appointment with the intended executors, as no one appointed as executor in a will is compelled to accept the office and prove the will. 27 There are a number of factors that should be considered when selecting an executor that are set out in the following paragraphs.
Whereas for an administrator, title vest in him with the issue of Letters of Administration s.18A(1)(a) and s.18C(2)(a) Wills Act 1837 26 Probate cannot be granted to a minor (s.118 Supreme Court Act 1981) or a person of unsound mind. 27 Re Boyle’s Goods (1864) 3 Sw & Tr 426 24 25
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Age 5.34 Unless there are exceptional circumstances (e.g. the shortly expected death of the testator) it makes little sense to select an executor who is considerably older than the testator. There will normally be an increased chance that such a person will not survive the testator or be less inclined because of age, or diminished capacity, to act. Even selecting an executor of the same age has this risk as the testator could quite conceivably outlive him. Where the testator wants the appointment of an older executor, appointing an alternate in the event that the named executor cannot should be done. Probity 5.35 The office of executor is one that requires honesty and diligence: he is a fiduciary and must act as such. The powers of an executor are fiduciary in nature, therefore they must be exercised in good faith in the interests of the estate as a whole. Apart from this principle, there is the simple question of the testator’s trust in the chosen executors to act properly. Financial or business skills 5.36 Such skills are not necessarily required to be an executor, but those testators with more complex estates (both in terms of assets and values) should consider executors who are more capable, or more used to handling business issues and, importantly, taking rational decisions. Appropriateness to estate 5.37 The small size of estate, or simplicity of the estate, makes the skills of the executor less importance. Where the assets or beneficiaries are potentially difficult to deal with or likely to lead to litigation then the executor should make this a factor in his choice of executor. Number of executors 5.38 There is in theory no limit to the number of executors who can be appointed, but there are practical limitations. Probate will only be granted to a maximum of four executors and as a consequence there will be only four names on the documents of title. 28 In addition, the higher the number of executors, the more that questions of practicality arise in communication, meetings and decision making. Testators are sometimes concerned to appoint more than four in case some executors will not 28
s.114 Senior Courts Act 1981
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prove or might predecease. It is suggested that this is better dealt with either by using professional executors or by the use of alternates (see below). In practice, estates that really do require more than four executors are rarely encountered. Alternate appointments 5.39 In order to deal with death, loss of capacity before becoming an executor or unwillingness to take on the burden of being executor, alternate appointments should be considered. The usual reasons for an executor not proving are his death, illness (physical or mental) or his unwillingness. Conflicts 5.40 A testator would be ill-advised to select an executor who has existing poor relations with other members of the family to beneficiaries. He would be equally illadvised to select co-executors who cannot be trusted or cooperate with each other. The problems created by poor relations between executors will become even worse if there are continuing trusts under the will of which they are also trustees. 5.41 A testator needs to consider whether or not necessary decisions in an administration might place the chosen executor in a position where his own interests and those of the estate might be in conflict. For example where there is a family business in which the executor and the testator have interests, it is not always the case that the executor’s personal interests will align with those of the estate. Professional executors 5.42 There can be advantages in using professional executors in that they bring greater skills and experience to the administration. This will only apply where the professional executor is a suitably qualified and professionally supervised person. Simply because a firm operates a business of administering estates does not necessarily make it a suitable choice. The testator should be concerned with:
• the professional expertise in estate administration the individual or firm
• the professional standing of the individual or firm
• the qualifications of the individual or firm
• professional regulation of the individual or firm, and
• the security offered by the individual or firm.
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5.43 A professional executor will, however, charge for his services and the testator needs to understand this. In return for that charging the estate will obtain:
1. skilled process management
2. knowledge of the applicable laws
3. security
4. practical experience
5. impartiality. 5.44 It is not part of the will draftsman’s role to place any pressure on the testator for the selection of executors. It is, however, part of his role to explain the testator’s choices to him. It would be unwise for the adviser to assume any major degree of understanding of these issues by the testator before giving the explanation. Explanation then enables the testator to make an informed decision which will be based on a fair description of the work involved and the advantages and disadvantages of different executors. 29 5.45 The appointment clauses used for professional executors need to be considered. Trust Companies will have their own preferred appointment clause, which is usually available in their brochures. They prefer the use of such clauses as they also provide for their remuneration and apply their published standard terms and conditions of business. 5.46 Solicitors’ practices 30 can be appointed by name, but where they are it operates as an appointment of all of the partners in the firm at the date of death, unless there a sufficient contrary intention within the will to allow it to be construed otherwise. 31 To allow for changes in the partners at a firm, the appointment may refer to those partners at the date of death. 5.47 Given the commercial realities of practice, an appointment of a firm ought to include provision for any successor firm between the date of the will and the date of death. Where a solicitors’ LLP is being appointed, consideration needs to be given to what constitutes a partner for this purpose of an LLP. Following Re Rogers (deceased)32 it is usual to include a definition of partners that will cover salaried partners as well as equity partners, as without this probate will only be granted to equity partners. It is therefore helpful to define partners in the appointment. Apart from denigration of a competitor’s service giving a poor impression to the client, it represents an unsatisfactory level of professional advice. The position should be explained fairly and honestly. 30 Similar issues will arise for accountancy partnerships. 31 For example, words indicating that only two of them should prove the will. 32 [2006] WTLR 691 29
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Trustees 5.48 Where there are continuing trusts under a will, it is not necessary for the executors and trustees to be the same – although this is very often the case. Where the will contains continuing trusts, the testator needs to take this into account when appointing executors, if they are to be trustees as well, or select separate suitable trustees.
1. If the executors are to continue as trustees they need to be suitable for
2. The testator should take into account the greater duration of the task and the
the office.
age of the trustees.
3. A single trustee is generally to be avoided, if only on grounds of security.
4. Conflict of interest issues are more likely to be greater and as a consequence
5. The size and complexity of the trust fund are factors when considering the need
using a trust beneficiary as a sole trustee is a often bad idea.
for professional trustees (the same points made earlier about the advantages of
professional executors generally apply to trustees as well).
Professional charging 5.49 As a result of the Trustee Act 2000, 33 remuneration authorised by will is no longer 34 considered to be a gift by will as far as s.15 Wills Act 1837 (gifts to attesting witnesses) or s.34(3) Administration of Estates Act 1925 (order of debt payment and abatement) are concerned. 5.50 Where the testator decides to appoint professional executors and trustees the question of authorisation of their remuneration will arise. The Trustee Act 2000 35 contains provisions for remuneration of trustees and executors. 36 There are, however, disadvantages in relying upon the statutory authority for remuneration.
1. They do not allow a sole professional executor, who is not a trust corporation 37,
to charge.
2. They require that, in order to charge, a professional executor must have the
written consent of the other executors.
s.28(4) From commencement of the Act on 1st February 2001 35 Part V, particularly, in this context, ss.28 & 29 36 s.35 Trustee Act 2000 for its application to personal representatives 37 A trust corporation is the Public Trustee or a corporate body entitled to act as a custodian trustee under s.4(3) Public Trustee Act 1906 33 34
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5.51 The remuneration authority for an executor and trustee is better placed in the clause appointing the executor than in a separate schedule of administrative powers. Doing this draws the testator’s attention to what is being authorised and there is less chance that it will be missed, or its significance not understood, as can occur if it is placed with other administrative powers. 38 5.52 When authorising remuneration in the will, consideration needs to be given to whether or not it is limited only to professional executors or should be extended to other executors as well. Remunerating non-professional executors is less easy as there will be no published fee scales or hourly rates for this type of work. Remuneration is of course less appropriate when an executor does not bring professional expertise to the administration. The non-professional executor or trustee has no right to remuneration or compensation for lost time unless the testator authorises it. 39 If a remuneration clause is to be widened to allow for remuneration for any executor, rather than just professional executors, it will require express authorisation by the testator. 5.53 All executors are entitled to the reimbursement of their reasonable expenses incurred in acting as executor. Legacies to executors 5.54 When considering financial acknowledgment of a non-professional executor’s services testators often prefer to do this by way of a legacy. 40 A gift given to a person, in the character of his office as an executor, is to be treated as being given upon the condition that they act as executor – and in consequence do not receive the legacy if they do act in the office of executor (unless the will expressly directs otherwise). 41 The first and most important exception to this principle is that it does extend to a gift of residue. 42 Otherwise, the burden is on the executor who does not prove the will to show that there is some circumstance to show that it was intended
Most trust companies will have a published set of fees and terms and conditions of business and it is not necessary to recite these in full, they can be incorporate by reference. The published terms and conditions of business will usually have a preferred appointment clause that incorporates the authority for fees and the appropriate words for incorporation by reference of the standard conditions of business. 39 He is entitled to reimbursement of costs incurred in administration of the will 40 Interest on such legacies runs from the time he assumes office, which will normally be the date of death; Angermann v Ford (1861) 29 B 349 41 Harrison v Rowley (1798) 4 Ves 212; Stackpoole v Howell (1807) 13 Ves 417 42 Griffiths v Pruen (1840) 11 Sim 202 38
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that he should receive the gift, notwithstanding he did not act as executor. Examples of this have been
a) where the will refers to the executor as a friend 43
b) the executor is a relative 44
c) the legacy is expressed to be as a mark of respect 45
d) the legacy is expressed to be as a remembrance of the testator 46
e) the legacy is not payable immediately, but later after an intermediate interest 47
5.55 Where a legacy is payable to the executor in the character of his office, it is not necessary that he proves the will, merely that he carries out the work of an executor.48 On the other hand, to merely take a grant and do nothing else would not entitle the executor to the legacy. 49 5.56 The clearest way for the draftsman to deal with these issues, is to draft legacies to executors that state clearly that they are, or are not, payable in the event that the named executors do not act as executors. This should remove all doubt as to the testator’s intention and simplify construction of the bequest post-death. 5.57 Where on death of a testator, one of the executors of the estate is a person
1. to whom the testator attempted to make a lifetime gift and
2. that gift failed as it was not completed, 50 then
3. the appointment as executor is sufficient to perfect the gift provide
4. the donee (executor) can show a continuing intention to make the gift on the
part of the donor (testator)
This is known as the rule in Strong v Bird. 51
Bubb v Yelverton (1871) LR 13 Eq 131; This often expressed as being a close relative Compton v Bloxham (1845) 2 Coll 201 45 Burgess v Burgess (1844) 1 Coll 367 46 Bubb v Yelverton (1871) LR 13 Eq 131 47 Re Reeves’s Trusts (1877) 4 Ch D 841 48 Angermann v Ford (1861) 29 B 349 49 Not that many executors would follow the example of the executor in Harford v Bowring (1787) 1 Cox 302 where apart from obtaining probate the executor did no more to administer the estate – but he did elope with the testator’s daughter. 50 This prevents the rule applying to the position where the donor (testator) merely expresses an intention to make a gift but goes no further than that; Vavasseur v Vavasseur (1909) 25 TLR 250 51 (1874) LR 18 Eq 315 43
44
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Appointment of testamentary guardians 5.58 See Chapter 8K
Funeral instructions 5.59 See Chapter 8I for the law regarding disposal of a body and funeral instructions. 5.60 Any direction regarding the disposal of a body and expenditure of money on memorials is logically placed before the dispositive provisions in a will. Placing the provision prominently towards the start of will draws attention to its significance, besides which, that is where most readers will look to find such provisions. 5.61 There is always the possibility that a will may not be located in time for directions in it to be applied for the funeral. Therefore, while it remains helpful for the personal representatives to be aware of the wishes, and to have additional expenditure authorised, it is important that the testator makes his family aware of his wishes and also where his will is held.
Specific gifts 5.62 Specific gifts in a will of personal property, owned by the testator, have great potential to give rise to disputes after death. As they are things that the testator owned, for the family members the items will have sentimental as well as possible monetary value. Accurate will instructions will help to lessen the scope for dispute (and criticism of the draftsman), but this by no means guarantees that there will be no post-death disputes. Description 5.63 Most problems with specific gifts arise out of a failure to describe the subject matter of the gift with sufficient accuracy. Unless there is a contrary intention in a will, references to property being bequeathed are to be construed as at the date of death of the testator. 52 This statutory rule, whilst fairly simply stated, causes much difficulty in practice particularly with specific gifts. 5.64 The word ‘my’, which is usually attached to specific gifts, may be a sufficient contrary intention to convert the description from being one at the date of death (as statute would provide) to one at the date of the will. The theory is that use of ‘my’ indicates a specific item of property being contemplated by the testator, which he owned at the time of making the will. The court has accepted this approach, 53 but
52 53
s.24 Wills Act 1837 Re Fowler, Fowler v Wittingham (1915) 139 LT Jo 183
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even where there was a stronger direction (‘which I now possess’) the court had not limited the gift to that at the date of the will but has included within it after-acquired elements of property. 54 It is suggested that in practice the court has wide powers of construction for such gifts. 5.65 In practical terms, the possible doubt that ‘my car’ could be either the car at the date of will or the car owned at the date of death, is avoided with the more direct addition of a specific description of the car for that owned at the date of the will (usually suitable for unusual, valuable or otherwise significant cars) or the use of ‘such car as I may own at the date of my death’ where that is intended. Where the car is known to be valuable, obviously greater care is needed.
• Considerable value can attach to so-called cherished vehicle registration
numbers. Values fluctuate with market conditions. To avoid disputes over
specifically bequeathed cars that have such numbers, consider specifically
referring to the registration number as part of the gift – where that is intended –
or excluding it where it is not.
• Where rare or historic cars are being bequeathed, the testator should consider
whether or not the gift is to include spare parts, tools and other artefacts
relating to the car.
5.66 Generally, for any specific gift the description of the item should be as exact as the testator can make it. The draftsman is looking to remove both uncertainty and ambiguity. Often the testator will refer to such items by terms that he regularly uses, but which do not necessary have the same precision as is needed for a will. The draftsman should aim for clarification where this is apparent. For example, a gift of ‘my mother’s diamond ring’ or ‘my aunt’s diamond ring’ will not help the executor who is unfamiliar the items or where a beneficiary has a different belief in what is meant. 5.67 Where the testator bequeaths a collection of items, difficulties can arise as to what is part of the collection and what is not, for example ‘my collection of books’. Where the deceased has a library that contains a mixture of books and within it a collection of modern first editions, it is better to ascertain whether the intention is to leave all the books as part of the gift or not. If it is all the books, say so. If, on the other
54
Wagstaff v Wagstaff (1869) LR 8 Eq 229; Hepburn v Skirving (1858) 32 LTOS 26
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hand, it is the collection of modern first editions, say so, but also consider how they might be distinguished from other books that happen to be first editions.
• Are they catalogued?
• Are they listed in some other way?
• Are they the contents of one bookcase?
• Are they likely to change? Should the description be the ‘collection at it exists
at the time of my death’?
Division and selection 5.68 Where the testator directs that his personal chattels are to be divided between a number of beneficiaries (and declines to specifically bequeath each item) some thought is required as to the practicalities of how they are to be divided.
• Should the testator direct an order in which each beneficiary selects an item
(but where the selection is to be made in this way, it is recommended that the
will provides what happens to any items not selected)?
• Does a set of objects constitute one item for this purpose?
• Should the testator direct that the executor divide the items between the
• Form the previous bullet point, should the will contain a precatory direction (see
beneficiaries as he see fit?
5.79) requesting that the person making the allocation takes into account
any wish left by the testator in an informal written note.
• Consider a time limit for selection.
Testators should not be advised to use these methods where the value of one item far outweighs the value of the others. Such a high value item should be specifically bequeathed instead. 5.69 Where a beneficiary is given a choice of selection from the deceased’s personal chattels, discuss with the testator if it is intended that the beneficiary should be able to select all the chattels or only a certain number/value. This should then be directed in the drafting together with the method of selection (e.g. in writing) with a certain time for the selection also specified.
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5.70 The practice, sometimes previously encountered of a testatrix leaving jewellery to be divided between her daughters has been a potential problem since the Gender Recognition Act 2004, 55 as a change of gender could add to or subtract from the number of daughters at death who qualify as legatees. Individually naming the daughters is better. Drafting where bequests or classes are based on gender is best avoided if the testator’s wishes can be accommodated in another way (and in modern wills classes based on gender are becoming less common). 5.71 Careful consideration is needed where chattels are to be left on trust. While it may be easy enough to leave all chattels on trust for a life tenant this is hardly practical. Generally a large proportion of an individual’s chattels are items of everyday use with a limited value and a limited life. 56 Where a trust is required for chattels thought must be given as to:
• a definition as to which items should be in trust and which should be
bequeathed absolutely; usually this can be approached by placing in trust
only the items of high value (value that is monetary, literary, historic,
scientific, etc.)
• taking an inventory and valuation of what is on trust (condition to be noted)
• responsibility for insurance, payment of premiums and updating cover to be
covered in the will.
Definition of chattels 5.72 The expression ‘personal chattels’ is defined in s.55(1)(x) Administration of Estates Act 1925. Originally this was:carriages, horses, stable furniture and effects (not used for business purposes), motor cars and accessories (not used for business purposes), garden effects, domestic animals, plate, plated articles, linen, china, glass, books, pictures, prints, furniture, jewellery, articles of household or personal use or ornament, musical and scientific instruments and apparatus, wines, liquors and consumable stores, but do not include any chattels used at the death of the intestate for business purposes nor money or securities for money.
Chapter 8J Where husband and wife are concerned, much of the usual chattels in a matrimonial home will be jointly owned. 55 56
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5.73 s.3 Inheritance and Trustees’ Powers Act 2014 replaced the this with a new definition for all wills executed after 1st October 2014 where s.55(1)(x) is used to define personal chattels:“Personal chattels means tangible movable property, other than any such property which consists of money or securities for money, or was used at the death of the intestate solely or mainly for business purposes or was held at the date of death of the intestate solely as an investment”. It is usual to use the statutory definition of chattels rather than attempt to redefine the term. However if there is any doubt as whether or not an important item falls within the definition, the definition can be augmented expressly in the terms of the gift. The word chattels is of wide meaning and can include all personal property, but not real property. 57 “Chattels” or “personal chattels” should not be used in a will without an appropriate definition. 5.74 The value of the chattel, either in absolute terms or as a percentage of the estate, is not a relevant factor in deciding whether or not an item is within this statutory definition. 58 5.75 `Solely or mainly for business purposes` should be noted. With more people working from home valuable equipment or resources used solely of mainly for business purposes will need to be considered as a separate bequest. Collections of items can pose problems, but unless there is clear evidence that parts of the collection were being traded as a business, there seems little reason why a library or collection of antique items will not be personal chattels. 59 5.76 Expenses of delivery and foreign taxes in connection with chattels abroad, or bequests to beneficiaries abroad, is a difficult area of law where there is much uncertainty. It is therefore practical to recommend that specific provision is made to direct that costs of delivery and vesting are to be paid by the legatee or expressly out of residue, as the testator so wishes. If the chattel is abroad, consider the greater costs of collection as well as whether or not the chattel is to bear the cost of any foreign taxes. 60
Re Givan [1966] 1 WLR 1378 Re Crispin’s Will Trusts [1975] 1 Ch 245; Re Collins’ Settlement Trusts [1971] 1 WLR 37 59 Re Reynold’s Will Trusts [1966] 1 WLR 19 60 The general position on application of foreign taxes in this manner is uncertain, although the Scottish case of Re Dougal [1981] STC 514 may be help to decide that such property does not bear its own tax.
57
58
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Electronic assets 5.77 There is an increased focus today on electronic assets. 61
1. Valuable material can be stored on computers, remote drives and cloud
storage. Typically this is, photographs, music, photographs, films, designs,
original research, literary work, copyright material etc. Testators should
be encouraged to think about ownership and, where the value is significant,
consider not only specifically bequeathing it, but considering how it is to be
identified, preserved and accessed. 62
2. Executors will be wary of electronic assets than have been downloaded in
breach of copyright, depending upon the scale and purpose of the
downloads, and the state of the law at the time of the testator’s death.
3. Internet based bank accounts are little different to conventional bank
accounts and can be dealt with after death by registration of the grant of
representation. Testators should not be encouraged to write down passwords
and internet IDs and hand those details to relatives ahead of their death.
Apart from the insecurity this creates, this will in all likelihood breach the terms
of operating the account. 63 For accounts where there are no paper records
in the testator’s possession, details of the financial institutions and account
numbers can be placed with the will file.
4. Social media and email accounts also need to be considered. Social media
accounts may contain much of a person’s life that is important to his
beneficiaries and therefore they may wish to have access to this to recover
photographs and personal information. For those prominent in public or artistic
life, this will become increasingly important in the future. Clients, where the
contents of the accounts might be important to biographers etc, need to think
during their lifetime about what should be saved and then about copying and
storing important items. Doing this in their lifetime is much easier. 64
For issues of definition see ‘Digital life after death’ by Martin and Worrall in the STEP Journal at http://www.step.org/digital-life-after-death 62 With cloud storage of commercial music and films there may be issues about whether or not the ownership is transferable and if it is merely licensed by the owner to the testator during his lifetime 63 As well as creating difficulties in the administration of the estate if there have been any unauthorised withdrawal of funds before or after death. 64 A client is well advised to think seriously about digital assets while they are alive and have capacity. They can then take suitable precautions for protection of assets in case of loss of capacity, or destruction of such assets if that is important to them.
61
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Informal directions for the distribution of chattels 5.78 The draftsman should not attempt to define chattels by reference to any schedule or list unless that schedule or list is in existence at the time the will is executed. 65 Provisions about changes to schedules such as “or any substitution thereof or modification thereof� should be avoided. 66 A document incorporated by reference must exist at the time of the will. 67 5.79 A common approach, to avoid some of the issues of incorporation by reference, is for the will to give the chattels to the executor, with the wish, which is not binding, that he distributes the chattels at his discretion, including taking into account any memorandum left by the testator at the time of his death. Such bequests should clearly be stated as non-binding in order to try to avoid a half-secret trust. The testator should also understand the non-binding nature of this approach. 5.80 There is provision in s.143 IHTA 1984 which provides that if the distribution of chattels under such a gift is made within two years of death, then the recipient is treated as having inherited the gift under the terms of the will and thus there is no gift by the executor on distribution. 5.81 This only applies, however, where the gift to the executor is absolute, i.e. he takes beneficially on the face of the will. 68 If it is upon trust, i.e. if on its terms he cannot take beneficially, the same result can be obtained through s.144 IHTA 1984, provided there is no interest in possession pending distribution and no distribution is made within three months of death. 69
Re Berger [1990] Ch 118; [1989] 1 All ER 591 Re Jones, Jones v Jones [1942] 1 All ER 642 67 see 1.50 for more details of incorporation by reference 68 s.143 will not apply unless the legatee takes absolutely: Harding and Leigh (Loveday’s Executors) v IRC [1997] STC 321 69 Frankland v IRC [1996] STC 735 and Harding and Leigh (Executors of Loveday) v IRC [1977] STC 321
65
66
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Shareholdings 5.82 The division of the testator’s shareholding in a particular company by bequeathing specific amounts of shares to individual beneficiaries, for example 2,000 shares in X plc to A and 3,000 to B, is a valid gift, but the draftsman needs to be aware of potential practical issues. In the example given, there is no difficulty if the 5,000 shareholding continues unchanged until death. However, rights 70 or scrip71 issues, or even further share purchases, will affect the size of the overall holding at death and leave the after-acquired shares not disposed of by the specific gift. Working with percentage gifts of the holding owned at death can avoid this. 5.83 Specific bequests of shares can also cause problems if the shares are exchanged for shares in a different company by acquisition, merger or demerger. 72 The shares specifically bequeathed may well have adeemed and if so the legacy will then fail (with the shares being dealt with under the residuary bequest). 73 5.84 More complex issues arise where private company shares are to be divided between legatees – not the least of which is the Articles of the Company itself and any possible restriction on new shareholders being brought onto the share register. Also to be considered is the effect of the gift on existing shareholdings of the legatees, particularly where as a result of a legacy one of the beneficiaries would become a majority shareholder (leaving the other legatees as minority shareholders).74
Where new nil paid shares are allocated to all shareholders in proportion to their existing shareholding. The shareholder can accept some or all by paying the issue price per share(which is usually at a discount to the existing share price). For attractive issues they may be sold nil paid, if the shareholder does not wish to subscribe to them. 71 The capitalisation of a company’s reserves by issuing additional fully paid shares to all shareholders in proportion to their existing shareholdings. No payment is required from the shareholder. In theory such an issue does not affect the value of the individual shareholding, merely giving him more shares of the same overall value as the pre-issue shareholding. 72 Nationalisation gives a similar problem when Government stock is issued in exchange for shareholders shares. 73 Re Slater [1907] 1 Ch 665; “You have to ask yourself, where is the thing which is given? If you cannot find it at the testator’s death it is no use trying to trace it unless you can trace it in this sense, that you find something which has been changed in name or form only, but which is substantially the same thing.” See also Banks v National Westminster Bank plc [2006] WTLR 1696. For ademption see Chapter 8A 74 Lloyds Bank v Duker [1987] 1 WLR 1324; the effect of creating one beneficiary a majority shareholder by adding his distribution to an existing shareholding is to create far greater value in his hands than in the hands of the other beneficiaries who have minority interests. In Duker the holding was directed to be sold in a single block. 70
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Land 5.85 Land can cause complex issues for the draftsman, usually in terms of identification and boundaries. Therefore great care needs to be taken with ensuring clarity of description and certainty of understanding of what the testator intends. The difficulties of where boundaries lie between a farm house and a farm has often been a source of dispute. 75 5.88 Farmland can pose additional problems where the description of land by the testator does not match names or boundaries that appear on the title. This can easily arise where field boundaries have changed over the years and a field apparently no longer exists as a separate entity. If possible, and certainly if dividing a farm between different beneficiaries, using an up-to-date OS map that shows present field boundaries and holding numbers, and the areas in hectares, as the basis for defining each gift will help (with reference to the testator to ensure the accuracy of understanding). 5.89 Where an existing holding of land is being divided between different beneficiaries by the terms of the will access to the individual devises needs to be considered by the testator. 76 The terms of any rights of way that need to be created should be agreed with the testator and authorised in the will. If the testator is the owner of the entire area at the time while he is alive, no right of way can exist for him at that time. 77 5.90 Is the property description given by the testator consistent with the facts as they appear, or are already known, to the draftsman? If a property is used for business purposes is it owned by the business entity or by the testator? In Earl v Wilhelm 78 the testator named individual fields as specific devises to individual named relatives. The draftsman, who took the instructions, also dealt with the testator’s taxation affairs and knew that the fields named were assets of companies that were 100% owned by the testator and not his personal property. 79 Sprackling v Sprackling [2009] WTLR 897 Thompson v Bee [2010] WTLR 357 CA The testatrix divided a plot of land in her will, leaving the house to a daughter and a parcel of land attached to it to her son. The daughter’s bequest was subject to “a right of way existing at my death to [the parcel of land]”. The son’s bequest of the land included reference to the “right of way”. The right of way which existed was limited and would not support development of the parcel of land, thus blocking its development. 77 Metropolitan Railway Co v Fowler [1892] QB 165 at 171: “An easement is some right which a person has over land which is not his own; but if the land is his own, if he has an interest in it, then his right is not an easement. You cannot have an easement over your own land” 78 (2000) SKCA 1 [2001] WTLR 1275 79 he prepared the companies’ tax returns as well as the testator’s. The bequests failed and the draftsman was liable to the disappointed beneficiaries following the English decision in White v Jones [1995] 1 All ER 691 75
76
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5.91 One further issue on names is where land may be held on split titles. This can sometimes be the case with apartments that have separate blocks of garages for some but not all apartments, or for older houses with garages elsewhere in the street. It is helpful to ask to inspect the title deeds to ensure that the individual properties are accurately described. 5.92 There are other potentially difficulties with specific gifts of houses as these are often sold before death. 80 Disposal of the specifically bequeathed property before death will lead to the failure of the bequest. 81 There are a number of ways of dealing with this, none of which is wholly satisfactory:
• Directing that the bequest is of the named property or whatever principal
residence may instead be owned at death –
» this does not help if there is no property owned and the devisee is left without
benefit;
» a move and down-sizing of property will produce a sharp reduction in the
value of the bequest that may not be intended;
» disputes over what is the principal residence if a house is owned but not lived
in full time;
» the testator enters into an equity release scheme before death
» some retirement properties are not freely transferable to a legatee but
involve a sale to, or by the management company, thereby making the
bequest to be one of the property proceeds of sale after death.
• Directing that if the house is sold the bequest becomes one of the net
proceeds of sale
» Requires keeping sufficient documentary evidence of what were the net sale
proceeds of sale;
» if the testator requires lot of expenditure on retirement/nursing home fees
after the sale, the wording of the legacy freezes the value of the gift while
the proceeds are spent and that has considerable implications for other gifts
in the will, particularly residue.
Reviewing the will on sale and determining the most appropriate new terms is the most practical option, provided the testator returns for such a review and is capable of making a new will. either because of the need for smaller property (particularly sheltered accommodation) or the need to finance residential home costs 81 Banks v National Westminster Bank plc [2006] WTLR 1696 80
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5.93 Where the land is encumbered, the rule is that, in the absence of a contrary intention in the will, or in other papers of the deceased, 82 the gift of property, or an interest in property, carries with it the burden of any encumbrances (e.g. mortgages) on that property at the date of death. 83 This does not alter the existing rights of the lender and these remain against the estate. The burden on the devisee is that he must provide sufficient funds to the executor to discharge the mortgage to allow the property to be transferred to him unencumbered. 84 5.94 Where the testator intends a devise of real or leasehold property, the draftsman should ensure that the question of any existing mortgage has been considered. Few testators consider the question of whether or not the bequest should take the burden of debt as well – and even fewer consider the financial repercussions on the other bequests of shifting the burden of the debt on to residue and away from the devise. Additionally, the discussion should include any life cover, or similar insurance, intended to clear the mortgage on death. Making express provision for the legatee to receive the benefit of such insurance can prevent the position arising where the insurance proceeds are applied to clear the mortgage, but the policy was an asset of residue thus leaving the legatee to reimburse the residue with the cost of the mortgage. 5.95 Re Ross 85 provides some help in resolving these issues post death, but its application will depend on how much of the testator’s intent can be ascertained from his paperwork, particularly with regard to the application of life cover to redeem the mortgage. In this case there was a bequest of ‘my apartment and contents thereof’. At his death the testator owned the freehold reversion of the two maisonettes in the building and a lease on one of them. 86 The lease had been purchased with the help of an endowment mortgage secured on a policy sufficient to discharge the lending.
1. Did the bequest include the freehold reversion as well as the lease?
2. Was the gift subject to the mortgage?
3. Was the mortgage to be discharged by the legatee or the policy?
e.g. a letter; Re Wakefield [1943] 2 All ER 29 s.35 Administration of Estates Act 1925, the definition of property in this context is in s.55 (1)(xvii) 84 Or to be charged with any mortgage that the devisee arranges in order to clear the original encumbrance 85 Re Ross, Ross v Perrin-Hughes [2005] WTLR 191 86 The gift of the apartment did include the freehold reversion as well as the lease. The wording of the will was ambiguous and extrinsic evidence was admissible to reach this conclusion. s.21 Administration of Justice Act 1982 82 83
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5.96 The bequest was not subject to the mortgage because, for the purposes of s.35 Administration of Estates Act 1925, there was a contrary intention, and the court could look outside the terms of the will for this, because it was clear from the evidence that before the will was executed the testator intended that the mortgage should be paid out of the policy. 5.97 It is difficult to suggest that the terms of the will should deal with any future mortgage as the circumstances that make it necessary to mortgage need to be taken into account at that time. A future mortgage of a substantial specific bequest is an occasion on which the terms of the whole will should be reviewed. 5.98 If there is no contrary direction in the will, the IHT attributable to a specific gift of land is a testamentary expense payable from residue. 87 A testator may choose to place the burden of IHT on the specific gift. In asking the testator if such a gift is to be free of tax or subject to it, it is helpful to explain to the testator exactly what is involved. Merely mentioning “free of tax” has a tendency to produce an agreement, as the testator will always prefer something free of tax – not thinking that the burden of tax falls on someone else and is not avoided completely. 5.99 The cost of transferring a gift of land to a beneficiary is a cost payable by that beneficiary. If it is intended that residue should bear this cost then the gift should expressly provide for it. 88 Domestic pets 5.100
Gifts for the maintenance 89 of pets or other animals are valid gifts, but are
trusts of imperfect obligation 90 (i.e. a trust where there is no beneficiary to enforce them). Such trusts are void unless they are limited to a period not exceeding the applicable perpetuity period. 91 For this purpose the perpetuity period is 21 years. 92 The designated trustees of such a gift cannot be compelled to carry out the work, but can validly do so if they choose. If they do not carry out the purpose, they then hold the funds upon a resulting trust for the testator’s estate.
s.211 IHTA 1984 If it is intended to do this, it is probably as well to specifically cover the costs of first registration (should they arise) as well. 89 The gift should be for the maintenance, upkeep, care, etc., not direct gifts to the animal itself 90 Also described as a non-charitable purpose trust 91 Re Hooper [1932] Ch 38; Musset v Bingle [1876] WN 171 92 s.18 Perpetuities and Accumulations Act 2009 87 88
144
5.101
The form of the gift for pets requires some consideration. If it is to the trustees
upon trust to invest and apply the income for the maintenance of the pet for the rest of its natural life or 21 years (whichever is the shorter) the funds invested and any unspent income will fall into residue. The use of a trust fund does have its administrative costs and is therefore probably only appropriate for larger amounts. Another way to provide for a pet is a legacy absolutely to a named individual, with the wish that they look after the pet. This can give rise to difficulties as the testator will have to calculate a sum sufficient to pay for upkeep and reward the legatee for their work. Such legacy is not returnable if the pet dies, or is put down, very soon after being handed to the legatee. Further characteristics of specific gifts 5.102
In the absence of any direction to the contrary, a specific gift carries with
it the income produced by the gift after death together with the burden of any outgoings attaching to the gift. Thus, a specific gift of a shareholding will carry the dividends payable after death or a devise of land will carry the rents payable after death, but the latter will also carry the liabilities of the landlords. Testamentary options 5.103
A specific gift may not be of the thing itself, but may given in the form of
a right to acquire it, for example as a right to acquire the testator’s house for a value (usually below market value) within a certain period of death. The use of a testamentary option can enable a more equitable division between members of the testator’s family. If a single house in an estate provides the greater part of the estate value, giving a testamentary option to buy to the child who wants to acquire the house will provide further funds to distribute between other children if he purchases it. 5.104
Given that this type of option is usually granted at a purchase price below
market value, the difference between the purchase price and the market value at death will be the value of the legacy to the beneficiary. A complicating factor will be the burden of IHT on the death. The subject matter of the option will be an asset of the estate and tax on it will be payable from residue, unless the will directs otherwise. 5.105
Experience shows that such options usually relate high value assets, typically
land, houses, business or private company shares. Because of the values involved much will depend on the precision with which they are drafted as their value enhances the chances of dispute.
• The item over which the testamentary option is given needs to be exactly
defined. For land this will focus attention on boundaries and access which 145
are particularly significant if the option is only over part of the property owned.
For businesses, attention must be paid to what are business assets and which
are personal to the testator. 93 Where the business interest is by way of a private
company shareholding, the validity of any testamentary option will be affected
by restrictions on share transfers in the Articles of Association.
• Attempts to allow for the purchase of partnership interests in this way will be
wholly dependent upon whether or not the existing partnership agreement
permits the continuation of the partnership after death and that a deceased
partner’s share could be purchased. 94
• The valuation formula must also be precisely defined. In arriving at a valuation
method the testator needs to understand clearly the extent to which values
can rise and fall.
• The time limit for exercise needs to be considered. Relating the time period to
• The process of how the option is offered to the legatee to start the process,
death has many problems attached to it, particularly if the will is challenged.
together with the form of his acceptance, needs to be prescribed.
• The manner and time of payment of the price should also be dealt with.
5.106
The more complex the option and the more valuable the asset, the more a
draftsman will understandably consider seeking advice from counsel. A legacy of a debt 5.107
A will can direct that a debt is forgiven or some similar term. Such a direction
operates so as to give a pecuniary legacy to the debtor of a sum that discharges his debt to the testator’s estate. 95
Demonstrative Legacies 5.108
These are gifts of a general nature which are directed to be paid out of a
designated asset: typically, it would be a legacy described as “£10,000 to A to be paid from my current account with ABC Bank plc”.
Which means options over sole trader business can pose problems of definition. s.33(1) Partnership Act 1890 directs the dissolution of a partnership on the death of a partner unless the partnership directs otherwise. 95 Stamp Duty Commissioner v Bone [1976] 2 All ER 354 – the true position being that a debt can only be released for valuable consideration or under seal, hence the “legacy” construction 93 94
146
5.109
This type of gift is distinct from a specific legacy (which might be “the
balance of my current account with ABC Bank plc”). A specific legacy is a legacy only of the thing given (and if that does not exist the legacy fails). The demonstrative legacy on the other hand is essentially one of a general gift, an amount, which is primarily to be paid from the designated source, but could then be paid from the general estate if the designated source for payment does not exist. 96 If the designated source or fund exists, but is insufficient to pay the legacy,
1. that part of the amount which can be paid from the designated source is paid,
and is a demonstrative legacy, but
2. the balance of the legacy is then paid from the estate generally and is a
general legacy. 97 The testator is however at liberty, should he wish, to expressly direct that a demonstrative legacy will only be paid out of the designated fund and from nowhere else. 5.110
Demonstrative legacies are not commonly found in modern wills. The
general aversion to them comes from the view that there is little practical point to them. Modern drafting tends much more to favour the specific and general gifts as being more easily understood and identified. They also have more certainty as to how they may be affected by changes in the testator’s estate before death.
General Legacy 5.111
A general gift an item that is not a specific legacy, i.e. it is a thing that
the testator does not own. Thus, a legacy of “a Rolex watch” would require the executor to purchase a watch from the estate for the beneficiary. 98 The potential for argument has to how much should be spent on such a gift is considerable. This is one of the main practical objections to the use of these legacies as opposed to a straightforward gift of a sum of money. If a general legacy is required consideration should be given to a limitation on how much can be spent (although such limits can very soon become unrealistic.)
Re Webster, Goss v Webster [1937] 1 All ER 602 where a legacy of £3,000 was payable out of a designated fund; Wright MR observed “These words ought, I think, to be construed as meaning “to be paid to him primarily out of the share”. 97 The distinction between the two parts is important for the order of abatement if the estate is not sufficient to meet all of the bequests in the will. 98 Hawthorn v Shedden (1856) 3 Sm & G 293 96
147
Pecuniary legacies 5.112
These are usually classified as general legacies and they are gifts of a
specified sum of money. This type of legacy is encountered in most wills. 5.113
Traditionally in a will a sum of money has been expressed as “the sum of five
thousand pounds (£5,000)”. The justification for using both words and figures usually has been that the repetition ensures accuracy and assists checking. Unfortunately, it does not always ensure accuracy and many examples have been seen where the two sums are inconsistent. Some draftsmen suggest either using figures or words, but not both, to lessen the chance of a mistake. However, this approach is flawed as well – for the same reason that the original approach was to use both, mistakes can be made in writing out the legacy once. The use of words or figures or both is a personal preference. 5.114
A debtor cannot take the benefit of a pecuniary legacy without bringing
into account the sum that he owes to the testator. 99
Annuities 5.115
An annuity is a gift of fixed periodic income payments to a beneficiary for life
or such shorter period of time as the will directs. Annuities that are secured on land are also known as rentcharges 100 5.116
Once very common in wills, annuities are far less commonly encountered
today. In periods of low inflation and stable currency values they were practical. However, the post-war effects of inflation have made long term gifts of a fixed amount of income fairly unattractive propositions. 5.117
A further reason for the drop in popularity of the annuity is the practicality
of administration and distribution of the estate. Unless the will is drawn in such a way as to limit the estate liability for the annuity, for example by specifying the value of fund to finance the annuity or by directing that only a fund or part of the estate is charged with the annuity (to the exoneration of the rest of the estate)
• all of the estate which is comprised of gifts, which would abate before the
annuity, is charged with the annuity and
• the annuitant has a right of recourse to capital should the income alone be
insufficient to meet the periodic payments.
Turner v Turner [1911] 1 Ch 716; the same principle will also apply to a gift of reside. s.55(1)(ix) Administration of Estates Act 1925 defines a pecuniary legacy as including an annuity.
99
100
148
The decisions as to the retention and distribution of residue, where the fund on which the annuity is charged is unlimited, require very careful consideration and, where necessary, the agreement of the court. 101 The executor would have a personal risk should the residue of the estate be distributed and the funds retained prove insufficient to meet the annuity. 102 5.118
The legatee who receives the annuity is known as an annuitant. Generally
the annuitant is only entitled to receive those income payments specified and not a capital sum in lieu of them. He may however have the option to receive a capital payment in lieu in six circumstances:
[i]
Where the will expressly gives him this option: this will usually be expressed
with a specified time in which the option must be exercised. Where this
occurs, the will will usually contain a definition of how the capital sum is to be
calculated.
[ii] Where the will gives a direction to the executor that an annuity is to be
purchased out of the estate 103: where this is the case, the annuitant has the
option of taking either the annuity or the sum specified. 104 If the testator
wishes, he may attach to any direction to purchase an annuity a prohibition
against the annuitant taking a capital sum in lieu. However, there is old
authority to suggest that this might not be effective to prevent the capital
sum from being taken at the annuitant’s option before purchase. 105
[iii] A direction in the will attaching to the annuity that the annuity should cease
and the annuitant be required to assigned to another on a specified event:
this will prevent the annuitant from taking the capital sum in lieu at any time.106
[iv] Where there is insufficient capital in the estate to provide a fund large
enough to generate sufficient income to pay the annuity: in these
circumstances the annuitant can have his interest actuarially valued and
that interest settled by a single capital payment. 107
Re Hill, Westminster Bank Ltd v Wilson [1944] Ch 270 May v Bennett (1826) 1 Russ 370 103 annuities are commercially available from many life companies 104 Re Robbins, Robbins v Legge [1907] 2 Ch 8 105 Hunt-Foulston v Furber (1876) 3 Ch D 285 106 Re Draper (1888) 57 LJ Ch 942 107 Re Cox, Public Trustee v Eve [1938] Ch 556, but see also Re Hill, Westminster Bank Ltd v Wilson [1944] Ch 270 on the practical circumstances where a court would not apply this general rule
101
102
149
[v] The rule in Saunders v Vautier 108: where the annuitant and the beneficiaries
entitled to the remainder after the cessation of the annuity are all
ascertained and sui juris, they may collectively agree to a division of the fund
and direct the trustee to distribute it in that way.
[vi] a court application under the Variation of Trusts Act 1958: if the beneficiaries
are not all ascertained and sui juris is possible, where the sums involved are
sufficiently large, to justify the costs of an application.
Gifts of residue 5.119
Commonly, the gift of residue is the most significant benefit given in a will.
The residue of the estate is that part of the estate which remains after the payment of
• the funeral expenses,
• other due debts of the estate,
• the taxes due,
• prior legacies and
• the costs of the administration.
It is usually described in a professionally drawn will by an explicit reference to residue or net residuary estate. Matters become a little less clear in wills that are not professionally prepared, but a wide range of expressions have been accepting a constituting gifts of residue. 109 5.120
In the event of the failure of a gift of residue the residue will, subject to any
alternative provision in the will, pass as a partial intestacy. Where a gift of only a share of residue fails, there will be the same effect unless there will contains any contrary direction. 110 5.121
Unlike most other testamentary gifts, the value of a residuary gift is not
ascertained until the net residue of the estate has been ascertained (i.e. after the payment of the outgoings listed in 5.119). Indeed, it is doubtful that the residuary legatee is entitled to receive anything until the personal representative can establish unequivocally that there must be a residue. However, in practice interim distributions on account of residue are routinely made at the stage in the administration when it can be determined that it is safe to do so, even if the final value of residue is not yet established. (1841) 4 Beav 115 Blight v Hartnoll (1883) 23 Ch D 218; Re Barnes’ Will Trusts [1972] 2 All ER 639 110 Re Woods’ Will (1861) 29 Beav 236 108 109
150
5.122
If there is no residue, the residuary legatees will receive nothing. By definition,
residue is the first part of the estate to bear the payment of the funeral expenses, other due debts of the estate, the taxes due, prior legacies and the costs of the administration. Therefore, if these outgoings leave no residue the gifts of residue abate completely. 111 5.123
The interaction of specific, pecuniary and residuary legacies needs to be
considered more carefully by the modern draftsman, than perhaps used to be the case. Greater longevity and higher costs of care in old age now present common problems for testators. For example, where a will contains £100,000 of pecuniary legacies to friends and charities and a gift of residue, estimated at £300,000, to children consideration needs to be given to the effect of care costs eroding the estate before death. The will would have been prepared with a split in benefit of 75% to children and 25% to others (ignoring debts and costs of administration). However the costs of care in old age could substantially, or completely, erode the children’s benefit from residue before the gifts to others are impacted at all. The terms of the will can constructed in different ways to prevent this - e.g. not using pecuniary legacies at all but converting all gifts to percentages of residue or using large pecuniary legacies to children and residue to others or using a discretionary trust with a carefully drawn letter of wishes (see 5.196 et seq) as to the testators wishes, particularly if his estate is much reduced by death.
Gifts in trust 5.124
A gift in a will need not be absolute – it can take the form of a trust. A trust
can take many different forms. The notes below are not exhaustive in terms of the features of trusts (for that, reference to a standard text book on trusts should be made). The notes summarise the features of trusts commonly used in wills. 5.125
The choice of type of trust will be driven by
1. what is appropriate to meet the wishes of the testator,
2. the type of assets,
3. the circumstances of the beneficiaries and
4. the taxation features of the different types of trust (n.b. not only IHT, but also
CGT and Income Tax)
these factors should be weighed together to determine what is required.
See Abatement in Chapter 8A
111
151
Life interest trust 5.126
Income will be payable for life to named individual(s) with the remainder,
after the life interest, distributable according to the terms of the trust – usually absolutely. Successive life interests are less common that they used to be. The remainder can be distributed in different ways depending upon the terms of the trust
• in fixed shares as set out in the deed
• under a discretionary trust
• According to the terms of a power of appointment given in the deed for
this purpose 112 Protective trust 5.127
Originally developed to guard against the financial incompetence or
profligacy of the beneficiary, the operation of the standard protective trust is now set out in s.33 Trustee Act 1925. The attraction of the protective trust was in its ability to keep capital out of the hands of a beneficiary’s creditors. The s.33 trust operates initially in the same way as a life interest trust, but with a significant added feature. If the life tenant does, or attempts to do, any act which would alienate his interest in the income of the trust fund his interest in income immediately ceases. On such an event, the statute provides for a discretionary trust to replace the life interest. The discretionary class of beneficiaries for this trust is composed of the former life tenant,113 his or her spouse or civil partner, and his or her children or remoter issue. If there is no spouse, civil partner, children or remoter issue, the class is instead composed of the principal beneficiary and those persons who would, if the principal beneficiary was dead, be entitled to the trust fund. If a modification to the statutory terms is required then the terms of the trust must be set out in the will, but care must be taken to ensure that the variation from the terms of the statutory trust does not prevent the trust from being taxed as a protective trust. 114 5.128
An act of alienation which terminates the interest in income can encompass
a variety of acts, but it is typically bankruptcy, attempted assignment of the income to another or attempting to charge the income. The life tenant agreeing to the trustee making an advance under s.32, or a comparable power in the trust deed, is not an act of alienation. 115 See Chapter 8P on powers of appointment Called in s.33 the “principal beneficiary” 114 See s.88 Inheritance Tax Act 1984 for trusts created after 22nd March 2006 the interest of the principal beneficiary must be an immediate post-death interest, a transitional serial interest or a disabled person’s interest (as in s.89B(1)(c) or (d)) 115 Re Rees [1954] Ch 202 112
113
152
5.129
Some regard the s.33 provisions as cumbersome and, where the
circumstances warrant a protective trust, prefer to use a discretionary trust instead. This will be more flexible, but it will place a greater burden on the trustees to monitor the financial position of the person who would be the principal beneficiary under s.33. Discretionary trust 5.130
Discretionary trusts do not contain fixed interests, but have instead a defined
class of beneficiaries from within which the trustee can select those who will benefit. The trustee has a discretion over income, capital or both. His discretion will extend as to who he distributes capital or income to, in what shares and at what time. Such trusts are favoured today because of this inherent flexibility as to the timing and manner in which it is distributed. This allows for the trustee to decide what is appropriate in the light of the circumstances that exist not only at the testator’s death, but during the trust period. 5.131
On the other hand, those who are members of the discretionary class are
not beneficiaries until they receive a distribution and, depending upon how the discretions are exercised, many members of a class might never be beneficiaries. From that point of view, they have an element of uncertainty as to any eventual inheritance. 5.132
Discretionary trusts are favoured for other reasons apart from this flexibility.
As members of the discretionary class have no entitlement to distributions, the assets of the trust are beyond the reach of creditors, as they are from assessment of contribution towards care in old age. The protection that a discretionary trust might give against financial provision on divorce of a member of a class is a much more nuanced issue and reference should be made to a more specialist book on the area of divorce and trusts. The use of a discretionary trust does not prevent a member of the discretionary class from making a claim under the I(PFD)A 1975 (if he is within the statutory classes who can make a claim under the Act). 5.133
Trustees of discretionary trusts are generally assisted in their task by a letter of
wishes (see 5.196 et seq) from the testator setting out his views on how he would like the trust to be administered. Bare trust 5.134
A bare trust arises where property is left to a beneficiary absolutely as
regards capital and income, but the beneficiary is unable to give a receipt for it. This commonly arises where property is left to someone who is a minor at the time of the testator’s death and the gift is not subject to any contingency (such attaining a 153
designated age). The property is then held by the trustee until such time as a valid receipt can be given - i.e 18. 5.135
Bare trusts have attracted increased attention from the point of view of their
tax treatment. Taxation advantages need to be weighed against several practical factors
• The minor is absolutely entitled to the asset and he has complete control from
when he gives a receipt at 18. This poses questions of suitability to receive the
assets at this age and the size of the residuary gift will usually be a factor in this.
• Should the minor die before attaining 18 (and therefore not being able to make
his own will), the trust assets will pass on his intestacy. 116
Gifts to Charities 5.136
Income from charitable legacies is of huge significance to modern charities.
The trustees of a charity, usually acting initially through the charity’s legacy officer, will be concerned to establish the size of any testamentary gifts. Additionally, because of (a) the importance of this source of funds and (b) the charity’s legal entitlement to the bequests, the legacy officer has a duty to ensure that the charity receives that which the will and accounts show is due to it. 5.137
Because a charity is an organisation that that has obligations under both its
trust deeds and charity law general, it is a beneficiary that will want to determine the full extent of legacy and receive that amount. Disputes as to the size or extent of a gift to charity can be more difficult to resolve in the administration of an estate than disputes where charities are not involved. Gifts to charity should be considered carefully at the drafting stage to ensure both correctness and practicality. Useful precautions are
• checking the exact name of the charity involved,
• ascertaining that it is indeed a charity (obtaining the registered charity numbers
helps) and
• specifically obtaining express agreement from the testator of the words used.
• where the legacy is intended for a particular purpose, discussing this with the
charity should establish whether or not that purpose is practical or possible. The
client then has a chance to reconsider (or be reassured)
Adding conditions of attainment of a certain age in order to try to prevent this, would make the gift contingent upon attaining the 18 and thus not a bare trust. 116
154
5.138
Unlike non-charitable gifts, charitable gifts may be saved from failure even if
the specified charity has ceased to exist or is invalidly described. The doctrine of cy près can assist in such a position. This doctrine is of some antiquity, and the rationale behind it was originally a religious one: “The donation was considered as proceeding from a general principle of piety in the testator. Charity was an expiation of sin, to be rewarded in another state; and therefore if political reasons negatived the particular charity given, [the] courts thought the merits of charity ought not to be lost to the testator, nor to the public, and that they were carrying on his general pious intention.” 117 5.139
The application of this doctrine has been extensively amended by the
Charities Act 2011. 118 In brief, this doctrine allows for the Charity Commission or the court to apply the gift for other charitable purposes. The occasions on which it can be applied are set out is s.62.
Vested and contingent interests 5.140
A testator has certain choices that he can make regarding when a legacy,
of whatever type, becomes the property of the legatee. Vested interests 5.141
A legatee has a vested interest where the will gives him a benefit that is
not dependent upon him meeting any requirement, typically a legacy of “£10,000 to X, absolutely”. Irrespective of the age of X the legacy vests in him merely by him surviving the testator. Even if X is a minor his interest is vested, although he would not be able to receive the legacy and give a receipt for it until he attains 18. 119 Should X die under that age the legacy is an asset of his estate which would be distributed to his beneficiaries on his intestacy. “Absolutely” in this context clearly denotes an immediate vested interest to X, but even without those words, simply leaving the gift to X without any further qualification will create a vested interest. Payment of a vested legacy, such as this, cannot be deferred by the terms of the will after the point at which the legatee can give a receipt. Any provision in a will that attempts to defer payment of a vested legacy to a date after it has vested will be ineffective and the legacy remains vested and payable immediately it vests. 120 Attorney-General v Lady Downing (1769) Amb 571. Part 6 119 But see s.3(3) Children Act 1989 which provides that a person with parental responsibility can give a receipt on the minor’s behalf, irrespective of the child’s age at the time, for a vested legacy. s.3 has been amended by the Adoption of Children Act 2002 and the Civil Partnership Act 2004. 120 Curtis v Lukin (1842) 5 Beav 147
117
118
155
5.142
An interest may be vested, but not payable until a future event. In the
example of “£100,000 to A for life and subject thereto to X absolutely”, A has an immediate vested interest in the income produced by the sum for his life. X has a vested interest in the remainder (i.e. the capital and therefore also to income it produces) after A’s life interest ceases: his right to receive it is postponed under after A’s life. There is nothing in this legacy that makes the vesting in X conditional upon him surviving A and his estate will receive the legacy after A’s death if X does not survive A. Contingent interests 5.143
If the testator is not satisfied that a legacy should be payable immediately,
he can attach a qualification of time; “£10,000 to A subject to him attaining the age of 25”. The legacy will not vest in A until he attains 25. Should A die before that age the amount of the legacy will not pass to A’s estate and it will instead pass under any default provisions is the will (or failing express provisions fall into the residue of the estate). Until the legatee becomes entitled to the legacy, he has no immediate interest in the legacy and no right to any income earned on it. 121 Contingent legacies for minors 5.144
There is a complicating factor if the testator uses anything other than
vested legacies for some categories of minors. As noted above, vested legacies will become payable as soon as the child can give a receipt, when they will receive the legacy and any interest earned on it. If the child dies before attaining 18 the legacy is payable to his intestate estate. 5.145
Contingent legacies that do not carry the income until the contingency is
met are not only an irritant (as far as estate/trust administration is concerned), but also contain a difficult practical problem. For such legacies
1. The personal representative will need to reserve, out of the net residue of the
2. Until the legatee becomes entitled to the legacy income 122 the income earned
estate, sufficient funds to pay the legacy when the child fulfils the contingency.
from the sum retained to pay the legacy belongs to the residuary legatee.
Such legacies are outside the provisions of s.175 Law of Property Act 1925; Re George (1877) 5 Ch D 469. 122 Where a legacy is payable contingent upon attaining an age greater than 18, s.31(1)(ii) Trustee Act 1925 will operate to direct that after attaining 18 the income, until the vesting of capital, is to be paid to the legatee and it is his income thereafter for income tax purposes; Swales v IRC [1984] 3 All ER 16 121
156
3. But if that residuary beneficiary dies while the minor has not yet become
entitled to income, the right to income pending the minor’s attainment of the
vesting age is a limited life interest for the residuary legatee.
4. Therefore the value reserved for the legacy aggregates with the life tenant’s
free estate and an IHT charge could result.
5. Such a charge could reduce the value of the legacy fund drastically
(depending upon the value of both the legacy and the free estate) and leave
the reserve insufficient to pay the legacy. 123
6. To guard against this, the legacy fund would usually need to be prudently over
funded to cover a maximum 40% charge (what if there is a new top rate?),
but very few residuary legatees are happy with this as the retention of the
reserve reduces their distribution from the estate and any excess reserve will not
be paid until the legacy is settled.
5.146
The draftsman cannot expect a testator to be aware of any of these issues
unless it is discussed with him and practical solutions recommended. It makes for a much better administration if the contingent legacies carry the intermediate income, e.g. creating a separate fund in the will, 124 out of which such legacies are to be paid, i.e. a direction to set the sum aside and invest it with an express direction that it will carry the income earned in the period before payment. 5.147
The above applies to all contingent pecuniary legacies that do not carry the
intermediate income. Contingent pecuniary legacies that do carry the intermediate income 125 are those where:
• the will provides so
• the legatee is a child of the testator, or
• the testator stands in loco parentis to the legatee. 126
In Re Hall, Foster v Metcalfe [1903] 2 Ch 226 and Re Oswald [1919] 64 Sol Jo 242 it was found that where a PR had acted reasonably in making sufficient reserve for a legacy, but at the time of payment it was insufficient then the PR was not personally liable for the shortfall. However, where the tax position is this clear, it seems unlikely that a court would find that simply reserving the amount of the legacy was sufficient. 124 So that the payment of the legacy is removed from residue: Re Medlock (1886) 55 LJ Ch 738 125 At 5% if the income is sufficient. 126 Re Selby-Walker, Public Trustee v Selby-Walker [1949] 2 All ER 178; Re Bowlby, Bowlby v Bowlby [1904] 2 Ch 685
123
157
Conditions 5.148
A testator can attach conditions to legacies and the implications of these,
and the difficulties of how they are construed, need to be considered carefully by the draftsman. This is both a subject of much complexity and technical analysis of the terms of the gift. The points below are therefore only a very general outline. The validity of conditions will also depend upon the condition that the legatee must meet not offending the points listed in the next paragraph. 5.149
A testator is free to attach whatever conditions he sees fit to any gifts, but a
number of conditions are, or are likely to be void: • repugnant
• contrary to public policy
• illegal • in terrorem 127 • uncertain • impossible 5.150
Repugnant, in this context means that the condition that a testator has
attached to a vested gift is contrary to the nature of the gift itself. An absolute devise of a property to a devisee with the condition that it is never sold, offends against an individual’s right to freely deal with his own property. It is thought that a partial restraint, such as the property must only be sold to a member of the devisee’s family128 could be valid, but doubts exist if there are insufficient members of the family to prevent a realistic value being obtained. In the absence of members of the family capable of purchasing the property the condition would be impossible to perform and that impossibility renders the condition repugnant. 5.150
A condition attached to a gift that is contrary to public policy is broadly
where the condition is against the state’s interests. Examples would be a condition requiring spouses or civil partners to separate or a condition in restraint of all marriage129 or civil partnership 130 Literally to terrify, but also as a warning Being careful to define what is meant by family 129 Morley v Rennoldson (1843) 2 Hare 570, but a condition in restraint of a particular marriage can be valid 130 there is no reason to suppose that the court would approach conditions in restraint of civil partnership any differently to restraint of marriage, although there are no reported cases on civil partnerships and this point 127 128
158
5.151
A condition attached to a gift that promotes crime or requires a crime to be
committed would be void for illegality. 5.152
A condition that is in terrorem is a condition that that threatens to legatee in
order to obtain compliance with the condition. 5.153
For conditions not to dispute see earlier at 5.14
5.154
A condition as to residence in a particular property can be valid, if it
is drafted with sufficient certainty to be construed properly. 131 However, terms such as “reside” and “residence” and “occupy” are words which are difficult to construe. Residence in particular has been widely construed and may not require full time residence. Residence does not necessarily cease when it is interrupted by hospitalisation or military service. On the same basis as a military service, a spell of civilian work away from the residence is likely not to offend the condition. 5.155
Names and Arms clauses, much beloved of Victorian and early Twentieth
Century wills, can be valid, although they are much less seen in practice today. 5.156
The effect of valid and invalid conditions is usually complex. A difficult point
of construction in conditions is the determination of whether a condition is regarded as a condition precedent or a condition subsequent and the effect of the condition being void or not being met may be different between the two types. Broadly speaking a condition precedent is required to be complied with before the gift will vest and a condition subsequent is to be complied with after vesting. The court will in questions of doubt lean towards finding a condition to be a condition subsequent. A condition precedent could be a gift to a person provided, for example, they have not taken up permanent residence in a specific country. This would result in the gift vesting if the legatee meets the condition, and the condition has no effect if there is future change of mind by the legatee. An example of a condition subsequent could be a gift valid until marriage.
Administrative provisions 5.157
The draftsman of a will may well recommend to the testator that his will
should contain additional administrative provisions. These will usually be additional powers to
a) simplify the administration of the estate
b) introduce wider powers, where those given by statute are generally perceived
unnecessarily restricted Re Gape [1952] Ch 743
131
159
c) introduce specific powers required by the bequests in the will, the assets in the
estate or the terms of the will
The additional, and reformed, powers given to trustees and personal representatives in recent legislation have reduced the need for extensive additional powers for the average estate in England & Wales. 132 Most drafting books offer a selection of draft provisions or standard schedules of them. STEP has so far produced two editions of its own standard provisions. Common areas for additional provisions [1] Enlargement of investment powers 5.158
This was a very commonly used provision before Trustee Act 2000, given
the widespread view that the Trustee Investments Act 1961 was too inflexible in its approach. However Part II Trustee Act 2000 has now produced an investment power that is suitable for most estates. Areas that might require specific additional powers being given in the will • To purchase land abroad 133 • To acquire an interest in land jointly with another. 134 Care is needed with this as
trustees sharing control of an asset with another will always require careful
thought before committing to it.
• Restrictions on sale of the asset settled, or a wish that the trustee should not
diversify away from it. This will be of use where it is the testator’s intention that
particular assets (often shares in the family company) should be retained. 135 This
type of restriction should be worded careful as the statutory standard
investment criteria 136 cannot be excluded. The wording in s.4 Trustee Act 2000 is
helpfully qualified by “in so far as is appropriate to the circumstances of the trust”.
e.g. Trustee Act 2000, Trusts (Capital and Income) Act 2013; Inheritance and Trustee’s Powers Act 2014 133 s.8 Trustee Act 2000 is restricted to acquiring land within the UK 134 s.8 Trustee Act 2000 does not extend to this. 135 The need to diversification is in the standard investment criteria in standard investment criteria at s.4(3)(b). However this is to be exercised as is “appropriate to the circumstances of the trust”. 136 s.4 Trustee Act 2000 132
160
• Particular investment policies. If the testator is concerned to prohibit trustees
from investment in particular types of investment, or limit trust investment to
particularly narrow areas, restricted investment powers should be set out in
the will. 137 • Power to borrow to invest (leveraging). It is suggested that this is only suitable to
the largest trusts that have large and well diversified investment portfolios as well as robust investment risk management controls.
• Power to raise money by way of mortgage on real or leasehold property to
invest in further real or leasehold property. Attractive for testators with buy to let
portfolios. But not wholly risk free.
[2] Appropriation of assets 5.159
The statutory power of appropriation 138 has limitations that can usefully be
removed • Extension of power to trustees. The statutory power is limited to personal
representatives only and is therefore not available to trustees. This can cause
confusion where the same individual is both executor and trustee and needs to
identify the capacity in which he is acting in order to determine whether or not
he can use the statutory power of appropriation. Extending it trustees is
generally more helpful to them.
• Consents. The statutory power is simpler to operate if the requirement of
formal consents to appropriation, from all the beneficiaries affected by it,
is removed.139 • Power for a personal representative to appropriate assets to himself. This is
tied to the issue in Kane v Radley-Kane 140 where the court applied the self-
dealing rule 141 to appropriations where the asset being appropriated was not
cash, near cash or quoted investments. The court found that any such
appropriation by the personal representative was voidable unless either
sanctioned by the Court or the beneficiaries whose interests are affected. 142
It is wholly inappropriate, indeed dangerous, to attempt to set out restrictions on a trustee’s power of investment in a letter of wishes. The same comment applies to attempts to widen powers in a letter of wishes. 138 s.41 Administration of Estates Act 1925 139 Where land or quoted investments are disposed of after death at a loss from probate value, there is statutory authority for the substitution of the sale proceeds thereby reducing IHT on death (ss.190 to 198 and ss.178 to 189 Inheritance Tax Act 1984). HMRC regard sales made after appropriation with consent as qualifying, but sales made after appropriation without consent as not qualifying. 137
161
Therefore, to extend the power in this way can be particularly useful where
a single personal representative is to be appointed. Given the type of assets this
applies to, careful consideration should be given to the manner in which values
are determined. • Power to appropriate at a choice of value. Some express powers of
appropriation give a personal representative a power to choose the value
at which an asset is appropriated (usually a choice between values at the
date of death and date of appropriation). It is suggested that these powers are
approached with great care. The power to use a value other than the value
at the date of appropriation is capable of substantially changing the benefits
conferred by the will, depending upon whose benefit the power is exercised
for. For an executor to exercise this power he must actually have a revaluation
of the assets as at the date of appropriation in order for him to decide the
extent to which he is justified in favouring, or penalising, any beneficiary (by
electing to use a value other than that prescribed by law). To exercise the
power in ignorance of the extent to which it alters the benefit 143 could call
into question the extent to which that executor validly exercised this power. Of
concern also is the position of HMRC. HMRC are not bound by a provision in a
will that disapplies the basic principle of law regarding valuation for
appropriation, 144 as the terms of a will cannot disapply the valuation basis for
taxation. In other words, a power in a will that enables an executor to
appropriate shares at a lower value, than that which pertains at the date of
appropriation, could well create a transfer of value if he appropriates shares to
a nil rate band trust and the value prescribed by law for the appropriation
exceeds the value of the nil rate band. The express power can only be a
power to determine the extent of a beneficiary’s benefit under the will, not a
power to determine the value of that benefit for tax purposes. What are the
[1998] 3 All ER 753 The widow appropriated private company shares in part satisfaction of her statutory legacy using a value of £50,000. £50,000 was the value claimed at death in May 1994 and appropriation probably took place in September 1995. She subsequently sold them for £1,131,438 in January 1997. Her step-sons objected to the value used. 141 From Tito v Waddel (No2) [1977] 3 All ER 129 at 240-241; “the self-dealing rule is (to put it very shortly) that if a trustee sells the trust property to himself, the sale is voidable by any beneficiary ex debito justitiae* however fair the transaction”. * A remedy which the applicant gets as of right. 142 The reasoning being that any decision as to value for these assets could not rely on independent source (such as stock exchange pricing) and therefore involved the PR in determining the value. The same rule applies to appropriation in testate estates as in intestate estates 143 from that which would occur if the basic application of law was applied 144 Re Charteris, Charteris v Biddulph [1917] 2 Ch 379; Re Collins [1975] 1 WLR 309 140
162
factors that an executor should take into account when deciding if he should
exercise this power and depart from the basic principle of valuation? The
factors could be those which would be applied to any exercise of a power of
appointment – as that is the practical effect of exercising this power. It should
be applied fairly between the interests and to do that must require an
assessment of the position of both the beneficiary who gains and the
beneficiary who loses before funds can effectively be appointed in favour of
the former and away from the latter.
[3]
Counsel’s Opinion
5.160
s.48 Administration of Justice Act 1985 gives the court power, on a trustee’s
application, to authorise the trustee to act on reliance of a counsel’s opinion 145 in a matter of construction of the will or deed. Incorporating provision authorising an executor or trustee to do the same can be helpful. [4]
STEP Standard Provisions
5.161
The STEP Standard Provisions (2nd edition) (SSP2) are accompanied by a
toolkit to assist practitioners in their use. Draftsmen using SSP2 should consult the toolkit to assist their understanding of what the provisions are and how they should be used. The SSP2 is divided into two sets of provisions, the provisions 1 to 13 (the standard provisions) and 14-23 (the special provisions). The standard provisions are the least contentious provisions and will therefore be the most commonly used. The special provisions should be individually selected:
“By their very nature these are provisions that not every client will wish to include
in a will. The general rule must therefore be not to include any of them until the will
writer has:
• satisfied themselves that the provision is appropriate to the needs of the
client; and
• obtained instructions to include the provision;
and when the draft will is submitted for approval, the will writer has:
• drawn the attention of the client to the provision; and, if attending at
execution, has
• satisfied themselves that the client has understood it.”
A counsel of at least 10 year’s High Court qualification, within the meaning of s.71 Courts and Legal Services Act 1990 145
163
5.162
The Executive Summary attached to SSP2 states:-
“If SSP2 is to be incorporated into a will it must be exactly described as there is the older SSP1 as well which are not recommended for incorporation in new wills. The appropriate edition must be specified as omission may render the incorporation void for uncertainty.” [5]
Advice
5.163
Given the technical nature of most administrative provisions few testators
will ever request them to be included in their wills without prior advice. Which administrative provisions go into a will is therefore usually solely on the advice of the draftsman. The overriding tests for inclusion should be suitability and need – both of which should be assessed by the draftsman. The draftsman, therefore, should not include any administrative provisions that he does not understand and therefore could not give an adequate explanation to the testator. 5.164
The advice given to the testator should not misrepresent the nature of what
is being put in the will. Describing powers as simplifying the administration, would not, for example cover provisions that relieve the personal representatives or trustees of statutory duties of care.
Construction of the terms of a will 5.165
The question of the construction of a legal document has undergone
detailed re-evalution in recent years Lord Hoffman set out the current approach in five principles in Investors Compensation Scheme Ltd v West Bromwich Building Society 146 :
“The principles may be summarised as follows:
(1)
Interpretation is the ascertainment of the meaning which the document
would convey to a reasonable person having all the background knowledge
which would reasonably have been available to the parties in the situation in
which they were at the time of the contract.
The background [knowledge is]…… absolutely anything which would
(2)
have affected the way in which the language of the document would have
been understood by a reasonable man.
The law excludes from the admissible background …..declarations of
(3)
subjective intent. They are admissible only in an action for rectification. The
[1997] UKHL 28
146
164
law makes this distinction for reasons of practical policy and, in this respect
only, legal interpretation differs from the way we would interpret utterances
in ordinary life. ………….
The meaning which a document ….. would convey to a reasonable man
(4)
is not the same thing as the meaning of its words. The meaning of words is
a matter of dictionaries and grammars; the meaning of the document
is what the parties using those words against the relevant background
would reasonably have been understood to mean. The background may
not merely enable the reasonable man to choose between the possible
meanings of words which are ambiguous but even (as occasionally happens
in ordinary life) to conclude that the parties must, for whatever reason, have
used the wrong words or syntax. 147
The “rule” that words should be given their “natural and ordinary meaning”
(5)
reflects the common sense proposition that we do not easily accept that
people have made linguistic mistakes, particularly in formal documents.
On the other hand, if one would nevertheless conclude from the
background that something must have gone wrong with the language, the
law does not require judges to attribute to the parties an intention which
they plainly could not have had.” 148
5.166
While the above may not appear to be of immediate relevance to wills, the
clear finding of the Supreme Court in Marley v Rawlings is that the construction of a will is no different to the construction of a commercial contract. 149 This has potentially far-reaching implications for the constructions of wills and its full effect will only be seen when the court considers construction issues after Marley. Another implication this new approach, is that the principles applied to the construction of wills in future can be affected by decisions taken, outside of the traditional Chancery framework, in commercial matters. However, until it can be clearly seen how the court changes its approach the more traditional approach to construction is set out in the following paragraphs for guidance.
Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] 2 WLR 945 The Antaios Compania Neviera S.A. v. Salen Rederierna A.B. 19851 A.C. 191 149 [2014] UKSC 2 at [20] “When it comes to interpreting wills, it seems to me that the approach should be the same” per Lord Neuberger 147 148
165
Principles of construction 5.167
It is a function of the court to construe what is written in the will when there is
a disagreement as to the meaning. 150 “The court’s purpose in construing the terms of the will is to ascertain the intention of the testator as expressed in his will when it is read as a whole in the light of any extrinsic evidence admissible for the purpose of construction.” 151 The aim as stated in this quotation is to determine the intention of the testator as written rather than merely a literal meaning, 152 but this can circumscribed to a degree by what may be admissible evidence. 5.168
It is not part of the court’s role “to improve upon or perfect testamentary
dispositions”. 153 In determining the meaning of a will, the court will, in general, only look at the words actually used in the will. 154 It will construe them as far as possible in the light of the whole document, but it cannot supply additional words or replace wrong words with right ones if the original is capable of being understood. 155 The examination of the whole document to help construe a particular word or phrase is a key principle. The Privy Council recently approved the court considering the meaning of a will, initially without recourse to previous decisions, on the basis that “little assistance in construing a will is likely to be gained by consideration of how other judges have interpreted similar wording in other cases.” 156 While this does not render previous decisions redundant it does underline the need for first reading the will as an entire document to try to establish what that particular document means. This part of this book is concerned with construction for the purposes of determining the meaning of a will. Construing a will’s meaning for the application of taxes is outside the scope of this work. 151 Theobald on Wills (17th edition Sweet & Maxwell) at 15-001 152 Perrins v Morgan [1943] AC 399 and s.21 Administration of Justice Act 1982 153 Re Bailey [1951] Ch 407 at 421 per Jenkins LJ 154 Perrin v Morgan [1943] AC 399 at 406 “The fundamental rule in construing the language of a will is to put on the words used the meaning which, having regard to the terms of the will, the testator intended. The question is not, of course, what the testator meant to do when he made his will, but what the written words he uses mean in the particular case – what were the `expressed intentions` of the testator” per Simon LC; Re Bailey [1951] Ch 407 at 421 “The function of the court is to give effect to the dispositions actually made as appearing expressly or by necessary implication from the language of the will applied to the surrounding circumstances of the case” 155 National Society for the Prevention of Cruelty to Children v Scottish National Society for the Prevention of Cruelty to Children [1915] AC 207 where extrinsic evidence, had it been admissible would have shown that it was most unlikely indeed that the claimant was the intended beneficiary, but there was no ambiguity in the will which might have permitted extrinsic evidence to correct this in favour of the defendant. 156 Sammut v Manzi [2009] WTLR 1051; see also RSPCA v Sharp [2011] WTLR 311 CA, Blech v Blech [2002] WTLR 483, Parkinson v Fawdon [2010] WTLR 79 150
166
5.169
s.21 Administration of Justice Act 1982 provides a statutory power for the
construction of wills:
(1)
This section applies to a will—
(a) in so far as any part of it is meaningless;
(b) in so far as the language used in any part of it is ambiguous on the
face of it;
(c) in so far as evidence, other than evidence of the testator’s intention,
shows that the language used in any part of it is ambiguous in the light of
surrounding circumstances.
(2)
In so far as this section applies to a will extrinsic evidence, including evidence
of the testator’s intention, may be admitted to assist in its interpretation.
5.170
s.22 Administration of Justice Act 1982 also provides a statutory presumption
to assist with the construction of some gifts to spouses:Except where a contrary intention is shown it shall be presumed that if a testator devises or bequeaths property to his spouse in terms which in themselves would give an absolute interest to the spouse, but by the same instrument purports to give his issue an interest in the same property, the gift to the spouse is absolute notwithstanding the purported gift to the issue. 5.171
Words are initially given what the court takes to be their ordinary
grammatical sense,157 in the context in which they are used, in the will . It is possible that the meaning of a word or phrase has changed between the time of the will and when the court is called on to construe it and in these circumstances the meaning must be that of the time when it was used i.e. the date of the will. 159 5.172
Words and phrases will often have more than one meaning and, where they
do, no presumption exists as to one meaning rather than another. The court considers them in the context of the will as a whole and may, if there is ambiguity, resort to some extrinsic evidence.
Grey v Pearson (1857) 6 HL Cas 61 – which serves to underline that the draftsman should also approach his task grammatically. 158 Re Rowland [1963] Ch 1 159 Perrin v Morgan [1943] AC 399 1567
167
5.173
As part of the process of construing a word in the light of the will as a whole,
it may become apparent to the court that the ordinary meaning of a word has been rejected by the testator in favour of another meaning. In these circumstances, the ordinary meaning can be discarded if the court is satisfied that the testator in effect set up and used his own dictionary within the will. 160 The terms of the will provide the evidence as to how the testator meant to use the word, or words, in question.161 The clearest example of this is where the testator actually includes a definition clause within his will defining the meaning of certain words or phrases used in his will. In attempting to construe a will the court will examine whether or not the testator has supplied his own dictionary in this sense, before resorting to other principles of construction. 162 5.174
Unless the meaning of a word is capable of being redefined in the above
way, and in the absence of any other evidence in the will, the court will apply the ordinary meaning even if this results in an eccentric or capricious construction 163; “…a testator is entitled to be capricious or eccentric in his will if he chooses….and the fact that the terms of his will, when interpreted according to their ordinary and apparent meaning, may produce odd results is not alone a ground for construing his language in some other sense which it is less apt to bear: nor is the fact that he may have failed to think out how the scheme of his will might operate in all possible or probable circumstances, for to infer from the fact that the language may not appropriately fit all the possible or probable circumstances that the testator used such language in some sense other than its natural meaning assumes that the testator did the very thing which I seems he failed to do, namely, consider the appropriateness of his will to all possible or probable contingencies. One likely explanation may be that he meant his words to bear their normal meaning and failed to appreciate the consequences.” In contrast, if there are two or more ordinary meanings the court may prefer the meaning which makes more sense or gives a less capricious result. 164 5.175
As a corollary to the principle that words should in general be given their
ordinary meaning, words and phrases that have specific legal meanings will, in general be given those meanings in the professionally prepared will. Like the ordinary meaning this may be rebutted by the dictionary principle or if some secondary meaning makes more sense in the overall context of the will. Hence this is known as the dictionary principle Re Davidson [1949] Ch 670 162 Perrin v Morgan [1943] AC 399 163 Re James’s Will Trusts [1962] Ch 226, Buckley J at 234 164 Abbott v Middleton (1858) 7 HLC 68 160 161
168
Admissible evidence for construction of terms of a will Grant of representation 5.176
The start point for the court is that the terms of the will, as shown in the copy
will attached to the grant of representation, are conclusive evidence of the terms of the will. A court will not look at the wording of the original, if it varies from that of the grant unless separately there has been a successful application to court to amend the wording of the probate. The court may look at the layout of the words in the original will if this throws more light on the meaning. This copy will annexed to the grant being a photocopy makes this problem less of an issue than when wills were copied by hand or re-typed, but there will still be occasions where it can be of use, particular where the copy will attached to the grant is not photocopy (for example where grant has been obtained to a fiat 165 copy). Meaning of words 5.177
In order to determine the meaning of the words in a will, the court is entitled
to consult extraneous sources such as • dictionaries,
• published books,
• newspapers and periodicals (to throw light on usage of words or phrases at
particular times)
• Acts of Parliament
• judgements of the court.
Expert evidence as to the meaning of foreign words or symbols may be obtained, as it may be where a word or phrase has a special meaning in a trade, profession or even geographical locality.
a re-typed copy will submitted to the court where the terms of the original have been amended post-execution and the amendments are invalid and are deleted so that the original terms are admitted to probate. 165
169
The Armchair principle 5.178
“You may place yourself, so to speak, in the [testator’s] armchair, and to
consider the circumstances by which he was surrounded when he made his will to assist you in arriving at his intention.” 166 “The justification for the armchair principle is that the court infers that the testator had his own surrounding circumstances in mind when he made his will and used the words in his will with reference to those circumstances.” 167 Caution is needed however with this principle in that, although the court may use the circumstances to shed light on the testator’s circumstances, it will not permit a court to change or substitute words, nor will permit a court to give a meaning to a word which that word is not plainly capable of having. The Golden Rule 5.179
The court will always endeavour to construe the terms of a will which will not
only give a sensible conclusion (given the other tools available to it) but which will avoid an intestacy or partial intestacy. 168 Inconsistent clauses 5.180
As a general rule, if two parts of a will are inconsistent between themselves
then the latter has been held to prevail. 169 The same rule will apply to inconsistencies within the same gift, such as where the words and figures are different (“one thousand pounds (£2,000)”). 170 This is on the fairly artificial basis that it has been found that the latter part was said to be the last expression of wish. 171 As a consequence, despite this being a rule of some antiquity, courts have been apparently eager to relax its rigour.
Boyes v Cook (1880) 14 ChD 53 at 56 per James LJ Theobald on Wills 17th edition 14-027 citing Allgood v Blake (1873) LR 8 Ex 160 at 162 168 Re Harrison, Turner v Hellard (1885) 30 Ch D 390 at 393 per Esher MR “ Where a testator has executed a will in solemn form you must assume that he did not intend to make it a solemn farce – that he did not intend to die intestate when he had gone through the form of making a will. You ought, if possible, to read the will so as to lead to a testacy, not an intestacy.” 169 This rule applies to gifts within the same instrument. Where the inconsistency is between a gift in the will and a gift in a codicil, the codicil gift will prevail on the ground that it has revoked the earlier bequest Re Stoodley, Hooson v Locock [1916] 1 Ch 242 170 Re Hammond, Hammond v Treharne [1938] 3 All ER 308 171 Paramour v Yardley (1579) 2 Plowd 539; Ulrich v Lichfield (1742) 2 Atk. 552; Re Potter’s Will Trusts [1944] Ch 70 where Lord Greene MR (at 77) calls it “this rule of despair”. 166 167
170
5.181
By applying the usual approach to construction, that of construing in the
context of the whole will, a court may not necessarily find that the later clause will prevail. 172 A similar application of the Golden Rule (see above) is to be preferred in order to prevent the latter expression from giving rise to an intestacy or partial intestacy. 173 5.182
Where a gift of the same thing is given inconsistently to two (or possibly more)
beneficiaries in the same will they may both take the gift. How they take the gift depends upon the nature of the property and the type of bequest, the court has variously awarded the property as joint tenants, tenants in common, life tenants in succession or divided the property between the competing bequests. 174 5.183
A different approach may be taken by the court to inconsistent gifts of
residue, where it has been found that the former gift should prevail 175 Ejusdem generis (“of the same kind or nature”) 5.184
Where particular words are followed by general words, the scope of the
general words is limited to the same kind of things as the particular words. This rule of construction is applied much more widely to documents and statutes and is not limited to wills. It is however of frequent application to wills, 176 particularly in construing gifts of specific items or classes of items. Falsa demonstratio non nocet cum de corpore constat 5.185
More usually known as the falsa demonstratio principle, it means that a false
description does not vitiate a document. Thus if part of a description is true and part is false and the true part describes the subject with sufficient certainty then the untrue element will rejected or ignored. Like ejusdem generis (above) this is a general rule of construction in legal documents which, although not limited to wills, is of great use as an aid to construction.
Re Bywater, Bywater v Clarke (1881) 18 Ch D 17 Piper v Piper (1886) 5 NZLR 135 174 Re Alexander’s Will Trusts, Courtauld-Thomson v Tilney [1948] 2 All ER 111 175 Re Spencer (1886) 54 LT 597; Re Gare [1952] Ch 80 176 Re Miller, Daniel v Daniel (1889) 61 LT 365; where gifts of wine books and plate were followed by a gift of all of the rest of the “furniture and effects at my residence”. “Effects” was limited and could not include anything which fell outside of the scope of the preceding words i.e. wine books plate and furniture. 172 173
171
5.186
This rule applies to descriptions both of beneficiaries and property. A gift to
“my ‘wife’ Caroline” was looked at in the light of all surrounding circumstances. The testator had a wife called Mary but lived with a woman called Caroline (they had gone through an invalid marriage ceremony) and the word wife was ignored in favour of the accurate description Caroline. 177
Description of Persons 5.187
In some wills, particularly those not professionally drawn, persons named (the
legatees) may be identified only by their relationship to the testator (e.g. “my wife” or “my son” 178 ). Most often this does not create difficulties. However it is a practice that is to be discouraged. It is better practice to be more precise with identification by using names as well as descriptions. Problems can arise where more than one person fits the description or where at different times different persons meet the description. 5.188
As a general principle, the person who meets the description used in the
will at the date of the will is the person intended by the testator. 179 Thus, where a gift by will was made to “Lord Sherborne” and, between the date of the will and the testator’s death, Lord Sherborne died, the legacy failed. This was despite Lord Sherbourne’s son succeed him and taking the same title. 180 This general rule may be amended where the will is republished by codicil. Thus where a codicil referred to a gift to A’s wife and the wife at the time of the codicilwas not the same person as at the date of the will, the later wife took. This may well depend upon the testator being aware of the relevant facts. 181 5.189
Greater difficulties can arise where there is no person meeting the
description used in the will at the date of the will. It is possible that such a gift could be saved by the court treating the gift as being one to the first person after the date of the will to meet the description 182 or it may be that the context may be found to indicate that the description is to be at the date of death. 183 Pratt v Mathew (1856) 22 Beav 328 See 8J, on the Gender Recognition Act 2004 for the dangers of drafting with reference to sex e.g. son, daughter, niece nephew etc 179 This is of course the opposite to s.24 Wills Act 1837 which provides for descriptions of property to speak from death in the absence of a contrary intention. s.24 does not apply to beneficiaries. 180 Re Whorwood, Ogle v Lord Sherbourne (1887) 34 Ch D 446. Also Amyot v Dwarris [1904] AC 268 where a gift to “the eldest son of my sister Frances” failed when the eldest son at the date of the will predeceased the testator, despite there being another son 181 Re Hardyman, Teesdale v McClintock [1925] Ch 287 182 Radford v Willis (1871) 7 Ch App 7 183 Re Daniels, London City and Midland Executor and Trustee Co Ltd v Daniels (1918) 87 LJ Ch 661 177 178
172
Difficulties have been encountered where the first person to meet the description in the will subsequently loses the description. A gift to the wife of a grandson, where the grandson was not married at the time of the will, was found to be a gift to his wife who he married later and that she kept this gift notwithstanding that she was no longer married to the grandson at the time of death and he had remarried. 184 5.190
Describing legatees by their relationship to the testator is less often
encountered today, as good practice, as suggested above, is to use full names and less ambiguous descriptions. Since the Family Law Reform Act 1969, and the re-enactment and widening of those provisions in the Family Law Reform Act 1987, illegitimate relations will rank equally with legitimate 185 and this has removed one of the issues that caused difficulties in the past with descriptions of children. 5.191
Another commonly encountered issue with the description of relatives is
the confusion between relatives by blood and relatives by marriage. 186 Relatives by blood are preferred in descriptions to relatives by marriage, although in the absence of any relatives by blood, those by marriage may take (as indeed they would if there was any intention on the face of the will that they should). 187 In general usage “aunt”, “uncle”, “cousin”, “nephew” and “niece” are descriptions that often contain confusion between relationship by blood or marriage (and indeed by half-blood as well). It is difficult to suggest that there is any general principle in the various cases where this issue has been examined by the court.
Rectification 5.192 shown
The rectification by the court of terms used in a will is possible if it can be 188
that the terms used in the will failed to reflect the intention of the testator
because of
a) a clerical error or
b) a failure by the draftsman to understand the testator’s instructions. 189
Re Hickman, Hickman v Hickman [1948] Ch 624 As do adopted children of the testator 186 more correctly known as relatives by affinity 187 Frogley v Phillips (1861) 3 De GF & J 466 188 For the standard for proof see Re Segelman [1996] Ch 171; Re Grattan v McNaughton [2001] WTLR 1305; Re Bell, Bell v Georgiou [2002] WTLR 1105 189 s.20(1) Administration of Justice Act 1982 184 185
173
5.193
A clerical error, in this context, refers to the nature of the error, not to the
person who made it, and so it is possible for such an error to be made in a homemade will (but there may be difficulties here with showing what the testator’s intentions were). 190 Clerical errors will usually be errors of omission, but they can arise through the failure to understand words or to confuse them. A clerical error is not the deliberate, but mistaken, use of a phrase or precedent which does not in fact have the desired effect. 191 Clerical error is capable of being widely construed to cover any act of a clerical nature. 192 5.194
Any application for rectification in this way must be made within six months
of a grant of representation being issued, although it is at the discretion of the court to admit later applications where it believes that it reasonable to do so. 5.195
Additionally, where it can be shown that a will contains words that were
included without the knowledge and approval of the testator, the court has the power to omit those words. 193
Letters of wishes 5.196
Where a discretionary trust is used in a will, the testator should be advised
that he can give guidance to the trustees by way of a letter of wishes. What is a letter of wishes? 5.197
A letter of wishes is a written, non-binding, expression of the testator’s
aims in creating the trust in his will. The letter is not part of the will; it is in a separate document. 194 Its purpose is to give the trustee guidance and information that should be helpful to him when exercising his discretions. It can give reasons why the testator would like some beneficiaries to to be favoured over others or why some should not be favoured. It can set out foreseeable events and how much, or how little, the testator would envisage these impacting on the trustee’s decision making. However, under no circumstances should the testator be advised that the trustees “will” or “must” follow the terms of the letter. Nor should it be suggested that the trustee will in any way be bound by it. In the absence of unforeseen circumstances, it is highly probable that the trustee will decide, after due consideration, to apply the settlor’s/ testator’s advice or guidance – but advice and guidance is all that it is.
Re Williams [1985] 1 WLR 905; Re Martin, Clarke v Brothwood [2007] WTLR 329 Wordingham v Royal Exchange Trust Company Ltd [1992] 3 All ER 204; Re Segelman [1995] 3 All ER 676; Kell v Jones [2013] 507 192 Marley v Rawlings [2014] [WTLR] 299 SC 193 Re Morris [1971] P 62, but note the practical difficulties of showing that there was knowledge and approval of only part of a will Fuller v Strum [2002] 199 CA 190 191
174
5.198
Letters of wishes can be updated or replaced at any time before the testator
dies. Indeed, testators should be encouraged to do this if their circumstances or wishes change significantly. There are no decided cases on the necessary mental capacity to express wishes in a letter and it is quite possible that if the content of the letters is simple and straightforward that one could be written by a person who does not have testamentary capacity. However, as a general principle, it is most likely that the value of a letter of wishes is diminished by reduced capacity. 5.199
It is not necessary for a letter of wishes to be executed in the manner of a
will or codicil. It should be clearly signed by the testator and dated. The signature establishes the authenticity of the letter. Dating helps to establish the order of letters where there are more than one. Practice 5.200
For a trustee unquestioningly to give effect exactly to a settlor’s wishes, as
expressed in the letter, is potentially dangerous, as it leaves the trustee open to two possible attacks
1) That the trust, as written in the will, is a sham, as in reality the conduct of the
trust is governed by the letter of wishes. This argument elevates the letter
of wishes to be at least a constituent of the trust deed/will if not the deed
itself and as such must therefore be capable of being inspected by the
beneficiary.
2) That the trustee has committed a breach of trust in automatically following
the settlor’s wishes without consciously exercising his independent discretion i.e.
effectively there has been an improper exercise of that discretion. 195
5.201
To minimise these risks two distinct precautions should be considered when
preparing a letter of wishes
• the terms of the letter and
• the advice on its application
In theory, the testator could put this guidance in his will in the form of non-binding wishes, but this is very rarely encountered as the wishes are available for all to see. Further any changes require either a new will of a codicil. 195 that the trustees have not exercised the dispositive powers “in a responsible manner according to its purpose”, and that they have acted “for reasons which are irrational, perverse or irrelevant to any sensible expectation of the settlor” Re Manisty’s Settlements [1973] 2 All ER 1203 - Under such circumstances legal action may well force the full disclosure of the letter. 194
175
Preparation of the letter of wishes 5.202
Firstly, it is suggested that any letter should be written and executed on a
different date to the will. This is in order to help to establish a separation between the letter and the trust deed. Some favour a letter before the will is executed to help avoid any suggestion that it is part of the trust papers (and therefore not open to inspection by the beneficiaries). That is to say, how can it be a trust document if the trust does not yet exist? 5.203
Secondly, any letter should not be written in an imperative or forceful
style. If it says that the trustee “will” or “must” do certain acts, it then points to the testator intending, and the trustee possibly accepting, that the trustee was not to have a genuine discretion, but instead simply obey the testator’s wishes (or at least be bound not to apply properly the full range of discretion in the will). The letter should be in less forceful terms clearly expressing advice, hopes or wishes. Acknowledgement by the testator, in the letter, of the non-binding nature of his views is also helpful. 5.204
Thirdly, the letter should not attempt
• to negate any provisions in the trust or
• contradict its terms or
• curtail, or increase the trustee’s powers, either statutory or expressed in
the deed. None of these is a function of a letter of wishes. 5.205
Fourthly, it might help if the letter was to be expressed as being a strictly
private and confidential communication between the testator and the trustee and that its contents should not be revealed to the beneficiaries. There is an Australian decision 196 which accepted that a beneficiary has no absolute right to see such a private and confidential letter. This case was a major review, by a senior Australian court, of the law underlying these issues, and although it was not a unanimous decision, it is nevertheless potentially one of some importance.
Hartigan Nominees Pty Ltd v Rydge [1992] 29 NSWLR 405
196
176
5.206
Fifthly, the letter of wishes should avoid abusive language or libellous
statements; they are not helpful to a trustee. Particular difficulties can arise if the trustee needs to seek approval from the court for a proposed action, or seeks to surrender his exercise of the discretion to the court. Under these circumstances, the contents of the letter would then be disclosed to the court. 197 Further, if a copy of letter written in such terms comes in the possession of a beneficiary it is almost certain to sour relations within the family and with the trustee. 5.207
Sixthly, a letter should be kept fairly simple and not try to anticipate all
possibly future events. To try to do so will usually make the letter over complex and potentially contradictory. Application of the letter by the trustees 5.208
To follow the terms of a letter slavishly or blindly, in particular failing to
consider, in any meaningful way, the possible interests outside of those set out in the letter of wishes, is dangerous. If a beneficiary discovers a copy of the letter (and many testators will keep copies with their papers) and compares it to what the trustee has done there are the two specific risks outlined earlier in this note. 5.209
However, taking into account the terms of the letter, and deciding to apply
them, can be above challenge if there is
• proper, or genuine, consideration of the choices available to the trustee, or
• there is a departure from the terms of the letter, if the trustees believe that the
circumstances are such as to warrant it. 198
5.210
But importantly,
“ …there is no reason why a trustee or fiduciary should not follow the instructions given to him, even if they lead to a course of action which he would not otherwise have adopted, provided he does not obey such instructions blindly, without exercising his own judgement and discretion first” 199
Breakspear v Acland WTLR [2008] 777 Hartigan Nominees Pty Ltd v Rydge [1992] 29 NSWLR 405; Bank of Nova Scotia Trust Company (Bahamas) Ltd v Borletta (1985) Bahamas unreported 199 Thomas on Powers 1st edition p.301 197 198
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5.211
Trustees can
“freely discuss with beneficiaries the reasons for and against a particular decision, without running the risk of being held to act against their own judgement, if they should disregard, in the end, objections to which they had thought it right in the first instance to direct attention” 200 5.212
For a trustee to discuss with beneficiaries the pros and cons of an exercise
of a discretion does not mean telling them what his decision is or why he will make it a particular way. 201 It means only what is said, and that is no more than seeking views and gathering information in order for the trustee to then make a reasoned judgement as to how the discretion should be exercised.
General Observations on Tax Issues and Legacies Inheritance Tax (IHT) 5.213
For amplification on IHT and other tax issues please refer to the Chapters
dedicated to these issues. The purpose of this section is simply to highlight a number of points to be borne in mind with bequests. 5.214
Pursuant to s.211 Inheritance Tax Act 1984, IHT on UK assets is a testamentary
expense. In the absence of explicit words to the contrary in the will, e.g. “subject to tax” IHT on legacies will be borne by the residue. 5.215
Although wills often provide for legacies to be “free of tax”, such wording is
unnecessary. Indeed, use of such words for some legacies and not for others does not alter the effect of the general rule that IHT due on legacies is paid from residue. 5.216
Using “free of tax” will only pass the burden of UK IHT on to residue. Equivalent
tax payable outside the UK will be payable out of the legacy itself unless the Will explicitly passes the burden of such foreign tax onto the residue (or some other part of the estate).
Fraser v Murdoch (1881) 6 App Cas 855 per Selbourne LC A trustee should not put forward to the beneficiaries his reasons for the exercise, or non- exercise of his distributive discretions as once he has done so the court is able to review them, if the exercise, or non-exercise, of the discretion is challenged in court; Re Beloved Wilkes’ Charity (1851) 3 Mac & G 440; R v Archbishop of Canterbury and Bishop of London (1903) 15 East 117
201 202
178
Capital Gains Tax (CGT) 5.217
In general terms, legacies do not have any CGT issues.
5.218
A legatee who receives assets either through a specific legacy or by way of
appropriation in satisfaction of a general or residuary legacy will receive these for CGT purposes with their date of death value. 202 5.219
It is important to note that assets appropriated by executors to a legatee
in satisfaction of a general or residuary legacy will for the purposes of ascertaining value will be taken at their value at the date of appropriation (not the date of death). 203 Income Tax The rules for deciding who ultimately bears the income tax on income arising on legacies follow the nature of the beneficiary’s right to income. Income arising on legacies is subject to income tax in the hands of the ultimate beneficiary (as for any other income) with credit given for income tax paid by the executors as part of their responsibility for administering the estate.
s.62(4) Taxation of Chargeable Gains Act 1992 Re Charteris, Charteris v Biddulph [1917] 2 Ch 379
203 204
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Chapter 6 Domicile and the Foreign Element
Introduction 6.01 Increased mobility of population has made issues of domicile (and the applicable law for a will) a more frequent issue for the draftsman to have to consider. The ownership of overseas assets by residents of England and Wales is also becoming increasingly common. Traditionally it has been usual to deal with these assets, especially realty, with a foreign will specifically limited to that property. A danger inherent in any subsequent English will is that the standard clause revoking previous wills can in error revoke the foreign will – a serious risk, if the revocation of the foreign will results in a beneficiary’s loss of benefit. 1 The existence of foreign property and a foreign will is therefore an occasion for great care. 6.02 If and when the provisions of ss. 27 and 28 Administration of Justice Act 1982 are brought into force, international wills will become a possibility. 2 Until then, the draftsman needs to be aware of the foreign element involved in any will he is asked to make. 6.03 What is important from the practical point of view is for the will draftsman to know when he can act in such a matter, and to understand why he might have a problem, so that he can explain the difficulties to the client. The practitioner also should know when he needs to seek the advice of lawyers from other jurisdictions. 6.04 Questions about the domicile of a testator are essential during the will instruction/advisory part of advising a client. The domicile of the testator is central to the advice that the draftsman must give, indeed issues of domicile may even prevent the draftsman in England and Wales from proceeding with a will. The greater mobility of population means that difficulties in identifying domicile will be encountered increasingly in the future. This sort of error may be rectified by application under s.20 Administration of Justice Act 1982 either as a clerical error (s.20(1)(a)) or as a failure to understand the testator’s intentions (s.20(1)(b)), but with a risk to the will draftsman for the costs of such an action (based on his negligence). 2 The idea is that wills made in accordance with the Annexe to the Washington Convention on International Wills will be formally valid in all contracting countries and questions of where the will was executed, the assets are situated and the domicile of the testator will be irrelevant. 1
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Domicile 6.05 To put domicile in context, in terms of wills, in England and Wales • A will disposing of moveable property: the applicable test of testamentary
capacity for any testator is determined by the domicile of the testator at the
time of the execution of the will. 3
• A will disposing of immovable property: the general rule is that the law
governing testamentary capacity will be that of the lex situs. 4 This underlines
the central importance of understanding the realty in an estate, and where it
is located, when preparing a will.
Summary of principles 6.06 In Morris v Davies 5 the judgment set out 10 principles of domicile in English law 6:
(i)
A person is, in general, domiciled in the country in which he is considered
to have his permanent home. A person may sometimes be domiciled in a
country although he does not have his permanent home in it.
(ii)
No person can be without a domicile. 7
(iii) No person can at the same time, for the same purpose, have more than
one domicile. 8
(iv) An existing domicile is presumed to continue until it is proved that a new
3
4 5
6
7 8
domicile has been acquired.
Re Fuld’s Estate (No 3), Hartley v Fuld [1965] 3 All ER 776 citing In the goods of Maraver (1828) 1 Hag Ecc 498 i.e the law of the jurisdiction where the property is situate; see Re Ross [1930] 1 Ch 377 [2011] EWHC 1773 (Ch), but the section quoted on domicile derives from a summary in Barlow Clowes International Ltd v Henwood (2008) EWCA Civ 577, which in turn was based on ‘Conflict of Laws’ (Dicey Morris and Collins) 14th ed Domicile is established for the purposes of English law by the application of English rules and concepts, not the rules and concepts of other jurisdictions that the person might have some connection with; Lawrence v Lawrence [1985] Fam 106; Rowan v Rowan [1988] ILRM 65 (although there may be statutory exceptions to this) Mark v Mark [2005] UKHL 42; Udny v Udny (1869) LR 1 Sc & Div 441 Mark v Mark [2005] UKHL 42; IRC v Bullock [1976] 1 WLR 1178. This statement refers to English law. It is possible, and not infrequently encountered, that another jurisdiction, with which a person is connected, can at the same time consider that person to be domiciled there. This does not create a dual domicile for either jurisdiction, merely that each jurisdiction takes a different view of where the person is exclusively domiciled.
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(v)
(vi) Every independent person can acquire a domicile of choice by a
Every person receives at birth a domicile of origin.
combination of residence and an intention of permanent or indefinite
residence, but not otherwise.
(vii) Any circumstance that is evidence of a person’s residence, or of his
intention to reside permanently or indefinitely in a country, must be
considered in determining if he has acquired a domicile of choice.
(viii) In determining whether a person intends to reside permanently or
indefinitely, the court may have regard to the motive for which residence
was taken up, the fact that residence was not freely chosen and the fact
that residence was precarious.
(ix) A person abandons a domicile of choice in a country by ceasing to reside
there and by ceasing to intend to reside there permanently, or indefinitely,
and not otherwise.
(x)
When a domicile of choice is abandoned, a new domicile may be acquired, but if it is not acquired, the domicile of origin revives.
Commentary on principles Domicile of origin 6.07 English law regards all persons as starting their lives with a domicile that is conferred on them at birth. This is known as a domicile of origin. The domicile of origin of a child will be
1.
The domicile of its father, if the child is both legitimate and born in the
lifetime of his father, 9 or
2.
The domicile of the child’s mother in all other cases. 10
3.
A foundling will be treated as domiciled in the place where he is found. 11
4.
An adopted child takes the domicile of his adoptive father, or where there
is not an adoptive father, the adoptive mother.
A person will retain their domicile of origin unless, or until, it is replaced with a domicile of choice. 12
Forbes v Forbes (1854) Kay 341 Udny v Udny (1869) LR 1 Sc & Div 441 11 Re McKenzie (1951) 51 SRNSW 293 12 Re Fuld [1968] P 675 at 682
9
10
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6.08 Note that the domicile of a child is not taken from its place of birth. Asking questions about where a person was born may not elicit useful information, unless it is accompanied by questions about the domicile of the relevant parent. 6.09 A child’s domicile of origin can change to a domicile of dependence. This occurs while the child is below 16 and the father’s domicile alters. This domicile of dependence will remain with the child, even if the father dies before the child attains 16. However, in that case, there can be a change of domicile of dependency if the mother changes her domicile and the child accompanies her. 13 Domicile of choice 6.10 Any person can later change his or her domicile of origin, or dependence, by acquiring a domicile of choice.14 This can only be done after attaining the age of 16 or marrying under that age.15 To change a person’s domicile requires the person to have sufficient mental capacity to form that intention. 16 6.11 In the acquisition of a domicile of choice it is essential to show
• that the person resides in the country 17 in which he claims a domicile of choice,
and
• that he intends to reside there thereafter as his permanent home 18 or, if not
permanently, at least indefinitely.19 Mere presence in a country without having
this intention is insufficient. 20
Re Beaumont [1893] 3 CH 490 Since 1974 married women have been able to acquire a domicile of choice like anyone else; Domicile and Matrimonial Proceedings Act 1973 15 s.3(1) Domicile and Matrimonial Proceedings Act 1973 16 Urquhart v Butterfield (1887) 37 Ch D 357; this point is not dealt with by the Mental Capacity Act 2005 (nor was it covered by the Mental Health Act 1983). There is little modern authority in this area particularly on the level of capacity required. 17 In this context, “residence” is physical presence “as an inhabitant”; IRC v Duchess of Portland [1982] Ch 314 18 i.e. a domicile of choice requires both fact (residence) and intention (to remain) – animo et facto; Re Shaffer, Morgan v Cilento [2004] WTLR 457 19 A person who determines to spend the rest of his life in a country has the necessary intention even though he does not regard his determination as irrevocable – IRC v Bullock [1976] 1 WLR 1178 20 Bell v Kennedy (1868) LR 1 Sc & Div 307
13
14
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The length of time in a country necessary to acquire a domicile of choice can be very short, provided both the intention and presence exist, and the evidence supports it. 21 On the other hand, where the length of time spent in the country of choice is of some length, there is no presumption that a domicile of choice has been acquired 22 simply by that length of time. The length of stay can be an important factor in favour of a domicile of choice having been acquired, when taken into account with all other factors, but it is not solely determinative of a domicile of choice. 23 Establishing a domicile of choice is not simply a matter of what a person considers his domicile to be, but it involves factual evidence to prove that the new domicile has been acquired before the previous domicile can be lost. Once acquired, a domicile of choice will not be lost solely if a person loses the intention to permanently reside there, he must also actually leave the country. 24 Loss of the domicile of choice will involving losing both characteristics .2 6.12 A person can acquire a domicile of choice in a country even though they have no legal right to be present there. 26 In Re Fuld: 27 it was noted that “(1) The domicile of origin adheres unless displaced by satisfactory evidence of the acquisition and continuance of a domicile of choice; (2) a domicile of choice is acquired only if it is affirmatively shown that the propositus is resident in a territory subject to a distinctive legal system with the intention, formed independently of external pressures, 28 of residing there indefinitely. If a man intends to return to the land of his birth upon a clearly foreseen and reasonably anticipated contingency, e.g., the end of his job, the intention required by law is lacking; but, if he has in mind only a vague possibility, such as making a fortune (a modern example might be winning a football pool),
White v Tennant (1888) 8 SE 596, a US case where a domicile of choice was found to have been acquired with less than 1 day’s presence; Re Sylvester [2014] WTLR 127 where the testatrix resided in London as an adult for over 50 years. Having arrived in London in 1957 she found to have acquired a domicile shortly before her death. 22 Agulian v Cyganik [2006] WTLR 565 CA; Holliday v Musa [2010] WTLR 839 CA; Ramsay v Liverpool Royal Infirmary [1930] AC 588 23 Holliday v Musa [2010] WTLR 839 CA; Peters v Pinder [2011] WTLR 1379 24 Re Lloyd Evans [1947] Ch 695; Zanelli v Zanelli (1948) 64 TR 556; Re Flynn (No1) [1968] 1 WLR 564 26 Mark v Mark [2005] 2 FLR 1193; [2005] UKHL 42 and English law will recognise a domicile of choice acquired elsewhere, even though the person has no legal right to live in that country 27 Re Fuld [1968] P 675 at 684F-685D, per Scarman J (as he then was) this passage being expressly approved by the Court of Appeal in both Agulian v Cyganik [2006] WTLR 565 CA and Holliday v Musa [2010] WTLR 839 CA 28 Udny v Udny [1869] LR 1 Sc & Div 441: “There must be a residence freely chosen, and not prescribed or dictated by any external necessity, such as duties of office, the demands of creditors or the relief from illness”. For old age and illness see Re Sylvester, Sylvester v Sylvester [2014] WTLR 127 21
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or some sentiment about dying in the land of his fathers, such a state of mind is consistent with the intention required by law. But no clear line can be drawn; the ultimate decision in each case is one of fact – of the weight to be attached to the various factors and future contingencies in the contemplation of the propositus, their importance to him, and the probability, in his assessment, of the contingencies he has in contemplation being transformed into actualities. (3) It follows that, though a man has left the territory of his domicile of origin with the intention of never returning, though he be resident in a new territory, yet if his mind be not made up or evidence be lacking or unsatisfactory as to what is his state of mind, his domicile of origin adheres…” 6.13 Should a person, who has established a domicile of choice, subsequently lose that domicile:
a) English law will not permit a person to lack a domicile for even an instant in time
b) the domicile of origin will be revived immediately on losing a domicile of
choice 29 and the domicile of origin will continue unless, or until, the person
acquires another domicile of choice,
c) any previously acquired domicile of choice will not be revived, on losing the
current domicile of choice unless the person re-establishes his physical
presence in that country coupled with a renewed intention to permanently
reside there i.e. established it as a new domicile of choice
d) on the loss of a domicile of choice, and the revival of the domicile of origin,
there is no requirement for any contact with the jurisdiction of domicile of origin
such as physical presence there or intention to reside there.
6.14 It is possible that a person’s domicile of origin may be that of a country which he has never been present in. Where, for example, a person was born in country B, by a father resident in B but domiciled in A, he will then grow up with a domicile of origin in A. He then remains in B and acquires a domicile of choice in B. If he later leaves B to live and work in C (although not with any intention to permanently reside there, but with no intention of returning to B) he will have lost his domicile of choice in B and reverted to his domicile of origin in A. 30
Udny v Udny (1869) LR 1 Sc & Div 441; Henwood v Barlow Clowes International Ltd [2008] EWCA Civ 577 30 Udny v Udny (1869) 1 LR Sc & Div 441; Henwood v Barlow Clowes International Ltd (in liquidation) [2008] EWCA Civ 557 29
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6.15 Acquisition of a domicile of choice involves the assessment of a wide range of factors. Any factors that a court considers relevant, in order to establish both intention and residence, will be taken in account: “All that can be said is that every conceivable event and incident in a man’s life should be considered, taking account things said and done after as well as before the time when it is alleged that the chosen domicile has been acquired 31..…Nothing must be overlooked that might possibly show the place which he regarded as his permanent home at the relevant time. No fact is too trifling for consideration.” 32 Given the wide range of factors that can be relevant, the Court of Appeal has warned of the risks of isolating one factor as being determinative as to domicile. 33 6.16 Whether or not the testator is domiciled in a particular jurisdiction is, within English law, generally decided on the facts as known at the date of death i.e. the point at which a court has to determine the issue of the validity of the will or the basis of taxation of the estate. The arbiter of domicile is the court 34 and it will assess domicile on the facts as established. In the second of the two Court of Appeal quotations below, there is a reminder of the requirement that clear, cogent and compelling evidence is required to lose the domicile of origin and obtain a domicile of choice. Without that kind of evidence the domicile of origin remains. 35 This makes the domicile of origin a stronger bond and one which will prevail without a clear weight of evidence for change.
Bheekhun v Williams (1999) 2 FLR 229 CA Private International Law Cheshire, North and Fawcett (OUP 14th edition) p 164; Drevon v Drevon [1864] 34 LJ Ch 129 – “There is no act, no circumstance in a man’s life, however trivial it may be in itself, which ought to be left out of consideration in trying the question whether there was an intention to change the domicile. A trivial act might possibly be of more weight with regard to determining this question than an act which was of more importance to a man in his lifetime” 33 Agulian v Cyganik [2006] WTLR 565 CA at [46] “Special care must be taken in the analysis of evidence about isolating individual factors from all the other factors…..and treating a particular factor as decisive…. the judge’s treatment of that one factor as decisive or conclusive of domicile must be examined with care” approved in Holliday v Musa [2010] WTLR 839 CA at [15] 34 HMRC may take a view as to a person’s domicile, but that is no more than an opinion and domicile ultimately is a decision for the court. 35 Conflict of Laws Collier (4th edition CUP 2013 at p15): the domicile of origin “is more tenacious than a domicile of choice. A domicile of origin can only be lost by intentional acquisition of another domicile, but a domicile of choice can simply be lost by leaving the relevant country intending not to return as an inhabitant.” The character of a domicile of origin “is more enduring, its hold stronger and less easily shaken off” Winans v A-G [1904] AC 287[2006] WTLR 565 31 32
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6.17 The Court of Appeal in Agulian v Cyganik 36 made the following two important points: 1. “Although it is helpful to trace Andreas’s life events chronologically and to halt
on the journey from time to time to take stock, this question cannot be decided
in stages. Positioned at the date of death in February 2003 the court must look
back at the whole of the deceased’s life, at what he had done with his life, at
what life had done to him and at what were his inferred intentions in order to
decide whether he had acquired a domicile of choice in England by the date
of his death. 37 Soren Kierkegaard’s aphorism that ‘Life must be lived forwards,
but can only be understood backwards’ resonates in the biographical data of
domicile disputes.” Mummery LJ
2. “All the cases state that a domicile of origin can only be replaced by clear
cogent and compelling evidence that the relevant person intended to settle
permanently and indefinitely in the alleged domicile of choice.” Longmore LJ 38
6.18 The draftsman should not lose sight of the fact that the English view of domicile is primarily a common law concept. Other common law jurisdictions may apply a similar domicile test, but it is unlikely to be applied in a completely identical way, given the decisions of the courts within their jurisdictions. Outside of common law countries, the concept of domicile is generally unknown. Countries will apply their own tests, for example:
• habitual residence (e.g. Argentina, Belgium or China)
• nationality (e.g. Germany, Greece, Italy or Spain).
[2006] WTLR 565 See also Lord Atkinson in Casdagli v Casdagli [1919] AC 145 at 178 “...the tastes, habits, conduct, actions, ambitions, health, hopes and projects of [him] were all considered as keys to his intention to make a home in England.” (referring to the decision in Winans v A-G [1904] AC 287) 38 “The acquisition of a domicile of choice is a serious matter not lightly to be inferred from slight indications or casual words” Scarman J (as he then was) in Re Fuld’s Estate (No 3) [1968] P 675. A domicile of origin “is more enduring, its hold stronger and less easily shaken off” than a domicile of choice; Winans v Attorney-General [1904] AC 287. In Holliday v Mussa [2010] WTLR 839 the Court of Appeal arrived a different decision on the similar facts to Agulian v Cyganik. There is no real difference in the law, but it does show how nuanced domicile decisions can become on the view of the facts. 36 37
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6.19 The existence of different tests means that it is quite conceivable for a testator, with connections to two jurisdictions, might be considered to be subject to the law of both jurisdictions by the application of the distinct tests of each jurisdiction. Even where the connection is with two common law jurisdictions applying similar principles it is far from uncommon for both states to maintain that domicile is within their state.39 Where can a person be domiciled? 6.20 English law will only recognise a person as being domiciled in a “law district” which is a legally recognised jurisdiction, distinct from others. This will usually be an individual nation state. In federated states (e.g. U.S., Canada, Australia) it is usually an individual state or province that is the jurisdiction for domicile purposes. Within the United Kingdom, 40 England & Wales, 41 Scotland 42 and Northern Ireland are separate jurisdictions, as are the Crown Dependencies 43 - the United Kingdom is not a jurisdiction for domicile purposes.
Wills 6.21 The domicile of a testator can be relevant to the
• test of capacity make a will, both age and mental capacity
• test of capacity to revoke a will
• property that can be disposed of by a will
• formalities required for a valid will
• essential validity of the will
• entitlement to a grant of representation (and in which jurisdiction)
• application of the Inheritance (Provision for Family and Dependants) Act 1975
• distribution that will be applied to the estate in the absence of a will
This tends to arise because domicile requires the identification and assessment of relevant facts and the judgement involved in that exercise leaves scope for different conclusions in different courts. 40 Deemed domicile, a concept for IHT purposes only, is a United Kingdom taxation domicile only - see 6.44 41 After the creation of the Welsh assembly, law making powers were devolved to Wales, but for succession law purposes England & Wales are in effect still one jurisdiction. 42 Scotland has always been a separate jurisdiction for the purpose of domicile 43 Isle of Man, Jersey, Guernsey, Alderney and Sark 39
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Capacity 6.22 In relation to movables, this is governed by the law of the domicile of the testator. While questions have been raised as to whether this is the domicile of the testator at the date of making the will rather than at the date of death, it seems reasonably clear it is the former. It is capacity at the time of making the will which is important. 44 6.23 In relation to immovables, the law governing capacity is the law applicable to the territory in which the assets are situated. 6.24 It can therefore be seen that if a draftsman is presented with a client whose domicile is England and Wales, but who owns land in Spain, it will be necessary for the draftsman to be sure (if there is any doubt) that the testator has capacity for the purposes of both English and Spanish law if it is intended that the will should deal with the universal estate – an argument against trying to deal with foreign realty in a English will. Formalities 6.25 In relation to the formalities of a will, there is no distinction now to be drawn between wills of movables or immovables. Both types are governed in England & Wales by s.1 Wills Act 1963 which applies to all deaths taking place after 1st January 1964. A will is valid from the point of view of formalities if it complies with the internal law of:
(1)
the territory where it was executed
(2)
the territory where at the time of its execution or the time of his death the
testator was domiciled
(3)
the territory where at the time of its execution or the testator’s death he had
his habitual residence
(4)
44 45
a state of which at the time of its execution or the testator’s death the testator was a national. 45
Dicey & Morris, Conflict of Laws pp. 1009–11 There are provisions in the Act to deal with the situation where the testator is a national of a state where there are two systems of internal law governing the formalities of wills. In such a case either any rule of the internal law as to which system of law should apply will govern the situation or the system with which the testator was closely connected at the time of execution will be taken (s.6(2) Wills Act 1963). The Act also allows for the fact that the testator may be a national of more than one state, and to apply the law of both states.
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There is an additional category in relation to immovables. A will executed in accordance with the formalities of the territory in which they are situated will also be formally valid. 46 There are also rules relating to the execution of wills on vessels and aircraft. These will not often require any consideration. 6.26 However, having set out the above, which is the position in England & Wales, the approach to the correct formalities for a will will subject to different tests of validity in other jurisdictions. Essential validity 6.27 Essential validity governs the validity of the dispositions within a will and such matters as to whether, for example, a spouse inherits certain property automatically, or whether a witness to a will can take under it. 47 As far as movables are concerned, it is the law of the domicile of the testator at the date of his death which governs the matter. 6.28 As far as immovables are concerned, it is the law of the territory where they are situated that will govern. Matters such as the law of perpetuities and accumulations, for example, will depend on the law of the country in which the immovables subsist. The attempt by the terms of the will to create a trust of land where the lex situs does not permit it is also a danger in this area. 6.29 The practitioner should bear in mind that within the question of essential validity is found one of the key difficulties of conflict between jurisdictions. While a will may be formally valid, i.e. it is recognised as a validly executed will, its dispositive effect can be restricted or nullified where there is conflict between the dispositive terms of the will and another jurisdiction’s inheritance law. For example, the will of a Greek businessman temporarily resident in England entirely in favour of his English mistress would lack essential validity, at least in part, as Greek law reserves for parents and descendants of the deceased a portion equal to one-half of what would have been inherited on intestacy. Furthermore, lifetime gifts by this testator that would tend to defeat the mandatory provision for the family members may be recovered. 6.30 Within England and Wales we have general testamentary freedom, subject to the constraint of the I(PFD)A 1975 but, by contrast to this, civil law jurisdictions in general do not have such freedom and have certain prescribed rights of inheritance for members of the close family.
47
Re Priest [1944] Ch 58
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Construction 6.31 A will of both movables and immovables is construed in accordance with the system of law which the testator intended. Therefore if there is a clause in the will saying it is to be construed in accordance with English law, then the position is clear. If, on the other hand, the will is silent on the question, 48 it will be construed in accordance with the law of domicile of the testator at the date when the will was made. 49 In the case of immovables, it must be remembered that the essential validity of the will is governed by the situs of the assets concerned. Therefore a gift of immovables in Spain by a testator domiciled in England will be construed in accordance with the law of England unless there is a clause in the will to suggest otherwise, but if it then turns out that in accordance with the law of Spain the gift is invalid, that rule will prevail. 50 Revocation 6.32 The draftsman may not always give thought to the revocation of earlier wills, but the usual routes to revocation, particularly the use of an express revocation clause, may not be applicable under the law governing either non-English moveables, or the law of the testator’s domicile if that is not England & Wales. 6.33 There follows a very brief summary of the rules relating to revocation so that where there is a foreign element involved the draftsman knows where problems might arise. In cases of real doubt the works on conflicts of law 51 should be consulted.
[1]
In the case of revocation by a later testamentary instrument, revocation is
governed in the case of movables by the law of the deceased’s domicile
at the date of death and, in the case of immovables, by the law of the
territory in which they are situated. This general rule is modified by the Wills
Act 1963, so that if the instrument in which the revoking clause appears is
executed in accordance with the law of one of the territories mentioned
in s.1 Wills Act 1963, it will be valid as far as formality goes. It will also be valid
if the clause revoking the earlier provision is executed in accordance with
any of the laws of the territories under which the will it is revoking would
have been valid. 52 In other words, there is a wide selection of laws to ensure and many if not most wills are. s.4 Wills Act 1963 states expressly that a change in the domicile of the testator after execution will not alter the law in accordance with which the will must be construed. 50 As the law where the immovable is situated is the law which will apply to its essential validity. 51 Dicey & Morris is the authoritative work. 52 s.2(1)(c) Wills Act 1963 48 49
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that the revocation is valid, although in some cases this will mean that the
revocation clause is valid in an instrument which is otherwise invalid to
dispose of any property.
In the case of revocation by any other means, such as subsequent marriage
[2]
or destruction, movables are governed by the law of the domicile of the
testator. Unfortunately it has not yet been decided whether that is his
domicile at the date of death or the date of the act of revocation.
Immovables are governed by the law in which they are situated.
6.34 There is however at practical difficult for all draftsmen that lies at the heart of domicile. Domicile is, as the commentary below will show, a complex concept. It is furthermore a concept that will be completely outside of the knowledge of the average client. Its name alone is sufficient to confuse nearly all clients – they will associate domicile with the area or house that they are currently living in. This means that, to elicit accurate information, on which to base domicile advice, a variety of questions need to be asked to establish the relevant information. Accurate and useful answers will be more forthcoming if the testator has the reasons behind the questions explained to him at the outset. 6.35 With many testators this process can be a relatively simple matter, because of all of their connections are with one jurisdiction. Where this is not the case, then the draftsman’s questions need to be focussed on the information that will enable the draftsman form a judgement of the issue. Where the draftsman is not experienced or knowledgeable, in this area, some thought into the range of information that may be relevant, perhaps in the form of a checklist may be useful. 6.36 Because clients tend to know little of this subject, there tends to be little useful record keeping and preserving of useful information on domicile until after a client has been advised of the significance of the issue. 6.37 Will instructions cannot be taken safely without ascertaining the essential facts relating to a testator’s domicile. Even when these are established, then attempting to advise the client conclusively of what his domicile is at the time of the will, and what it will be later at his death, can be dangerous. Domicile, for the purposes of the effect of a will, can only be determined at death and much can change in a person’s life between his will and death. Further, factors that the testator may consider significant in his lifetime can be viewed as less important by a court after his death.
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6.38 Where the client is clearly domiciled in England and Wales, but owns foreign movables and immovables the position is somewhat different. The draftsman is competent to deal with the client’s property in this country, and arguably movables abroad, as these will be governed by the law of the client’s domicile. Nonetheless, it should be stressed that this applies only in relation to English private international law and another jurisdiction where the movables were situated might take a different view, especially if the gift was in the form of a trust. In relation to foreign immovables, the English practitioner cannot go ahead without taking advice from a practitioner competent in the jurisdiction in which the immovables are situated. 6.39 If at all possible, a separate will dealing with foreign immovables and movables should be executed. In that case, the practitioner must make sure that it is clear on the face of the will what property is excluded from it. In particular, the practitioner needs to ensure that the new English will does not revoke any extant foreign wills by accident. 6.40 It is important for the practitioner to take particular care with instructions from testators who, although resident in England and Wales, originate from Eire or Scotland. Both countries have legal rights of succession to part of a deceased’s estate. Because of the degree of mobility of population between these countries and England and Wales it is not uncommon for a proper examination of the acquisition of a domicile of choice to be overlooked. 53 Too often it is assumed to have been acquired simply because of length of residence, or even solely the fact of residence, but if there is a long-term intention to return to the country of origin a domicile of choice will not have been obtained. 6.41 Any discussion of domicile issues with a testator must be approached with care and the language used should be accurate, clear and capable of being understood by a lay person. The approach of the court to domicile set out in the first quotation from Agulian v Cyganik 54 (above at 6.17) given above shows what a difficult concept it can be for a client to understand.
53 54
Both these jurisdictions apply similar domicile tests to that applied in England and Wales. [2006] WTLR 565
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Declarations of domicile 6.42 Some have suggested inserting in to the will a statement as to the testator’s domicile, but this may prove to be of very limited value 55: the usefulness of such statements can vary and information matters more to the court than a simple claim of what the testator regards his domicile to be – “I am not prepared to attach importance to a declaration by a man as to his domicile unless there is evidence to show that the man knew what “domicile” means. A declaration by a man made orally or in writing that he intends to remain in a certain country will, if not inconsistent with the facts, be of assistance in determining the question whether he has become domiciled there. Domicile is however a legal conception on which the views of the layman are not of much assistance” 56 6.43 It might very well be more useful, to arrange for a separate document, signed by the testator, that sets out the information relevant to his domicile and what his intentions are. As with most statements relevant to a person’s intentions or reasons, the statements may well carry more weight with a court if they are in the words of the individual rather than in a document clearly drafted by a legal adviser. This is not to say that the legal adviser should not advise of issues to be covered or clarity of the language. Bearing in mind that advice is going to be given to the client, preserving the information and documentation upon which the advice has been based is important
a) to substantiate the reasons for the advice,
b) to support the claimed domicile in any future negotiations or proceedings
c) to support any future reconsideration of the client’s position.
Examples exist where the court have determined a domicile in one country while the will declares a domicile in another e.g. A-G v Yule and Mercantile Bank of India (1931) 145 LT 9 56 Romer LJ in A-G v Yule and Mercantile Bank of India (1931) 145 LT 9 at 17; such statements in a will may also simply be seen as self-serving Henwood v Barlow Clowes International Ltd (in liquidation) [2008] EWCA Civ 557 55
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“Deemed domicile” 6.44 Irrespective of a person’s legal domicile, he may be subject in the UK to the deemed domicile rules for the purposes of Inheritance Tax. This is a provision, applying only for inheritance tax purposes, by which a person may be treated as domiciled here if: 57
• he was domiciled in any part of the UK under general legal principles within the
• he was merely resident in any part of the UK in not less than 17 of the last 20
last three years; or
years of assessment in which “the relevant time” falls.
For this purpose “the relevant time” means the time of a transfer; which could for example be the date of death. This provision is a frequently be a source of confusion in that it is applicable for IHT purposes only. It has no wider application for other taxes purposes or for the general law of domicile. It can have the result that IHT is applied to a testator’s entire estate, even though he is not domiciled in England and Wales and the devolution of his moveable property is govern by the laws of where English law regards him as being domiciled.
57
s.267 IHTA 1984
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Chapter 7 Inheritance Act 19751 (Provision for Family and Dependants)
7.01 As a general principle, a testator in England & Wales has testamentary freedom, that is to say, he may choose who he leaves his estate to and on what conditions. This is often spoken of as a fundamental principle of English succession law, but it may well be a comparatively recent development. 2 It has been written that “for many years an English testator has been free to confer a princely endowment upon a prostitute or a charity and to leave his family penniless”. 3 This has been contrasted with the mandatory devolution of some property on death that is encountered in most civil law jurisdictions. 7.02 Testamentary freedom has a problem within it and that is who should care for those who are financially dependent upon a testator, if he chooses to abandon them? As Gross LJ put it in Iqbal v Ahmed “Realistically, the only candidates for providing support to the widow are the state or the estate”. 4 The first legislation in this area was the Inheritance Provision Act 1938. 5 More comprehensive reform came with I(PFDA) 1975 and, although this has been amended from time to time, it remains in force.
Jurisdiction of the Act 7.03 The Act applies only to the estates of those who die domiciled in England & Wales. 6 The estate of a person, resident, but non-domiciled here as a matter of law, is outside the scope of the Act no matter what property he has within England & Wales. A claimant under the Act need not be either domiciled or resident in England & Wales. The practical difficulty for the draftsman of a will, in advising a testator, is that domicile will be tested by a court for purposes of the jurisdiction of this Act at death. Circumstances may well change between the will and death. This Chapter deals with information about this Act that is useful to the will draftsman. It does not deal with litigating such claims or how they are dealt with in the administration of an estate. 2 Usually considered to be the start of the C19th 3 Cheshire & Burn Modern Law of Property 16th edition 200 p.900 4 [2011] WTLR at [18] 5 As amended by Schedule 3 Intestates’ Estates Act 1952, s.2 Matrimonial Agreements Act 1957 and the Family Provision Act 1966. 6 s.1(1) “Where after the commencement of this Act a person dies domiciled in England and Wales” see Chapter 6 for matters of domicile 1
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7.04 The Act applies to all estates of persons who die domicile in England & Wales whether testate or intestate. There is no presumption that the distribution on intestacy is reasonable, within the meaning of this Act. 7.05 The only persons who may make a claim are those who are within the categories of the Act in s.1(1). 7.06 Any application under s.2 of this Act must be made 7 within six months of the date on which a grant of representation is first issued. For consideration of the factors that the court will take into account for late applications see Re Salmon. 8 The court’s discretion is unfettered and ultimately its exercise will depend on the facts of the individual case and what the court decides is fair and just. The guidelines set out in Re Salmon were
(a) The claimant has the burden of showing why no claim was made within
the prescribed period.
(b) The claimant must make a case for it being just and proper for the court to
admit a late claim.
(c) The court will take into account the promptness with which the claimant
acted after the expiry of the time limit (or at least once he reasonably
became aware of the facts after the expiry of the time limit)
(d) The court will regard it as relevant whether or not negotiations were begun
inside the time limit
(e) The court will regard it as relevant if the estate has been distributed before
(f)
the claim was notified to the defendant(s). The court will take into account if refusal of the late claim would leave the claimant with no recourse against anyone.
7.07 From cases after Re Salmon we also know that
i. The court will consider the substance of the claimant’s case and are
therefore less likely to admit late claims where the claim is weak. 9
ii. The court will also consider if the estate has yet to be distributed
iii. The converse of ii above is that the greater the length of time that has
“made” is issued not served Re Chittenden [1970] 1 WLR 1618 [1981] Ch 167 9 In McNulty v McNulty [2002] WTLR 737 the strength of the claimant’s case was the decisive factor; see Berger v Berger [2014] WTLR 35 CA where a late claim was refused mainly on grounds of delay 7 8
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passed since distribution, the greater the potential for prejudice or injustice
to them in admitting the late claim.
iv. A claim is less likely to be admitted if there is professional negligence
on the part of the claimant’s legal advisers and the remedy against them
will adequately recompense the claimant.
7.08 A grant is taken out for the purposes of this time period on the date on which it is issued by the Probate Registry (i.e. the date on the face of it). For what constitutes a grant for these purposes see s.23 of the Act.10 7.09 An application under this Act previously should not have been made before the grant was taken out 11. However, s.4 has been amended with the words “(but nothing prevents the making of an application before such representation is first taken out)”.12 Making such claims after the issue of a grant, is in practical terms preferred as this enables the defendants to be identified.
The nature of a claim 7.10 This Act gives a claimant no more than a right to request a court to award him benefit or additional benefit. Any award is at the discretion of the court after weighing the circumstances. Claimants may, and often do, receive no award from the court. The court can make an award only where it is satisfied that the deceased’s estate does not “make reasonable financial provision” for the claimant13. The approach to any claim should be a two-stage process by the court
1. determine the reasonableness of the provision, or lack of it, made in the
will or intestacy and
2. if the court finds the provision, or lack of it, unreasonable then it should
determine what provision would be reasonable.
In deciding the first stage, it is important for the court to find not that the deceased acted unreasonably in making the provision that he did, but that the level of provision for the claimant was unreasonable. 14 It is not the reasons for the deceased’s lack of provision that are to be judged, but the objective result of what he did. 15 As inserted by paragraph 2 Schedule 3 Inheritance and Trustees’ Powers Act 2014 Re McBroom [1992] 2 FLR 49; Re Searle [1949] Ch 73 decided the contrary for time limits under an earlier Act, but McBroom is the decision now followed. 12 Inserted by paragraph 6 Schedule 2 Inheritance and Trustees’ Powers Act 2014 13 s.1(1) and s.2(1) both use the phrase “is not such as to make reasonable financial provision for the applicant” 14 Re Coventry [1980] Ch 461 15 Re Myers [2005] WTLR 851
10
11
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The Role of the Court 7.11 The role of the court in an I(PFD)A action is to weigh
1. the wishes of the deceased,
2. the interests of the beneficiaries of the will or intestacy,
3. the valid claims on his estate under this Act and
4. the available assets to satisfy those claims.
In order to reach a decision on any award to the claimant. 7.12 In assessing any award for a claimant the court will look at the relative needs of all concerned. It is clear that the greater the size of the estate the easier the task is for the court to satisfy valid claims. 16 This is not to suggest that claims against large estates are more likely to succeed, merely that the sum available permits easier division between valid claims. By contrast, where the estate is of low value, the court faces a more difficult task in deciding appropriate benefit between the contending parties. 17 In all cases, the costs involved in I(PFD)A claims can further seriously erode the estate. Costs can reach very high levels as many claims are bitterly fought and there can be a regrettable attitude not merely of winning to gain benefit, but winning to deny others benefit.
Classes of Claimants 7.14 The right of any claimant to seek provision does not continue beyond their death for the benefit of their estate. Thus if an applicant dies before an award is made their claim cannot continue. 20 7.15 The spouse or civil partner of the deceased 21 A spouse 22 or a civil partner will be treated the same for the purpose of this Act. For these purposes a spouse will include
(i)
a judicially separated spouse
(ii)
a party who entered in good faith into a void marriage
(iii) a party to a foreign marriage (one entered into abroad) if the English
court would recognise the marriage
Regrettably, this does not necessarily prevent such claims from being bitterly fought. Hope v Knight [2011] WTLR 583 20 Whyte v Ticehurst [1985] Fam 64 21 s.1(1)(a) 16 17
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(iv) a party to a valid polygamous marriage entered into abroad if the
marriage is recognised by the English court.
a divorcing spouse where a decree nisi has been issued, but no decree
(v)
absolute has been issued.
7.16 If the marriage is not one that is recognised by English law, 23 the spouse is not considered a spouse for the purpose of a claim. 24 For a civil partnerships, if entered into abroad, the relationship must be one relationship that is recognised as the equivalent of a civil partnership in England and Wales. 25 7.17 A former spouse or former civil partner who has not remarried or formed a subsequent civil partnership 26 This will not include a former spouse or civil partner where the terms of the divorce or dissolution expressly barred future I(PFD)A claims (a common feature in clean break divorces). 7.18 A child of the deceased 27 A child adopted by the deceased ranks equally with his natural children. 28 However, where a child of the deceased has been adopted by others, he is no longer has property rights against his natural father’s estate, including the right to make a claim under this act. 29 A child en ventre sa mere (in the womb) at the time of his father’s death is a child for the purpose of this Act. 30 The use of the word “child” in this context does not imply that this class means only those who are minors - adult children may claim. Legitimate and illegitimate children are treated equally for this purpose of this Act. 31
Now including a same-sex spouse i.e. a marriage entered into within England & Wales that does not conform to the Marriage Acts 1949-1994 (as amended) 24 Gandhi v Patel [2002] 1 FLR 603 25 s.215 Civil Partnership Act 2004 26 s.1(1)(b) 27 s.1(1)(c) 28 s.25(1) 29 s.39(2) Adoption Act 1976; Re Collins [1990] Fam 56 30 s.25(1) 31 s.25(1) 22
23
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7.19 A person (not being a child of the deceased) who was treated, at any time, by the deceased as a child of any marriage or civil partnership to which the deceased was a party 32 Dependency is not a required element of this category. 33 The circumstances necessary for a child to be treated as a child of a family, etc. have not been defined in the Act and subsequent cases have indicated that each case will depend upon the particular circumstances. 34 The use of the word “child” in this context does not imply that this class means only those who are minors - adult children may claim. Commonly this category of claimant has include step-children. 7.20 Schedule 2 Inheritance and Trustees’ Powers Act 2014 widened this class which previously had been limited to relationships of marriage and civil partnership. Schedule 2 brings into consideration other relationships, akin to that of parent/child, in family units outside of marriage and civil partnership. By way of clarification, the new s.1(2A) inserted into the 1975 Act by Schedule 2 clarifies the type of relationship further by noting that it can include “a family of which the deceased was the only member apart from the applicant”. 7.21 Any person who was immediately before the deceased’s death being wholly or partly maintained by the deceased 34.1 This category, unlike the other categories in s.1(1), is not limited by a relationship to, or with, the deceased. The key feature in determining the eligibility of a claimant is therefore dependency. What amounts to dependency will be determined very much by the circumstances of the relationship. 35 7.22 “Immediately before death” is approached on the basis of what settled arrangements existed between the parties over time, rather than any temporary fluctuations in the relationship, which could have occurred immediately before death. 36 Schedule 2 Inheritance and Trustees’ Powers Act 2014 now provides that a person is maintained for this purpose, “only if the deceased was making a substantial contribution in money or money’s worth towards the reasonable needs of that person, other than a contribution made for full valuable consideration pursuant to an arrangement of a commercial nature”.
s.1(10(d) Re Leach (Deceased) [1986] Ch 226 34 D v D (Child of the Family) [1980] 2 FLR 93 34.1 s.1(1)(e) 35 McIntosh v McIntosh [2013] WTLR 1565; Bouette v Rose [2000] 1 FLR 363 36 Re Beaumont [1980] 1 Ch 444; Jelly v Iliffe [1981] Fam 128 32 33
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7.23 Any person who was at the time of the deceased’s death, and during the whole of the preceding two years, living in the same household as the deceased as the spouse of the deceased 37 While the two-year period is essential to such claimants, interruptions through medical treatments have been found not to have ended this period. 38 A temporary suspension of the period that falls short of a permanent breach in the relationship may also be ignored by the court. 39 7.24 “As the spouse” of the deceased requires a careful approach by the court. Rather than try to define what constitutes spousal-type relations in a detailed way, the court approaches this aspect on a case by case basis. In Re Watson 40 ‘the court should ask itself whether, in the opinion of a reasonable person with normal perceptions, it could be said that the two people in question were living together as husband and wife; but that, when considering that question, the multifarious nature of marital relationships should not be ignored’ and Adeoso (otherwise Ametepe) v Adeoso 41 ‘whether to anyone looking at them from the outside...they were...living together as husband and wife’. 7.25 Any person who was at the time of the deceased’s death, and during the whole of the preceding two years living in the same household as the deceased as the civil partner of the deceased 42 There are as yet no reported decisions on the interpretation of this section, but it is reasonable to assume that it will be approached by the court in exactly the same manner as the previous class (above).
Matters that the court will take into account 7.26 The various factors that the court must take into account in deciding upon a claim are to be found in s.3. It is important to note at the outset, when advising a testator, that for spouses and civil partners, the test of reasonable financial provision
s.1(1)(ba) and s.1(1)(1A) Re Watson [1999] 1 FLR 878 39 Gully v Dix [2004] 1 FLR 918 40 [1999] 1 FLR 878 41 [1981] 1 All ER 107 42 s.1(1)(ba) and s.1(1)(1B) 37 38
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is not only on a different basis to that used for all other claimants, but that the spouse and civil partners basis leads to a more generous result.
• For a spouse or civil partner it is such financial provision as would “be
reasonable in all the circumstances of the case” 43
• For all other claimants it is such financial provision as would “be
reasonable in all the circumstances of the case for the applicant to
receive for his maintenance”.44 In Re Coventry 45 the court approved the
definition of maintenance as being “sufficient to enable the dependant
to live neither luxuriously nor miserably, but decently and comfortably
according to his or her station in life”.
7.27 General factors applying to all claimants in s.3(1)(a)
“(a) the financial resources and financial needs which the applicant has or is
(b) the financial resources and financial needs which any other applicant for an
order...of this Act has or is likely to have in the foreseeable future;
(c) the financial resources and financial needs which any beneficiary of the
likely to have in the foreseeable future;
estate of the deceased has or is likely to have in the foreseeable future;
(d) any obligations and responsibilities which the deceased had towards any
applicant for an order...or towards any beneficiary of the estate of
the deceased;
(e) the size and nature of the net estate of the deceased;
(f)
any physical or mental disability of any applicant for an order...or any beneficiary of the estate of the deceased;
(g) any other matter, including the conduct of the applicant or any other
person, which in the circumstances of the case the court may
consider relevant.”
s.1(2)(a) and s.1(2)(aa); See Re Besterman [1984] Ch 458 for the court’s confirmation of provision not being limited to maintenance 44 s.1(2)(b) 45 [1980] Ch 461 43
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7.28 Factors for spouses, civil partners, former spouses and former civil partners who have not remarried or formed a subsequent civil partnership s.3(2) directs that the court shall in addition to the general factors take into account:
a)
the age of the claimant
b)
the duration of the marriage
c)
the contribution that the claimant had made to the family welfare, including
looking after the home and family.
7.29 In the case of a spouse or civil partner, the court will further have regard to the provision that the applicant could reasonably have expected on divorce or dissolution of the civil partnership. Known as the “divorce fiction”, this is only one of several factors, but it is an important one in providing the court with a method of checking the level of award they are considering. A court is not bound to make an award equivalent to provision on divorce 46 if there are good reasons for not doing so. 47 Taking into account likely provision on divorce 48 means that developments in that area will have a knock-on effect on the level of awards under this Act in the future. One factor which can lead the court to depart from the theoretical divorce award is the duration of the marriage. This is a factor that can be taken into account in an I(PFD)A claim, but is usually of less of an issue in a divorce hearing. Recently more attention in divorce cases has focussed on non-matrimonial property being left out of account in assessing provision on divorce. That is to say, that property that one party to the marriage owned before the marriage was not matrimonial property and could be left out of account in the property division on divorce. This is a still developing area. 49 However the principle has been applied to an I(PFD)A award in Lilleyman v Lilleyman. 50
Re Krubert (deceased) [1997] 1 FLR 42; Re Besterman [1984] Ch 458 s.3 (2) as amended by Schedule 2 Inheritance and Trustees’ Powers Act 2014, makes it clear that an order may be more, or less, than the provision on divorce or dissolution of a civil partnership. 48 White v White [2000] 3 WLR 1571 for the current approach to provision on divorce 49 A careful reading of the relevant divorce cases is suggested if this is an issue in client advice. The cases concerned are outside the scope of this study module – recent cases included Jones v Jones [2011 EWCA Civ 41; Robson v Robson [2011] EWCA Civ 1171 and Lawrence v Gallagher [2012] EWCA 394 Civ 50 [2012] WTLR 1007 46 47
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7.30 Factors for ‘living together’ as husband and wife or civil partners s.3(2A) directs that the court shall in addition to the general factors take into account:
a)
the age of the claimant
b)
the duration of the cohabitation
c)
the contribution that the claimant had made to the family welfare, including
looking after the home and family.
7.31 Factors for children s.3(3) directs that the court shall, in addition to the general factors, take into account the manner in which the child was being educated or trained, or in which he might have expected to be educated or trained. Regard will also be paid to
a)
whether or not the deceased maintained the child and, if so,
b)
the length of time involed and the basis on which he did so
c)
the extent of the contribution made towards maintenance.
The court will also look at the basis on which the deceased assumed responsibility for the child. 7.32 For adult children’s claims the position in practice is a little more complex. In Re Coventry 51 the court observed that “...applications under the Act of 1975 for able-bodied and comparatively young men in employment and able to maintain themselves must be relatively rare and need to be approached...with a degree of circumspection…….There must, as it seems to me, be established some sort of moral claim by the applicant to be maintained by the deceased or at the expense of his estate beyond the mere fact of blood relationship, some reason why it can be said that, in the circumstances, it is unreasonable that no or no greater provision was in fact made.” 7.33 In Re Dennis 52 “A son is in the same position as all other able-bodied applicants. A person who is physically capable of earning his own living faces a difficult task in getting provision made for him, because the court is inclined to ask “Why should anybody else make provision for you if you are capable of maintaining yourself?””
51 52
[1980] Ch 461 [1981] 2 All ER 140
205
7.34 There were only a limited number of claims by adult children 53 until the mid1990s and very few of these were successful in the absence of incapacity. Re Christie 54 and Re Collins 55 were successful, but were regarded as exceptional on their particular facts and Christie in particular was much criticised. However, with the passage of time matters began to take on more subtle shades. 7.35 More recently in Re Hancock 56 it was said “It is clear to me that the 1975 Act does not require...that an adult child...has in all the case to show moral obligation or other special circumstance. But...if the facts disclose that the adult child is in employment, with an earning capacity for the foreseeable future, it is unlikely that he will succeed in his application without some special circumstance such as a moral obligation” (authors’ added emphasis). 7.36 In Espinosa v Bourke 57 this was further explained “...subsection 1(1)(d) refers to ‘any obligations and responsibilities’. Plainly those obligations and responsibilities extend beyond legal obligations and that is why, in my view, the word moral has been used to underline and explain that the deceased’s obligations and responsibilities are not to be narrowly construed as legal obligations but to be taken into account in a broad sense of obligations and responsibility (authors’ added emphasis). 7.37 Attempting to advise with any precision on the potential for a successful claim by an adult child should be avoided. Too much will depend upon that child’s circumstances at the time of the claim, as well as special factors such as ill-health or medical conditions that prevent employment. More recent cases have looked more widely at special circumstances:
• a daughter in great financial need when the estate was large 58
• a daughter who had cared for her father and was without employment 59
• a son, in poor health with low income and children not capable of earning 60
With the exception of those on behalf of disabled applicants see Re Wood (1982) 79 LSG 774; Hanbury v Hanbury [1999] 2 FLR 255 54 [1979] 1 All ER 546 55 [1990] 2 All ER 47 56 [1998] 2 FLR 346 57 [1999] 1 FLR 747 58 Re Hancock [1998] 2 FLR 346 59 Espinosa v Bourke [1999] 1 FLR 747 60 Re Gold, Gold v Curtis [2005] WTLR 673 53
206
7.38 Application of the factors for adult children is still a developing area “A dispassionate study of each of the matters set out in section 3(1) will not provide the answer to the question whether the will makes reasonable financial provision for the applicant, no matter how thorough and careful it is. As Judge LJ said in Re Hancock at 355C, section 3 provides no guidance about the relative importance to be attached to each of the relevant criteria. So between the dispassionate study and the answer to the first question lies the value judgment to which the authorities have referred. It seems to me that the jurisprudence reveals a struggle to articulate, for the benefit of the parties in the particular case and of practitioners, how that value judgment has been, or should be, made on a given set of facts. Inevitably, this has led to statements that this or that matter is not enough to found a claim and this or that matter is required.” 61 7.39 This “value judgment” is what made by a judge today when evaluating the circumstances sufficient to warrant an award being made or refused. In approaching it in this manner there are three consequences:
1)
What is sufficient may well not be a single individual factor, but may be an
accumulation of several different factors.
2)
The way in which those factors are interpreted will change as judges’ views
change to reflect their perception of modern life and what
constitutes “reasonable”.
3)
Because, in the preceding point what is reasonable mutates or changes with
the passage of time, a practitioner will find it difficult to advise on an adult
child’s claim. As was noted in Ilott v Mitson “It is a reality in the 21st century
that judges are called upon to make judgments of this kind in different cases
and in different circumstances. They must do so with such assistance as
they can find in existing decided cases. If (as often happens) there are no
decided cases, they must decide questions involving value judgments within
four corners of the statutory framework and with the benefit of their own
awareness and experience of society and social issues, and their own
considered view of how such matters ought fairly to be decided in the
society in which we live” 62
61 62
Ilott v Mitson [2011] WTLR 779 [2011] WTLR 779 at [68]
207
7.40 The current position with adult children claims is far from satisfactory. It is very hard in practice to give advice to the client concerned about the possibility of a claim. On the one hand one can say that adult children now tend to obtain a little more than was suggested by the earlier decisions. On the other hand, Re Coventry, and the fairly restricted view taken there of the adult child, has not been overturned. Ilott has since stressed that an adult child is the same as any other claimant and should prove their case and that all the s.3 factors can be involved. It is perhaps the case now that the court tries harder to find the mitigating circumstances that warrant a claim, or take a wider view of what constitutes a moral or special obligation. While this is helpful to the adult child, it does tend to create an unhelpful degree of uncertainty for the practitioner and for advice that he is called upon to give. 7.41 Factors that are now believed to be of importance in an adult child’s claim can be summarised as 1. Obligations professed or implicit in conduct Examples being, a promise of financial support 63 ; or unremunerated work being provided by the child 64 2. Disability. Physical 65 or mental 66 disability is a factor in favour of the child’s claim. The severe developmental difficulties and lack of social functioning was clearly a strong factor in favour of the claimant in Land v Land. 67 3. Conduct. Adverse conduct by the child towards the deceased 68; imprudent financial conduct by the claimant 69 may come into account against the claim. However, conduct is a factor that a court may make little of. Adverse conduct by the deceased towards
Goodchild v Goodchild [1996] 1 WLR 694; Re Hancock [1999] 2 FLR 346; Espinosa v Bourke [1999] 1 FLR 64 Re Abram [1996] 2 FLR 379; Re Pearce [1998] 2 FLR 705 65 Re Debenham [1986] 1 FLR 404 66 Re Wood (1982) 79 LS Gaz 774 67 [2006] WTLR 1447; although it should also be noted that there were no real competing claims to that of the adult son who was functionally illiterate with inadequate social skills and a developmental disorder; 68 Williams v Johns [1988] FLR 475; Re Portt (unreported 25/03/80 CoA) 69 Re Myers, Myers v Myers [2005] WTLR 851 63
208
the child may also come into play, 70 particularly where the conduct may have exacerbated 2 (above). If the claimant’s position in life has been adversely affected by the deceased, such as failure to ensure adequate education, this can strengthen the claim. 4. Size of estate. The greater the available pot for distribution, the better the chances of an obligation being identified and provision being feasible, 71 but liquidity of assets is also likely to be a factor 72. The size of the estate and the nature of the other beneficiaries was expressly referred to as a factor in Ilott. The fact that the state makes provision for financial hardship does not mean that it is always reasonable for a testator to make no provision for an adult child. The court must in that regard look at all the circumstances of the case to decide that question. The size of the estate and the absence of other pressing demands on it, for instance, as in this case will be often be very relevant in this evaluation. 5. Competing claims. Because the court’s function in I(PFD)A claims is to balance competing claims on the testator’s bounty, any award to an adult child is likely to be less where there are other beneficiaries or claimants whose needs are likely to be given greater weight by the court. 6. Reduced financial circumstances. Following Ilott it is perhaps a little clearer that the financial position of the applicant may be a factor, even where the circumstances were neither caused by, nor the responsibility of, the deceased. It was observed in the Court of Appeal “The applicant has made her career in the home and she is living in straightened circumstances. The applicant and her husband have lived together and brought up their family with little income save for state benefits. The District Judge was clearly correct to consider whether the applicant had any capacity for earning money herself. If she had some plan say to take a well-paid job when her family commitments enabled her to do so, that would have to be taken into account. But the absence of such a plan was rightly treated as a neutral factor. The fact that she had made this career choice did not mean that the complete absence of provision by the testatrix a reasonable one. However, as I see it provisionally and Re Myers, Myers v Myers [2005] WTLR 851 Re Myers, Myers v Myers [2005] WTLR 851 72 Hope v Knight [2011] WTLR 583 70 71
209
without deciding any matter as we are not dealing with quantum, the fact that this is her way of life would be relevant when it came to quantifying the amount of maintenance it would be reasonable to make.� The last part referring to way of life is a new issue. That a voluntary choice by the child of a way is a factor that can be taken into account when assessing a claim has not been seen before. 7.42 Factors for a child treated, at any time, by the deceased as a child of any family to which the deceased at any time stood in the role of a parent s.3(3) directs that the court shall in addition to the general factors take into account:
a)
the manner in which the child was being educated or trained, or in which he
might have expected to be educated or trained
whether the deceased had assumed any responsibility for the child’s
b)
maintenance
c)
the extent and duration of that assumption of responsibility
d)
whether or not in assuming any responsibility the deceased knew that the
child was not his own
e)
the liability of anyone else to maintain the child.
f)
It seems clear that such a person does not have to be treated as a child of
the marriage, etc. at the date of death, merely that he has been so in
the past. 73 7.43 Factors for dependants s.3(4) directs that the court shall in addition to the general factors take into account:
a)
the extent to which the deceased assumed responsibility for the
maintenance of the claimant
the basis on which the deceased assumed responsibility for the maintenance
b)
of the claimant
73
c)
the length of time for which the deceased undertook this responsibility.
Re Leach [1986] Ch 226
210
The Net Estate 7.44 The net estate for the purposes of this Act, that is to say the estate from which the court can make any awards to claimants. The net estate is defined in s.25(1) as ““net estate”, in relation to a deceased person, means:—
(a) all property of which the deceased had power to dispose by his will
(otherwise than by virtue of a special power of appointment) less the
amount of his funeral, testamentary and administration expenses, debts and
liabilities, including any inheritance tax payable out of his estate on his
death;
(b) any property in respect of which the deceased held a general power of
appointment (not being a power exercisable by will) which has not been
exercised;
(c) any sum of money or other property which is treated for the purposes of this
Act as part of the net estate of the deceased by virtue of section 8(1) or (2)
of this Act;
(d) any property which is treated for the purposes of this Act as part of the net
estate of the deceased by virtue of an order made under section 9 of the
Act;
(e) any sum of money or other property which is, by reason of a disposition or
contract made by the deceased, ordered under section 10 or 11 of this Act
to be provided for the purpose of the making of financial provision under this
Act” 74
7.45 The definition set out in (a) and (b) is that which would normally be used to describe the net estate of a deceased person. The last part of the definition deals with other items that can be brought into account although would not usually be described as being part of the net estate. 7.46 Part (c) deals with s.8 of the Act and nominated property that was nominated by the deceased under statutory provision, for example the Friendly Societies Act 1974, the Provident Societies Act 1965. There are not likely to be large sums of money within this provision. The limitation to statutory nomination schemes removes the
Also, “property” includes any chose in action “reasonable financial provision” has the meaning assigned to it by section 1 of this Act “valuable consideration” does not include marriage or a promise of marriage “will” includes codicil”
74
211
process, often called nomination, in respect of discretionary benefits paid by trustees of private pension schemes.75 s.8(2) provides the net value of any donatio mortis causa will, after deduction of any inheritance tax, be treated as part of the free estate. 76 7.47 Part (d) deals with s.9 of the Act and the ability for the court to treat the deceased’s share of any property jointly owned by was of a beneficial joint tenancy. Such an interest is only brought into consideration where there is an application for this to be done. 77 7.48 Part (e) refers to property which falls to be included in the net estate by reason of the anti-avoidance provisions within the Act 78
The Act and the will draftsman 7.49 There is, as yet, no court decision to the effect that a will draftsman has a duty to give his client advice on the terms of this Act when consulted by the client about his client’s will. However, despite this, it is manifestly obvious that, in terms of
• the quality of advice provided to the testator
• the quality of the testator’s decision making and
• the effectiveness of the will eventually provided,
a will draftsman should be able to offer advice if it is relevant. The client can decline the advice if he wishes. To provide advice, the draftsman must have a working knowledge of the Act. 7.50 In advising the client the draftsman should be aware of the average client’s ignorance of the Act and its effect (who would reasonably expect a client to have knowledge of such a specialised area of the law?). Being unaware of the Act,
• the client will usually be unaware of the extent that a successful I(PFD)A claim
could amend, or even nullify entirely, the dispositions in his will
Re Cairnes, Howard v Cairnes (1983) 4 FLR 225 For a donatio mortis causa generally see Chapter 8 section F 77 s.9(1) – the time limits for an application are now the same as for s.2 see earlier at 7.06 et seq. This was amended by paragraph 7 Schedule 2 Inheritance and Trustees’ Powers Act 2014. Previously there had been a strict 6 months period post-grant which was not extendable at the court’s discretion. 78 See later at 7.55 et seq 75 76
212
• the client’s initial decision making will be flawed as he will usually be unaware
of the range of persons who could make a claim in the event of no, or
insufficient, provision being made for them 79
• the client will usually be unaware of the significant costs implications of a
risk of a claim, unless he is advised properly
• the client is not in a position to accept or refuse any offer of advice until the
successful claim under the Act 80
• the client is unable to reconsider his proposed dispositions in order to assess the
position is drawn to his attention.
• the client will be unaware of any alternative financial solutions to help deter a
claim
• the client’s decisions overall as to the benefit to be provided under the terms
of his will is better informed by an awareness of the risks involved in ignoring
potential claims. 7.51 Being aware of the potential for a claim gives the client the opportunity to preserve documents and other evidence (relevant to the potential claimant and the testator’s reasons for exclusion). 82 A statement of the testator’s reasons for not making provision is always a possibility (it is admissible under s.21) but it may not carry as much weight as the testator might expect. The client must be made aware that the role of the court is to consider all aspects of any claim and that therefore it does not follow that the court will follow the testator’s wishes, unless, after considering all of the evidence, it concludes that it is right to do so. Whilst such statements can be admissible, they can also be rejected 83 by the court. In addition, if such a statement is based on a misapprehension, or contains fundamental inaccuracies, it may simply provide evidence that the deceased’s actual testamentary provision was unreasonable. 84
s.1(1) Even negotiated settlements prior to a court hearing can incur substantial costs 81 but lifetime disposals intended to defeat the Act should not generally be recommended in view of the anti-avoidance provisions in the Act 82 H v Mitson and others [2009] EWHC 3114 (Ch) - for use made of the deceased’s diaries 83 Singer v Isaac [2001] WTLR 1045 84 Gold v Curtis [2005] WTLR 673 79 80
213
7.52 While it is possible for a declaration to be inserted into the will as to why no provision, or only limited provision is being made, there are two potential drawbacks
1. the will, once admitted to probate, is public document and thus any
statements about the excluded beneficiary can be read by anyone including the local press and
2. for reasons of brevity, long explanations in a will are not possible and of course it
is the reasons that will ultimately be of value to the court.
7.53 Better practice is a statement in a separate document, kept with the will that sets out the testator’s view of events why he has made the provision, or nonprovision, that he has. Such statements should
• be substantially in the words of the testator and not be drafted for him in the
language of the draftsman. The court is better placed to judge the thoughts
and actions of the testator when the statement is in his own words
• avoid abuse, exaggeration and wild assertions
• avoid any matters that are demonstrably untrue as this will undermine the
testator’s position
• try to present a fair case
It is acceptable for the draftsman to assist with such a statement by advising on areas to be covered and helping the testator to base his statement on the above bullets. 7.54 Some clients might favour non-contestation clauses where they have only provided a small benefit to a potential claimant. Such clauses usually declare that if the beneficiary contests the terms of the will his bequest will be forfeit. The practical effect of such a provision in deterring challenge is, in our view, doubtful. 7.55 The role of the will draftsman when taking instructions is not to provide detailed advice on potential litigation or give firm views on the likely size of any award by the court (both should be left to litigators or counsel). His role is to enable the testator to make his dispositions armed with the knowledge of
• What the law provides for
• A general view of the potential merits and likelihood of claims (usually this has
to be based on the information provided by the testator and must therefore
carry a warning that it is based on his information)
• The factors to which the court will give weight in respective of the different
214
classes of claimant (for example from an adult child with no moral claim on the
testator (see below))
• Some advice as to other possible approaches to the problem that may lessen
the risk of a claim.
7.56 In giving advice, the draftsman must be aware of the anti-avoidance provisions of the Act. Using gifts, whether by gift or by way of trust, to defeat potential I(PFD)A claims must be approached with care. There is an anti-avoidance code set out in ss.10-13 of the Act. Lifetime disposals of property, whether by gift or trust, can be recovered by the court in order to increase the net estate (the pool of financial assets available out of which provision can be made for claimants). 7.57 The court’s power is limited to those disposals made in the 6 years preceding the death of the testator/intestate where
i. there was an intention to defeat financial provision on death and
ii. full valuable consideration was not given in exchange for the disposition
Up to all of the value disposed of can be recovered, but not any later appreciation on the amount(s) disposed of. The gifts by the testator/intestate may be absolute gifts or gifts into trust. Where distributions have been made from a trust created in this way, recovery can be ordered from the beneficiary in possession of the property. 85 7.58 What constitutes intention in this context will be important. In Kemmis v Kemmis 86 the meaning of intention was considered to be determined by a subjective test as to the testator’s state of mind and, to analyse this, the court would draw inferences from his conduct. To have the requisite intention does not require the testator to have knowledge of the Act’s provisions, only that the disposal he was making was intended to defeat claims made against his estate. 87 It should be noted that for civil cases, it will be presumed that a person intends the natural consequences of his acts. 88 The standard of proof required will be that of the balance of probabilities. 7.59 The testator’s intention to defeat the claim need not be the sole or dominant motive for his disposal.
s.10(2)(b) [1988] 1 WLR 1307; a case considering intention for the purposes s.37(2) Matrimonial Causes Act 1973 – it is generally considered to provide reliable guidance for intention for s.10 I(PFD) A 1975 87 Re Kennedy deceased [1980] CLY 2820 88 Phipson on Evidence 16th edition (2005) 16-10 85 86
215
7.60 A testator who owns property with another under a beneficial joint tenancy, is not safe from the property becoming available to a meet a claim simply because it will pass by survivorship outside of his will. The court has the power under s.9 of the Act to sever the deceased’s interest in beneficial joint tenancy property 89 retrospectively, in order to recover the value to make an award to satisfy a claim. The court is directed by s.9 to take into account, when considering an order, any IHT payable on the joint property. Further, if the interest of the co-owner of the jointly owned property received their interest by way of gift from the deceased, that gift can in turn be attacked under s.10 if the conditions for s.10 to apply are met. 7.61 The Act contains further anti-avoidance provisions for contracts to leave property by will, again with the intention of defeating claims. 90 These conditions apply to such contracts where the other party has not paid full valuable consideration. Unlike s.10 there is no time limit on when the contract was entered into (other than the commencement of the Act). 7.62 Pre-nuptial agreements, in the form of contracts, which bar inheritance claims have be held to be effective in other jurisdictions. The status of such a contract in this jurisdiction has not yet been considered by the court. See Chapter 8 section O for further comment about pre-nuptial agreements and I(PFD)A claims and also the Co-habitation section of the same chapter for the possible part a cohabitation contract might play in a claim.
89 90
not limited to land Powell v Osborne [1993] 1 FLR 1001 s.11
216
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Chapter 8 Other Relevant Areas of Law
A Abatement, ademption, lapse and satisfaction Abatement 8A.01 Abatement occurs where the estate is insufficient, after payment of debts, taxes and testamentary expenses to pay a bequest under the will. By its nature, the residuary gift will abate before all others. The order in which the other bequests in the will abate is to be found in the Administration of Estates Act 1925. 1 The possibility of abatement becoming an issue is one that can be addressed at the drafting stage by restructuring the gifts if an estate is thought to have a risk of abatement.
Ademption 8A.02 This is where, between the will and death, the subject matter of a specific gift in a will
• is no longer part of the testator’s estate or
• no longer meets the description in the will
• is subject to a binding contract for sale at the time of death 2
The former usually arises through the actions of the testator in disposing of the property himself 3. The second, particularly with specific bequests of investments, may arise because of actions outside his control. If specifically bequeathed stocks or shares are exchanged for shares in a different company by nationalisation, 4 Act of Parliament, 5 acquisition, merger 6 or demerger the original gift will adeem. 7
s.34(3) and Schedule 1 Part II Farrar v Earl of Winterton (1842) 5 Beav 1 3 Arnald v Arnald (1784) 1 Bro CC 401 4 Re Slater [1907] 1 Ch 665 5 Frewen v Frewen (1875) 10 Ch App 610 6 Re Jameson [1908] 2 Ch 111 7 Re Slater [1907] 1 Ch 665; “You have to ask yourself, where is the thing which is given? If you cannot find it at the testator’s death it is no use trying to trace it unless you can trace it in this sense, that you find something which has been changed in name or form only, but which is substantially the same thing.”
1
2
218
8A.03 A mortgage after the date of the will does not have the effect of ademption. The nature of the property has not changed, merely its value to the devise as he will take the property subject to the charge (unless the will provides otherwise). 8 Where between the will and death a specifically bequeathed asset is sold by a properly authorised agent the gift will also adeem. A disposal by an attorney or deputy will fall into this category 9 8A.04 A gift by the testator, to the specific legatee, of the subject matter of the legacy will also adeem the gift in the will. 8A.05 Destruction of the property specifically bequeathed in the lifetime of the testator will adeem the bequest. 10 If the property is lost on the occasion of the testator’s death, it is presumed that the goods perished before the testator and again the bequest of them is adeemed. 11 In a Canadian case, 12 the court did not apply this presumption as the forensic evidence showed that the deceased died before his house burned down. Whether or not the legatee might be entitled to the insurance proceeds for the destroyed item will depend upon showing that the destruction occurred after the death of the testator. 13
Lapse 8A.06 A bequest will lapse if the legatee has predeceased, or in the case of charity unincorporated association (or similar) has ceased to exist. Unless the will makes further provision in the event of the legatee dying or ceasing to exist the subject of the gift falls into the residue of the estate. 8A.07 s.33 Wills Act 1837 14 provides a statutory exception to this. Where a will contains a gift to a child or remoter descendant of the testator, and the intended beneficiary predeceases the testator, but leaves issue alive at the testator’s death the gift “shall take effect as a devise or bequest to the issue living at the testator’s death”. The application of s.33 is subject to any contrary intention in the will. 15
Brain v Brain (1821) 6 Madd 221; Re Ross, Ross v Perrin-Hughes [2005] WTLR 191 Banks v National Westminster [2006] WTLR 1693, this decision did not follow the Australian decision to the contrary in Re Viertel [2003] WTLR 1075 10 Re Mercer [1944] 1 All ER 759 11 Durrant v Friend (1852) 5 De G & Sim 12 Re Clements Estate [2007] WTLR 1717 (NS) 13 Re Clements Estate [2007] WTLR 1717 (NS) 14 As amended s.19 Administration of Justice Act 1982 15 Ling v Ling [2002] WTLR] 553 extensively reviewed the question on contrary intention
8
9
219
8A.08 There is a further exception to this regarding moral obligations. In Stevens v King 16 it was put that “where on the true construction of a will the court finds that the testator’s intention in giving a legacy was not merely bounty to the legatee, but to discharge a moral obligation recognised by the testator, whether legally enforceable or not, the legacy will not lapse by the legatee’s death in the testator’s lifetime”. 17 8A.09 Charities present different problems for lapse. Where a gift in a will is to a charity that has ceased to exist by the time of the testator’s death, or never had existed, the gift may not always fail. Where it can be shown from the will that the testator had a general charitable intent either the Charity Commission or the Attorney General will be able to make a scheme for the application of the gift for charity purpose. This process is known as cy près. 17.1
Satisfaction Debt by legacy 8A.10 Where a testator owes a sum of money to a person, and later 18 makes a will19 that contains a legacy to that person which is equal to, or in excess of, the debt 20 then it is presumed that the legacy was intended to discharge the debt. 21
• No presumption arises if the legacy is smaller than the debt
• If the debt is discharged after the will, but before death then the legacy is
adeemed
• If the debt is secured and the legacy is not expressly charged on property the
presumption does not arise
• This presumption only applies to pecuniary legacies
• The presumption can be rebutted by a contrary intention in the will 22 or by
extrinsic evidence. A general direction to pay debts in the will will be sufficient
to rebut. 23
[1904] 2 Ch 30 Applied in Re Leach [1948] Ch 232 17.1 See Charities Act 2011 18 Cranmer’s Case (1702) 2 Salk 508 19 Wiggins v Horlock (1988) 39 Ch D 142 20 Eastwood v Vinke (1731) 2P Wims 613 21 Talbott v Duke of Shrewsbury (1714) Prec Ch 394 22 Chansey’s Case (1725) 1P Wims 408 23 Re Manners [1949] Ch 613
16
17
220
8A.11 Where a legacy is left to a creditor other issues apply. There is no presumption that a legacy to a creditor releases the debt. The rule in Cherry v Boultbee 24 is that one who is entitled to benefit from a fund, but who is also indebted to the same fund, must pay his debt before taking his benefit. Thus a personal representative has the ability to offset the legacy against the debt, where the legacy is of cash. 25 Legacy by another legacy 8A.12 Where the will the testator has given more than one legacy of the same amounts to the same person, the is a presumption that the amount is payable only once 26 where
1. The legacies are all contained in the same document or
2. The legacies are of the same amount in different documents, and the testator’s
motive for the gifts is the same 27
A contrary direction in the will prevents the presumption applying. Double portions 8A.13 A portion has no precise definition, but it is a general term for something that is given by a parent to a child 28 (in relation to who he stands in loco parentis) with the object of establishing, or assisting to establish, that child in life. 29 The equitable presumption against double portions is that a parent would want to treat his children fairly and not provide a greater provision for, at the expense of the others, unless that is intended. 8A.14 The presumption is that if, after making provision for children in a will, 30 a later gift is made by way of a portion to one of them, the provision in the will for that child is adeemed by the value of the portion. Ademption may be in part where the portion is less than the legacy, 31 or in full where the gift is equal to, or greater than, the legacy. For an example of the calculation where there is partial ademption see Re Clapham. 32 (1839) 2 Keen 319 – this rule has wider applications, for example in insolvency. Re Savage [1918] 2 Ch 146 26 Lee v Paine (1845) 4 Hare 218 27 Hurst v Beach (1821) 5 Madd 351 28 A child in this context does not mean only a minor Casimir v Alexander [2001] WTLR 939 29 Re Cameron [1999] Ch 386 – traditionally this only applied in the case for father/child, but in Re Cameron it was held that this applied to mother/child as well. 30 The gift may be a legacy, a devise (Race v Race [2002] WTLR 1193) or a share of residue (Montefiore v Guedalla (1859) 1 DE GF & J 93) 31 Pym v Lockyer (1841) 5 My & C 29 32 Re Clapham, Barraclough V Mell [2006] WTLR 203 24
25
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B Anti-Money Laundering/Counter Terrorism Financing 8B.01
The requirement for identification and verification of the testator for anti-
money laundering purposes needs to be considered where the firm or individual advising on the will is a relevant person. 33 The preparation of a will by itself is not a regulated activity for anti-money laundering purposes, however giving taxation advice is 34 and the boundary between will preparation and taxation advice is hard to draw in practice. Therefore a number of firms prefer to treat the whole process as requiring identification and verification to the required standard. 35 8B.02
During the administration of an estate, before any trust period has
commenced, the personal representative is to be treated as the beneficial owner for the purpose of the Money Laundering Regulations 2007. 36 This is an artificial concept for the purpose of these regulations only, and it applies whether or the personal representative has any actual beneficial interest in the estate.
C Civil Partnerships and Same Sex Marriage 8C.01 For drafting purposes the expressions “civil partner” and “spouse” are not synonymous. They have separate meanings. Therefore, where both are intended, both expressions should be used. 8C.02 The rights of a civil partner and a spouse are the same for the purposes of both intestate distribution and Inheritance (Provision for Family and Dependants) Act 1975 claims. Similarly, the provisions regarding civil partnership and marriage in the Wills Act 1837 are the same. 8C.03 The Civil Partnership Act 2004 provides that:- “Except where a contrary intention s shown, it is presumed that if a testator - devises or bequeaths property to his civil partner in terms which themselves would give an absolute interest to the civil partner, but by the same instrument purports to give his issue an interest in the same property, the gift to the civil partner is absolute despite the purported gift to the issue” 37 This provision introduces for civil partners the similar presumption for spouses that is to be found in s.22 Administration of Justice Act 1982 38
Regulation 3 Money Laundering Regulations 2007 Regulation 3 Money Laundering Regulations 2007 35 Part 2 Money Laundering Regulations 2007 36 Regulation 6(8) Money Laundering Regulations 2007 37 Para 5 Part 1 Schedule 4 38 although somewhat unhelpfully this is not stated in the text nor is it cross-referenced to s.22 in anyway. Why s.22 itself was not amended to reflect is unclear. 33
34
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8C.04 The Marriage (Same Sex Couples) Act 2013 came into force on 13th March 2014. After 10th December 2014 it has been possible for civil partners to convert their civil partnership to a marriage. 39 Conversion to marriage does not require a prior dissolution of the civil partnership. Conversion of a civil partnership to a marriage does not have the effect of revoking any prior will. 40
D Cohabitation 8D.01 Although the number of cohabiting couples in England & Wales is increasing, law reform has not yet addressed the inheritance rights of cohabitants, beyond the ability of a cohabitant to make a claim under s1(1)(e), s.1(1A) and s.1(1B) Inheritance (Provision for Family and Dependants) Act 1975 (a person being maintained, living together as a spouse or living together as a civil partner) where the cohabitant meets the conditions specified. Significantly, there are no inheritance rights on intestacy, nor any Inheritance Tax exemption to mirror spouse/civil partner relief. 8D.02 The problem for the draftsman when advising cohabitants is that there is still a persistent myth, widely held by the general public, that there is such a thing as a common law marriage and that it bestows inheritance rights on the participants. 41 As consequence, cohabiting clients can approach a draftsman for a will having little, or no, understanding of the true position on the death of either of them. Further, the initial meeting with the will draftsman can be the first occasion when the cohabitants receive advice on their position as cohabitants. This can mean that their previous assumptions, about how one stands in the event of the other’s death, prove not only wrong, but a matter of great concern to either or both parties. The consequences of this can give rise to significant differences of opinion as to how this might be addressed. Therefore, the draftsman, if he is to offer advice, must be mindful of potential conflicts as he explains the issues involved. Where serious differences of opinion start to emerge as the interview progresses, the obvious conflict of interest in advising 42 both can require the joint interview to be terminated. The Marriage of Same Sex Couples (Conversion of Civil Partnership) Regulations 2014 The Marriage (Same Sex Couples) Act 2013 (Consequential and Contrary Provisions and Scotland) and Marriage and Civil Partnership (Scotland) Act 2014 (Consequential Provisions) Order 2014 inserts a new s.18(5) and s.18D into the Wills Act 1837. 41 “….the phrase common law marriage is frequently used, completely erroneously, to suggest that a couple who plainly never did enter into a marriage (or even intend to marry) have acquired the status of marriage through mere cohabitation” British Social Attitudes Survey 2006 which also showed that 56% of those who responded to the survey thought that those who lived together for “some time” “probably” or “definitely” had a common law marriage which gave them the same legal rights as married couples. 42 There is a difference between explaining facts and advising 39 40
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8D.03 s.22 Administration of Justice Act 1982 provides that where where a testator gives property to a spouse in terms which would otherwise give an absolute interest, but also purports to give a gift over to issue (e.g. I give my estate to my wife W and after her death to my children) there is a presumption that, in the absence of a contrary intention, the gift to the spouse is to be absolute (and the apparent gift to the issue is of no effect). This presumption will not apply in the case of cohabitants. 8D.04 A major practical difficulty for the will draftsman is that there is no legal definition of “cohabitant” 43 or “cohabiting”. Therefore when provision is being made for a cohabitant a full and exact description by name is essential to remove difficulty with identification. 8D.05 Cohabitants can require conditions precedent and/or conditions subsequent on gifts to a cohabitant
• Condition precedent: the gift is conditional on the couple still cohabiting at the
testator’s death
• Condition subsequent: the gift in trust is to terminate on the beneficiary
cohabiting with another
Both of these gifts raise practical issues. In the absence of a definition of cohabitation how is the executor to judge whether or not cohabitation continued to death? Part of the difficulty is the absence of any accepted essential constituent factors that must be present for there to be cohabitation. 44 The executor is left with a difficult and unenviable task of establishing what the nature of the relationship was at death and what it had been previously. The testator is well advised to change his will when he thinks cohabitation has ceased rather than rely on this working smoothly. 8D.06 The condition subsequent raises the same issues and this time it places the trustee in a position to judge whether or not housing or financial support is removed from the survivor. Using a discretionary trust as an alternative is sometimes favoured, but it still forces the decision on the trustee. Where a relationship has lasted for a long time, or the survivor is far less financial well off than the deceased, the use of conditions subsequent in this way seems almost like an incitement to an I(PFD)A 1975 claim. 43 44
Nor is there for “partner”, in the sense that it is used today within personal relationships Are sexual relations an essential element in cohabiting? Does the existence of other relationships prevent cohabitation continuing with the present partner? How many days of the week must a couple be present in the same house and for how long? Is the length of relationship, or its stability, a factor? What financial arrangements must there be, if any? Does the availability of other accommodation to one party matter? Within a couple, one person could consider that they are cohabiting while the other party does not – is that a relationship of cohabitation? Is public acknowledgement of the relationship relevant?
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8D.07 Cohabitation agreements are becoming more common, but there is little law on their characteristics and enforceability. 45 They can be attractive to clarify and define financial and property issues, but they cannot oust the jurisdiction of the court, as such a provision would be void on public policy grounds. 45.1 The agreement may be relevant to determine intention in the event of later dispute. Openness, disclosure and avoidance of deception and duress are important.
E Commorientes (those dying together) 8E.01
The succession to a testate’s, and intestate’s, estate depends upon the
legatee surviving the testator, or intestate, subject to any additional provisions with the will. Similarly, the succession to the deceased’s interest in any beneficial joint tenancy also depends upon survival. A will may contain a survivorship period (commonly 28 days) to reduce the chances of this rule applying, otherwise there is no statutory provision for a survivorship period for a testate estate. 8E.02
There is a survival period, in respect of the free estate, of 28 days for an
intestate’s spouse or civil partner. 46 If the intestate’s spouse or civil partner dies before the end of a 28 day period beginning with the date of death, 47 s.46 (2A) operates so as to treat the spouse or civil partner as having predeceased the intestate for the purpose of distributing the estate. The period set out s.46(2A) does not affect that spouse’s or civil partner’s succession to joint tenancy property which passes outside of the intestate’s estate. s.46(3)Administration of Estates Act 1925 applies to circumstances of commorientes where one spouse or civil partner dies intestate (and s.184 Law of Property Act 1925 would otherwise apply). The section treats the other spouse or civil partner as having predeceased whatever the conclusion that s.184 would have directed. 48 8E.03
Survivorship for all inheritance purposes is a question of fact and because
of this the order of death of potential intestacy beneficiaries and joint owners is important. It is also subject to the usual rules concerning commorientes found in s.184 Law of Property Act 1925, as considered in Hickman v Peacy. 49 In passing it is worth
Sutton v Mishcon de Reya [2004] 1 FLR 837 e.g. In matters of the Inheritance (Provision for Family and Dependants) Act 1975 46 s.46(2A) Administration of Estates Act 1925 and which applies for intestacies after 01.01.96 for spouses and after 05.12.05 for civil partners 47 i.e. the date of death is day one for this purpose. 48 Where commorientes occurs, care should be taken as these rules do not apply for IHT purposes (s.4(2) and s.54(4) Inheritance Tax Act 1984) and both spouses are treated as having died at the same instance. 49 [1945] 2 All ER 215 45
45.1
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commenting that commorientes is a creation of statute and that at common law there was no presumption of survivorship arising from age or sex. 50 8E.04
s.184 provides that
“……where….two or more persons have died in circumstances rendering it uncertain which of them survived the other or others, such deaths shall (subject to any order of the court) for all purposes affecting the title to property, be presumed to have occurred in order of seniority, and accordingly the younger shall be deemed to have survived the elder.” 8E.05
“all purposes affecting title to property”;
As noted above, this includes interests in beneficial joint tenancies as well as more obviously the free estate, but not any equitable interests tenancies in common. The equitable interests in any tenancies in common will form part of the deceased’s free estate (and the beneficial interests in turn in the free estate may themselves be subject to s.184). The legal title in the case of both types of joint property will always be held as a joint tenancy, 51 and the legal title, after the death on co-owner, will be held by the surviving co-owner(s). 8E.06
“uncertain which of them survived the other”
Following Hickman v Peacy, it is clear that this includes circumstances where there is the certainty that the deaths were simultaneous, as well where there is uncertainty as to the order of death. Certainty of simultaneous death can arise in a bomb explosion, or plane crash. The circumstances which render the order of death uncertain can be
• A single event causing both deaths; e.g. a shipwreck, plane crash, road traffic
accident etc or, as in Hickman v Peacy, a bomb explosion
• separate events causing separate deaths; e.g. one person goes missing while
hiking in the Himalayas when another dies at home
Wing v Angrave (1860) 8 HL Cas 183 without the statutory rule the result was that in the absence of evidence of survival neither of the two parties could inherit from the other. 51 ss.1(6), 34(1) and 36(2) Law of Property Act 1925 50
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8E.07
“subject to any order of the court”
There is doubt as to exactly what this provision means - it has been suggested that it is in fact meaningless.52 It is thought that it probably means that the presumption in s.184 can be rebutted by satisfactory evidence to the contrary i.e. that the elder survived. 53 Where this evidence is clear and uncontroversial and accepted by all interested parties no order of the court should be necessary. Where this evidence is challenged, but is then found to be sufficient by the court to rebut the presumption then the court may order accordingly. 54 However what the court is not empowered to find is against the terms of s.184, merely because the application of the presumption produces hardship or an unwanted result. 55 8E.08
Before applying the commorientes presumption, the evidence as to the
order of death will involve a detailed scrutiny of all evidence as to cause and timing of death. This will require analysis of the medical evidence, as well as evidence of any eye-witness, crash investigators and emergency services. The devolution of all property under this rule can be made more complex if the deaths arise under circumstances of murder/suicide where the forfeiture rule may prevent inheritance of the estate or benefit passing by survivorship 56 notwithstanding the actual survivorship for no matter how short a period.
F Donatio Mortis Causa 8F.01
A donatio mortis causa is an inter vivos gift made in contemplation of
death. It may be made orally or in writing. For a valid donatio, there must be three 57
factors present
1. The gift must be made in contemplation of death (N.B. this is not necessarily the
2. There must have been delivery of the subject matter
same as expectation of death) (or the means of access to it)
3. The donor must intend the gift to be conditional on his death 58
The necessary mental capacity to make a donatio is thought to be that of a gift inter vivos. 59 Hickman v Peacey [1945] 2 All ER 21 Re Lindop, Lee-Barber v Reynolds [1942] Ch 377 and Re Grosvenor [1944 Ch 138 54 Re Bate, Cillingworth v Bate [1947] 2 All ER 418) 55 Re Lindop [1942] Ch 377 56 Re Dellow’s Will Trusts [1964] 1 All ER 771- see Section H in this Chapter 57 The concept originates in Roman law, but is recognised in English law in Hedges v Hedges (1708) Prec Ch 269; see also Ward v Turner (1752) 2 Ves Sen 431 58 Cain v Moon [1896] 2 QB 283 59 For the capacity necessary for a lifetime gift see Re Beaney [1978] 1 WLR 770
52
53
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8F.02
The donatio is not perfected until the death of the donor occurs and it
is revoked if the donor recovers from the contemplated cause of death 60 or he chooses to revoke his donatio before death. 61 The donee holds the property on trust for the donor while the donor is still alive, since the donatio will only be perfected if the donor dies from the contemplated cause of death. If the donor dies, and the donatio is perfected, it is then treated as having taken effect as at the date that the donatio was made i.e. before death. 62 This means that the subject matter is not an asset of the estate at death, therefore any gift, of the subject matter of the donatio, in the donor’s will, adeems. If the donor does not die, the gift does not take effect and the property is treated as having remained in the donor’s ownership throughout. 8F.03
Contemplation of death will depend very much on the circumstances of
the donor. 63 It does not require expectation of immediate death, but it does require some probability of death in the reasonably near future. 64 In Vallee v Birchwood, 65 a 93 year old man in poor health believed that it was unlikely he would live another four months and made a donatio of his house. The judge observed that “The question is not whether the donor had good grounds to anticipate his imminent demise or whether his demise proved to be as speedy as he may have feared but whether the motive for the gift was that he subjectively contemplated the possibility of his death in the near future.” 8F.04
Although a donor may have a specific cause of death in mind, the donatio
will still be effective if his death results from another cause. 66 Whether or not a valid donatio can be made in contemplation of death by suicide is undecided. The old decisions 67 suggesting than such a donatio is not possible are thought to be unreliable, particularly in the light of changed attitudes towards suicide and that fact suicide is no longer a crime. 68
Staniland v Willott (1850) 3 Mac & G 664 Jones v Selby (1710) Prec Ch 300; Vallee v Birchwood [2013] WTLR 1095 62 Rigden v Vallier (1751) 2 Ves Sen 252 63 Gardner v Parker (1818) 3 Mass 184 64 Re Craven’s Estate (No 1) [1937] Ch 423; Vallee v Birchwood [2013] WTLR 1095 65 [2013] WTLR 1095 66 Wilkes v Allington [1931] 2 Ch 104 where the donor expected death shortly from cancer, but died from pneumonia 67 Agnew v Belfast Banking Co [1896] 2 IR 204; Re Dudman [1925] 1 Ch 553 68 Suicide Act 1961 60 61
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8F.05
The donor must part with dominion over the property before death and the
property must be capable of passing as a valid donatio mortis causa. There are three elements to this
1. Parting with dominion (ownership or control) of the subject matter of the
donatio. This is to be distinguished from mere possession or safe custody which
would not be sufficient for a donatio. 69
2. Dominion passing to the donee or the donee’s agent
3. Delivery of the subject matter of the donatio or the means of access to it.
8F.06
Parting with dominion over the assets does not necessarily mean transfer of
formal title. Title could pass without formalities simply by possession with items such as bearer shares, cash or chattels. With other items which have some form of title (land, charges on land or shares) it sufficient, for a valid donatio, to hand over the documents of title (deeds, mortgage deed or share certificates). 8F.07
Where the title to the asset has passed when the donatio is made, the
donee holds the title on a constructive trust for the donor until his death, whereupon the property vests in the donee absolutely. 70 If the donor recovers, or revokes the donatio, the donee holds the title to the asset upon trust for the donor absolutely. Where title does not pass when the donatio is made, the donor’s personal representatives will hold the title upon trust for the donor absolutely. 71 8F.08
Actual handing over of the asset or some document of title is not necessary
for a valid donatio, if the donor hands over the means of accessing it, such as the keys to safe or cabinet containing the documents or asset. Delivery of the asset or the document of title need not be to the donee but can also be to an agent for the donee. 72 8F.09
In practice most assets are capable of being the subject of a donatio.
Duffield v Elwes 73 was originally the authority for the proposition that land could not be the subject of a donatio. However, in Sen v Hedley 74 it was found that unregistered land could be the subject of a donatio. Although the delivery of the
Re Johnson (1905) 92 LT 357 Staniland v Willott (1852) 3 Mac & G 664 71 Re Beaumont [1902] 1 Ch 889 72 Mills v Shields [1948] IR 367 73 (1827) 1 Bli NS 497 74 [1991] 2 All ER 636 CA “We cannot decide a case in 1991 as the House of Lords would have decided it, but did not decide it, in 1827”; Vallee v Birchwood [2013] WTLR 1095 69 70
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unregistered deeds would be sufficient for the donatio it would be insufficient to effect an actual transfer of title – transfer of title is not required at this stage. There is no decision as yet on a donatio and registered land, but the authors consider that a distinction between registered and unregistered land on this point would be highly artificial (and a retrograde step given the diminution of the amount of unregistered land). It was further found in Sen that the trust created by the donatio was a constructive trust and as such it was outside of the usual requirements for a trust of land required by s.53(2) Law of Property Act 1925. 8F.10
With most assets the handing over of the document of title, or the means
to access the document of title is sufficient – e.g. handing over share certificates, life policies etc. Share certificates now raise other issues with the trend towards dematerialisation (electronic registers and no share certificates) but there are no reported decisions on a donatio in this area. Banks accounts also present problems. There are old decisions regarding bank and building society passbooks, 75 but they are thought to be of little relevance today given the extreme rarity of passbooks. With the computerisation of bank records and the absence of any document representing ownership, bank accounts are probably not capable of being the subject of a donatio. 8F.11
A valid donatio mortis causa need not be made during the last few hours or
days of the donor’s life, but may be months before death – the principle operates whenever a gift is made in contemplation of death.
G Election 8G.01 If a testator purports to give away property in his will which he does not own, the natural consequence would that the gift would fail, as he has no ability to dispose of property that he does not own. However, there can be an occasion where such a gift can take effect and that is where the doctrine of election would be applied. The doctrine of election is an equitable doctrine which arises where, in his will, a testator:
i. gives property (deliberately or mistakenly) which is not his to give to one
legatee, and, at the same time, 76
ii. gives a further legacy of his own property to the real owner of the subject
75 76
matter of the first legacy.
Re Dillon (1890) 44 ChD 76 CA Almost always in the same will, but a codicil could be part of the issue
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8G.02 For example: 1. T’s will gives a legacy of a painting (belonging to B) to A and
2. in the same will T leaves a legacy of a Chinese vase (which is T’s property) to B.
On the face of it the legacy of the painting could not take effect, but that of the vase could. But, in these circumstances, equity will not accept that B can be permitted to retain his own property and at the same accept the legacy from the testator. 77 8G.03 B would therefore be put to his election (i.e. he would be required to choose between):
1. giving his own property to A and taking the legacy of T’s property (taking under
the will) or
2. keeping his own property and letting the executor compensate A out of B’s
legacy (taking against the will). If B’s legacy was exhausted in compensating A,
B would receive nothing, but if there is any surplus of the legacy after compensation to A it would be payable to B. 8G.04 Conditions necessary for the doctrine to apply on death are:
[1] The testator must dispose of B’s property to A.
In the example above the issue of gift and ownership is clear. However, in the
circumstances of a beneficial joint tenancy it can be less obvious. Although
jointly owned before death, such property becomes the sole property of the
survivor on death. Therefore, when the will takes effect it is property in which
the testator has no ownership. If B is then the absolute owner of the property then
the doctrine can apply if all the other conditions are met (see later in this section
regarding Frear v Frear for further illustration of this point).
[2] The testator must give his own property to B in the same instrument.
It is important that the gifts are in the same instrument, although for the purposes
of a will, codicils are considered to be part of the same instrument. 78
77 78
Wollaston v King (1869) LR 8 Eq 165 Cooper v Cooper (1874) LR 7 HL 53
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[3] B’s property must be alienable by B.
If the property of B is not capable of being disposed of by B (e.g. he has only a
life interest in it), the doctrine cannot apply. 79 By contrast, if B’s life interest is itself
the legacy and that life interest is assignable, it is B’s property to dispose of.
[4] There is an intention to dispose on the part of the donor.
The doctrine is based on the presumption that the testator intended to do that
which he sets out in his will. This is not rebutted by the testator’s failure to
understand the consequences of what he set out, although it could be rebutted
by an express or implied intention to exclude it. 80 Nonetheless, it should be noted
that if the testator was formerly the owner of the painting bequeathed to A, which
before death he had given to B, no question of election arises as the legacy to A
was adeemed by the gift to B. 81
[5] The election is tested at death.
It is the circumstances at death and not when the will is prepared that matter.
Similarly, post-death changes in the ownership of property are not taken into
account (e.g. if property of which B was not competent to dispose at the
testator’s death becomes B’s absolute property after the testator’s death, this
brings the doctrine into play 82).
8G.05 This equitable doctrine underlines the potential pitfalls of a testator not fully understanding the ownership of his assets and the need for the will draftsman to realise and correct that lack of understanding. In Frear v Frear 83 the court needed to address two issues,
[1] to determine the equitable interests in the testatrix’s home (of which she was
the sole legal owner). The court’s determination of this point was that one of
her sons, the claimant, who lived with her, had a 50% equitable interest.
[2]
The second issue was the effect that this determination would have on the
distribution of the estate. The terms of the will were:
1. various legacies of personal chattels
2. 50% of residue to the claimant
3. 50% of residue to the testatrix’s other four children.
Re Lord Chesham (1886) 31 ChD 466 Re Vardon’s Trusts (1885) 31 ChD 275 81 Re Edwards [1958] Ch 168 82 Lady Cavan v Pulteney (1795) 2 Ves Jun 544 83 [2009] WTLR 221 79 80
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8G.06 The residue of the estate comprised solely the house. Did the claimant as a result receive:
• in total 75% of the house (50% owned beneficially + a further 25% - being 50% of
the half share owned by the testatrix and disposed of in the will), or
• did the doctrine of election apply and create other possible distributions
dependent upon the claimant’s election? 84
It was contended that the testatrix intended to bequeath the entire house, being unaware that the claimant had a 50% interest, and intending that he should acquire a 50% interest under her will. If this was correct then equity would require the claimant, if he intended to accept the benefit under the will, to introduce his own 50%. 8G.07 The Court of Appeal accepted the determination at first instance that the testatrix considered that she was bequeathing her entire house by the terms of her will. 85 It must therefore follow from that the doctrine of election applied. It is the fact of bequeathing someone else’s property that is relevant and it is not necessary that the testatrix is mistaken in her view of ownership. 86 8G.08 The claimant would therefore be put to his election, his choices being
1. to accept the legacy in his mother’s will, but to do so he would have to
introduce his 50% thus then receiving a 50% of the property under the will, while
the other residuary legatees received 50%, or
2. to renounce his legacy, leaving the PR to compensate the other residuary
legatees out of the claimant’s share, so that the claimant would keep his 50%
and the other residuary legatees would receive the other 50%.
8G.09 Either choice leaves the claimant with 50% (what his mother intended should happen). The net result of the litigation was to leave the claimant exactly where he would have been had no claim to equitable ownership been made in the first place. 8G.10 Application of the doctrine often involves jointly owned assets, probably because clients tend to understand them so poorly. The possible application of this doctrine was not noticed when the case first went for trial, nor was it originally part of the appeal. However, the Court of Appeal itself noticed the possible application and raised the issue with both sides the day before the appeal hearing ([2009] WTLR 221 at [25]). The litigants’ views on the costs of this litigation are not known (but might be guessed at). 85 Part of the evidence was in an attendance note prepared by the testatrix’s solicitor eight days before the execution of the will. 86 Welby v Welby (1813) 2 V&B 187; Re Mengel’s Will Trust [1962] Ch 791 84
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H Forfeiture 8H.01 It is a general rule of public policy that a killer should not profit from his crime87 and this rule applies to inheritance by will or intestacy, as well inheritance of an interest in a beneficial joint tenancy by survivorship. For a testate estate and for an intestate estate, the distribution will be made as though killer had predeceased In both cases see 8H.05 for possible relief of forfeiture 8H.02 The rule applies to all cases of deliberate killing
• murder; 88
• manslaughter; 89
• aiding and abetting suicide; 90
• unlawfully aiding, abetting, counselling or procuring the death of another 91
• the survivor of a suicide pact is also within the rule 92
The rule does not apply to manslaughter where the offence was not deliberate, e.g. arising out of negligence. 93 There are some doubts as to whether or not causing death by dangerous driving is an offence to which it applies, despite some judicial comment 94 the point is probably best regarded as unresolved at present. 95 8H.03 The rule will not apply where the slayer is unfit to plea or is found not guilty by reason of insanity. It will apply where the conviction was by reason of diminished responsibility, but see later regarding relief from forfeiture.
Cleaver v Mutual Reserve Fund Life Association [1892] 1 QB 147; In the estate of Crippen [1911] P 108 “no person can obtain, or enforce, any rights resulting to him from his own crime”; Re DWS, Re EHS, TWGS v JMG [2000] 2 All ER 83 “Under this rule….a person who murders another cannot take, or enforce, any rights or benefits resulting from his crime. The rule applies to rights and benefits arising on the victim’s intestacy, just as much as it does to rights and benefits arising under the victim’s will.” 88 In the estate of Crippen [1911] P 108; Cleaver v Mutual Reserve Fund Life Association [1892] 1 QB 147 89 In the estate of Hall [1914] P 1; Re Giles (deceased) [1972] Ch 544 90 Dunbar v Plant [1998] Ch 412 91 s.1(2) 92 Dunbar v Plant [1998] Ch 412; Re Jones, Jones v Midland Bank Trust Co Ltd [1997] 3 FCR 697 CA 93 Ex p Connor [1981] QB 758 94 Dunbar v Plant [1998] Ch 412 95 Given the level of deaths on the roads in this country today does seem rather odd 87
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8H.04 It is possible that the rule can apply where an individual has been acquitted of the criminal charge relating to the killing, but it can later be shown, in a civil court, that he had committed a killing which fell within the scope of the rule. Note that the former requires proof beyond a reasonable doubt and the second the lower standard of the balance of probability. 96 8H.05 The common law forfeiture rule was modified, to a degree, by the Forfeiture Act 1982, and the court now has a discretion 97 to relieve the killer of forfeiture, wholly or partly, 98 in all circumstances bar those of a conviction for murder. 99 Proceedings for relief under this Act must be brought within three months of conviction. 100 However exercise of the discretion of the court requires the court to consider all material circumstances including the conduct of the deceased and the killer. 101 • “The first and paramount consideration must be whether the culpability
attending the beneficiary’s criminal conduct was such as to justify the
application of the rule at all.”
• “The court is entitled to take into account a whole range of circumstances
relevant to the discretion, quite apart from the conduct of the offender and
the deceased: the relationship between them; the degree of moral culpability
for what has happened; the nature and the gravity of the offence; the
intentions of the deceased; the size of the estate and the value of the property
in dispute; the financial position of the offender; and the moral claims and
wishes of those who would be entitled to the property on the application of the
forfeiture rule.” 102
As can be seen from the above, there is very little that a court cannot take into account when considering possible relief from forfeiture. It should be stressed that unless the court does exercise its discretion the full rigour of the rule applies. A number of applications for the forfeiture to be relieved under this Act are understood to be heard in private, so reporting is sparse in this area. Gray v Barr [1971] 2 QB 554 “The court shall not make an order under this section……unless it is satisfied that, having regard to the conduct of the offender and of the deceased and to such other circumstances as appear to the court to be material, the justice of the case requires the effect of the rule to be modified…” s.2(2). Clearly the court need not make any order at all Re Murphy deceased, Dalton v Latham [2003] WTLR 687 98 particular assets, interests in property or a percentage of the estate; Re Forfeiture Act 1982 (Manslaughter: Forfeiture of Widow’s Pension) [1999] Pens LR 1; 99 s.5; this does not prejudice the individual’s right to apply for provision under the Inheritance (Provision for Family and Dependants) Act 1975. 100 s.2(3)and the court has no discretion to extend this period Re Land [2006] WTLR 1447 101 s.2(2) 102 both quotations are from the Court of Appeal in Dunbar v Plant [1998] Ch 412; see also Re Murphy deceased, Dalton v Latham [2003] WTLR 687). 96 97
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8H.06 s.3 Forfeiture Act 1982 provides that “The forfeiture rule shall not be taken to preclude any person from making an application under [any provision of the Inheritance (Provision for Family and Dependants) Act 1975] or the making of any order on the application….”. But, s.1(1) Inheritance (Provision for Family and Dependants) Act 1975 permits an application for a claim “….on the ground that the disposition of the deceased’s estate effected by his will or the law relating to intestacy, or the combination of his will and that law, is not such to make reasonable financial provision for the applicant.” The apparent position is that notwithstanding the explicit provision in s.3 where the will did make reasonable provision an application under s.1(1) would not lie if the provision was reasonable but it was the killer’s own actions that deprived him of the reasonable provision. Although this gives rise to doubt on the application of the Inheritance (Provision for Family and Dependants) Act 1975 103 where an interest had been forfeit, the point has been reviewed and claim was accepted. 104 8H.07 A change to this rule was introduced by the Estates of Deceased Persons (Forfeiture and Law of Succession) Act 2011. Prior to this, where on an intestacy property was held on the statutory trusts it had been found 105 that the effect of forfeiture was to reallocate the killer’s “stem” of the distribution to the other stems and that therefore the killer’s issue could not stand in his stead. For the estates of persons dying intestate after 1st February 2012, the new Act provides that forfeiture will now result in the killer being treated as though they had predeceased the intestate. 106 The Act also made provision that for the purposes of the Wills Act 1837 forfeiture will now result in the killer being treated as though they had predeceased the intestate. 107 8H.08 Where the deceased and the killer were beneficial joint tenants, the benefit of inheriting the property by the survivorship of the killer is forfeit, 108 the forfeiture rule operating here so as to sever the joint tenancy.
Re Royce, Royse v Royse [1985] Ch 22; Re K [1985] Ch 85 Re Land [2006] WTLR 1447 the point was important as a Forfeiture Act claim was out of time and the acceptance of the I(PFD)A 1975 claim involved consideration of the effect of s.3 Human Rights Act 1998 on this question. 105 Re DWS, Re EHS, TWGS v JMG [2000] 2 All ER 83 and ss.46 and 47 Administration of Estates Act 1925 106 s.46A Administration of Estates Act 1925, inserted by s1 Estates of Deceased Persons (Forfeiture and Law of Succession Act 2011 107 s.33A Wills Act 1837 inserted by s.2 Estates of Deceased Persons (Forfeiture and Law of Succession) Act 2011 108 Re K [1985] Ch 85 103 104
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I Funeral and the body of the testator 8I.01
The general proposition is usually stated as that there is no personal property
in a corpse and, as a consequence, a corpse is not capable of being owned. Therefore a corpse is not something that is capable of being bequeathed by will. 109 8I.02
The personal representative of a deceased person has a legal duty to
dispose of the body in a manner authorised by law, hence they are entitled to possession of it for this purpose. 110 This duty on the part of a personal representative cannot be removed by the direction of the deceased in his will. 111 In practice, it is usual for the person representative to stand back and allow the family of the testator to arrange the funeral. However, the executor will need to assert control where there are no family members (or none willing or able to be involved), where there is a dispute between the family members or where the expense proposed by the family arrangements is excessive. 8I.03
It is possible for a testator to direct by will that his body, or parts of it, are used
for medical or scientific purposes after his death and the personal representative is permitted to comply with the wishes of the deceased. 112 8I.04
The deceased can express his wishes for the way in which his body is to be
disposed of and expressly authorise in his will the expenditure necessary for disposal of ashes or provision of gravestones, etc. Although a wish as to how the deceased’s body can be disposed of is usually observed by the personal representative, such wishes are not binding upon him. 113 The will draftsman should consider carefully some
Williams v Williams (1882) 20 Ch D 659; the Human Tissue Act 2004 gives certain rights over a body or body parts where a body is to be used for medical research. Such parts after having been treated, dissected, preserved etc may give the lawful possessor certain property rights, at least sufficient, that the unauthorised taking of those parts could be theft R v Kelly [1999] QB 621 110 Buchanan v Milton [1999] FLR 844; Dobson v North Tyneside Health Authority 1997 1 WLR 596 111 Williams v Williams (1882) 20 Ch D 659 112 Human Tissue Act 2004: for more information see the Human Tissue Authority website www.hta.gov.uk 113 Williams v Williams (1882) 20 CH D 659; University Hospital Lewisham NHS Trust v Hamuth [2006] EWHC 1609 (Ch) 109
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of the more unusual funeral wishes that are encountered from time to time when taking will instructions and advise his client upon the practicalities. 114 8I.05
The executor’s authority is to pay reasonable funeral expenses and excessive
expenditure is liable to challenge from the estate beneficiaries would bear the financial burden. 115 It is difficult to say what amount is reasonable as most guidance suggests that it is what is appropriate to the testator’s status in life or position in society and the extent of the estate he leaves behind. It should also be considered that although the funeral expenses are an allowable deduction for inheritance tax purposes if they are paid out of the estate, but this only extends to reasonable expenses. 116 8I.06
Where the testator directs a monument or gravestone be purchased the
authority of the executor to pay this from the estate is doubtful. It is usual practice now expressly authorise such a payment from his estate. Unless the testator authorises a particular amount the executor will usually agree the amount with those beneficiaries who will bear the cost. Where this cannot be done (e.g. the residuary legatees are minors) the executor should be cautious with the level of expenditure. 8I.07
Where the testator wishes to extend the provision to include the
maintenance of the gravestone, the draftsman then has to consider the nature of the gift. Gifts for the maintenance of graves are trusts of imperfect obligation 117 (i.e. trusts where there is no beneficiary to enforce them). Such trusts are void unless they are limited to a period not exceeding the perpetuity period. 118 For this purpose the perpetuity period remains at a maximum of 21 years. 119 The designated trustees of such a gift cannot be compelled to carry out the work, but can validly do so if they choose. If they do not carry out the purpose they then hold the funds upon a resulting trust for the testator’s estate.
Where these involve burial or scattering of ashes in private property, the consent of the owner of the property is required and major sports grounds, in particular do not often agree, particularly in the absence of any significant connection between the deceased and the ground or club. Scattering ashes in rivers or streams is not, apparently, covered expressly by law, but the Environment Agency does have a policy for this. Other guidance may be available, e.g. the Mountaineering Council for Scotland has asked for ashes not to be scattered on Scottish mountains because of the chemical effect on the soil and its consequence the local flora. 115 This can be particularly difficult where those organising the funeral do not take the residue of the estate and excessive expenditure may be challenged by those bearing the burden. 116 s.172 Inheritance Tax Act 1984 117 Also described as a non-charitable purpose trust 118 Re Hooper [1932] Ch 38; Musset v Bingle [1876] WN 171 119 s.18 Perpetuities and Accumulations Act 2009 114
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8I.08
Gifts to create trusts for saying of masses are charitable if the masses are
open to the public. 120 If such masses are not open to the public then such a trust is regarded as one of imperfect obligation (see above). 8I.09
It is sensible where the testator has particular expenditure in mind, such as:
• provision of gravestone
• cleaning and re-engraving an existing family gravestone 121
• payment for a wake
for the testator to authorise it in his will. 8I.10
As a matter of practicality, the testator should consider how his funeral wishes
will be carried out after his death
1. Detailed and explicit directions in the will may not be found by his family before
they make arrangements for the funeral. Therefore having a copy of the wishes
available to those who will arrange the funeral will be a sensible precaution. This
is particularly so with unusual or eccentric requests.
2. Directions for unusually expensive arrangements need to be thought through by
the testator and if possible discussed with those who he intends will carry them
out. Unseemly arguments after death need to be avoided.
3. A method of disposal of the body that will be likely to cause dispute on religious
grounds with the rest of the family requires very careful thought on the part of
the testator, and possibly ensuring that the executors and not the family handle
his request
4. Details of funeral music, wishes regarding flowers, funeral notice wording etc
are not appropriate for inclusion in a will as changes will be expensive.
J Gender Recognition Act 2004 8J.01
This Act sets out the framework for legal recognition of gender change 122
and as a consequence, also contains provisions that are relevant to will drafting.
Re Hetherington [1990] Ch 1 Cleaning of an existing stone is almost always required before any additional wording can be added, similarly for re-engraving existing text. 122 It is beyond the scope of this book to set out details of this process, but should it arise in connection with a will, close attention should be paid the legal process of recognition required to recognise a legal change of gender. 120 121
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8J.02
s.15 makes provision that, when a change gender is effected, the acquired
gender does not affect the disposal or devolution under ‘a will or other disposition made before’ the commencement of the Act. The position for wills or other instruments made 123 after 4th April 2005 is, according to the explanatory notes to the Act, that if a will refers to ‘the eldest daughter’ and a person, previously a son, becomes, after gender change and legal recognition of his new gender the person fitting this description as ‘the eldest daughter’, she will then inherit as the person now meeting that description. 8J.03
Where the devolution under a will or other instrument, made after 4th April
2005, is altered by a beneficiary’s acquisition of a different gender, anyone adversely affected by the change in devolution under the will may apply to the High Court to seek a court ordered variation to the distribution of the estate. 124 That is to say, if property devolves to the eldest daughter and, after the gender recognition process, the eldest son becomes the eldest daughter (and thus taking the bequest) the disinherited daughter could apply for the court to relieve her the effect of this. The court therefore now has the power to adjust the devolution where it is satisfied ‘that it is just to do so’ and the court may re-order the devolution of such amount, or part of the property, that it considers to be appropriate to compensate her for the loss of her bequest. 125 8J.04
s.12 provides generally that an acquired gender does not affect the person’s
previous status as the parent of a child (this is in order to ensure the continuity of parental rights and responsibilities). This provision will protect the rights of parents/ children on their respective intestacies even if it may, at times, lead to a degree of difficulty in understanding family trees. 8J.05
All testators should be encouraged to review their wills where any beneficiary
has officially changed gender.
K Guardianship of minors 8K.01
When considering questions of guardianship, the starting place for who
can appoint a guardian is to identify who has parental responsibility for the child or children concerned.
Note the use of the term ‘made’, so that for wills this is concerned with the date of execution and not the date of death of the testator. 124 s.18 125 The manner of the application and the factors that the court will take into account in considering the application are not specified in the Act. 123
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8K.02
A parent may appoint a testamentary guardian if he, or she, has “parental
responsibility” for the child. Parental responsibility is defined in s.3 Children Act 1989 as having “all the rights, duties, power, responsibility and authority which by law a parent of a child has in relation to the child and his property”. Guardianship will cease on a child attaining 18. Whether or not the appointment terminates if the child marries under 18 is unclear and the Children Act 1989 makes no provision for this. 8K.03
Both the father and mother of a child have parental responsibility 126 if they
were married, but not judicially separated, 127 to each other when the child was born.128 They will also have parental responsibility for any other child that is adopted129 or legitimated by their marriage. 8K.04
If the parents were unmarried, at that time of a child’s birth, then the mother
alone has parental responsibility. 130 The father in these circumstances may later acquire parental responsibility by 131
1. Marrying the child’s mother
2. By registration 132 on the child’s birth certificate as the father 133 or by
re- registration, post 1/12/03 of an earlier birth on which he was not recorded as
the father There is a common law presumption that a child is the child of both parents if they were married at the time of birth; Pater est quem nuptiae demonstrate (He is the father whom marriage indicates) 127 Ettenfield v Ettenfield [1940] P 96 128 For the definition of this see s.1 Family Law Reform Act 1987; in fact this will mean married to each other at any time during the period beginning with insemination (conception where there was no insemination) and ending with the birth. 129 This follows the general principle that adoption severs the legal connection between the child and its natural parents while replacing with a new legal relationship with the adoptive parents. 130 s.2(2) Children Act 1989 – a position which has been challenged on human rights grounds, but was found to be human rights compatible; B v UK [2000] 1 FLR 1 (ECtHR) 131 s.2(2)(b) Children Act 1989 132 In 2009 86.6% of births outside marriage were joint parent birth registrations and of these 65.7% were living together at the same address (ONS Social Trends 41). From this trend (which is apparently growing) we can see that most children born to unmarried partners have both partners with parental responsibility. 133 s.2 Birth and Deaths Registration Act requires that both the mother and father must register a birth within 42 days, but this duty is excluded for the father where the couple are not married (s.10(1)) and his registration requires either the consent of the mother or a court order (s.10) although this registration did not automatically give parental responsibility until registration post 01/12/03 (s.4(10(a) Children Act 1989 as amended by s.111 Adoption and Children Act 2002) 126
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3. By entering into a parental responsibility agreement with the mother
4. By obtaining from the court a parental responsibility order 134
5. By obtaining from the court a residence order (as in doing so the court must
also make a parental responsibility order 135)
6. By being appointed as a guardian
8K.05
A person who was not the child’s natural parent but is married to, or in a civil
partnership with, the parent, may acquire parental responsibility for that step-child by agreement with the parent, or if a court orders it. A step-parent is not, however, a parent and so cannot appoint a guardian 136 unless they have acquired parental responsibility for that child. This same observation applies other informal or social parenting arrangements by other relatives or foster parents. Parental responsibility will usually only be terminated by adoption, 137 but may also be removed by court order. 8K.06
The nominated testamentary guardian will become the guardian of the child
on the parent’s death only if:
1. no other parent with parental responsibility survived the testator or
2. there was a residence order for the child in the testator’s sole favour
If neither of these qualifications is met, the appointment by the will cannot take effect immediately. However, the appointment can take effect on the later death of the other parent, notwithstanding that the second parent to die might also have appointed a testamentary guardian (possibly a different person). 8K.07
Once the appointment takes effect, the guardian takes on, for all practical
purposes, parental responsibility for that child. 138 A guardian has some differences to a natural parent in that
• No relationship is created for property devolution. 139
s.4(1) Children Act 1989 s.12(1) Children Act 1989 136 ss.4 &4A Children Act 1989 137 s.12(3) Adoption Act 1976; s.46(2) Adoption and Children Act 2002 138 s.5(6) Children Act 1989 - see earlier for the significance of “parental responsibility” 139 e.g. on intestacy the minor is not treated as a child of the intestate and on the minor’s intestacy the guardian is not treated as his parent. 134
135
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• On the death of a guardian the child cannot make an I(PFD)A 1975 claim as a
child of the deceased. 140 A claim could be made if the child met the
requirements to claim as a person (not being a child) who had been treated as
a child of a marriage or civil partnership to which the guardian was a party.141
There is also the possibility of a claim of the basis of being maintained by
the deceased. 142 No property provision under the Children Act 1989 can be ordered against a guardian by a court. 143 This means that a guardian, although being under a duty to see that the child is adequately fed, clothed, lodged, educated and given medical aid, cannot have a financial order made against him 8K.08
A will can make alternative provision if the guardian first named is unable
or unwilling to accept the appointment. However, once a guardian does act as guardian of a child the ability to appoint a replacement guardian should he die or otherwise be unable to continue lies with him and not the testator.144 8K.09
The essence of the guardian’s role is to provide a home and supervise the
upbringing and health of the child until he attains his majority. When planning a will the key factor in a testator’s mind should be the selection of the most suitable person(s) to undertake this role – factors usually involved are, no particular order of importance (as the importance will vary with individual preference)
1. Proximity of family relationship
2. Age
3. Existing knowledge of, and relationship with, the child
4. Experience of child care and rearing
5. Religious/cultural background
6. Geography – i.e. location of guardian
7. Suitability of residence, occupation and way of life
8. Avoidance of disruption to the child’s education and social life
s.1(1)(c) I(PFD)A 1975 s.1(1)(d) I(PFD)A 1975 142 s.1(1)(e) I(PFD)A 1975 143 s.15 and schedule 1 Children Act 1989 144 s.7(4) Children Act 1989 140 141
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Because of these factors, and others that may arise from the particular circumstances, it is important that the testator considers carefully who should be appointed and discusses the matter with the prospective guardian – not everyone will want to accept the responsibility and on discussion of the issues some testators may decide that their choice is unsuitable (just as some prospective guardians may choose to rule themselves out). 8K.10
The appointment of a guardian is sometimes accompanied by a provision
as to the religious faith in which the child is to be raised, or as to a particular type of education that is to be provided. Such provisions are not binding on the guardian and should be drafted as merely wishes, not binding directions. Although such wishes are not binding they would undoubtedly carry reasonably moral force with the guardian. In the event of a dispute regarding the minor, the court take into account the wishes of the testator, but it would not be bound by them no matter how forcefully or imperatively they might be worded. A court will be concerned with what is best for the child and accordingly will look at the child’s wishes and what, in the court’s view, is in the best interests of the child. 145 Rather than attempting to set out detailed wishes in the will regarding education and religion the testator may be better advised [a] to discuss this with the intended guardian and [b] leave a personal letter for the guardian with the will summarising what he would like. 8K.11
A testator will usually have little understanding of how his estate can finance
the guardianship of a child. The implication of this is that the testator’s instructions may be vague, impractical on the point or fail to recognise the issue at all. The draftsman should be prepared to discuss the options in some depth with the testator in order that he can make informed decisions about the terms of his will and the selection of guardian. 8K.12
Very few testators, quite understandably, have much insight into conflicts
of interest and they will not usually formulate their will instructions taking possible conflicts into account. It is, however, a fundamental issue to be addressed and the competent draftsman will explore the issues with the testator. While a basic duty of a fiduciary is that he should not place himself in a position of conflict, 146 he can, of course, act where there is a conflict if he has been put in that position by the testator, 147 but even so he must not act against the interests of the trust in his own favour. An awareness of what the roles of guardian, executor and trustee are will
Re Collins [1950] 1 All ER 1057 Bray v Ford [1896] AC 44 – “It is an inflexible rule of a Court of Equity that a person in a fiduciary position…..is not allowed to put himself in a position where his interest and duty conflict” 145 146
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enable the testator to make an informed decision as to whether not it is suitable in his circumstances for one person to take on all three roles. Matters which might require particular consideration are
• Conflicts of interest in the exercise of any trustee discretions to apply capital or
income
• Conflicts of interest in investment policy (particularly over yields)
• Fraud on a power with the exercise of discretions 148
• Security
L Joint Ownership 8L.01
There are only two ways in which property in England and Wales can be
owned jointly with others
1. a beneficial joint tenancy 149
2. a tenancy in common.
8L.02
For all joint property, the legal title is distinct from the equitable interests in the
property. The ownership of the legal title for all joint ownership of real property is by way of a legal joint tenancy only – it can be owned in no other way. 150 8L.03
For all joint property, the property is held in trust, by those who hold the
legal title, for those who have the equitable interests in it. It is quite possible that the legal owners might not have any equitable interest in the joint property. The will draftsman should also bear in mind that identifying the underlying equitable interests is frequently difficult, and often ultimately disputed, but it is something of which will draftsmen, like conveyancers, should be aware. The frequency with which joint property issues have gone wrong was illustrated in Carlton v Goodman 151 where it was observed:- “I ask in despair how often this court has to remind conveyancers that they would save their clients a great deal of later difficulty if only they would sit the purchasers down, explain the difference between a joint tenancy and a Wright v Morgan [1926] AC 788; For a definition see Vacher v Paul [1915] AC 372 at 378; Wong v Burt [2005] WTLR 291 at para 27 – “This principle is one of general application” and applies to misuse of all trustee powers. 149 So-called to distinguish it from the legal joint tenancy under which all joint property is owned. 150 ss.1(6), 34(1) and 36(2) Law Property Act 1925. The restriction regarding severance of the legal title, in s.36(2) Law of Property Act 1925, only applies to land and the legal title in joint property other than land can be held as legal tenants in common. 151 [2002] EWCA Civ545, [2002] 2FLR 259 147 148
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tenancy in common, ascertain what they want and then expressly declare in the conveyance or transfer how the beneficial interest is to be held because that will be conclusive and save all argument. When are conveyancers going to do this as a matter of invariable standard practice? This court has urged that time after time. Perhaps conveyancers do not read the law reports. I will try this one more time: ALWAYS TRY TO AGREE ON AND RECORD HOW THE BENEFICIAL INTEREST IS TO BE HELD. It is not very difficult to do.” 152 8L.04
Most testators will have little or no understanding of joint property and will
draftsmen must not assume that they do. As a consequence, the draftsman will frequently have to explain the features of joint ownership, especially of land. 8L.05
A beneficial joint tenancy and a tenancy in common have different features
of:
• ownership/rights and
• devolution 8L.06
Where an asset is held for beneficial joint tenants the interests of each co-
owner are always equal. A joint tenancy cannot exist without equality of interest. The interests under a tenancy in common can be in any proportion. 8L.07
For the will draftsman, the importance in identifying the type of joint
ownership lies in understanding its devolution on death.
• Where property is owned by more than one person as a beneficial joint
tenancy, a deceased owner’s interest in it will not devolve under the terms of
his will as part of his free estate. Instead, it will pass outside of the terms of
his will direct to the surviving co-owner (and if more than one surviving
co - owner equally between the surviving co-owners) simply by right of
survivorship. Because the right of accrual to the co-owners by survivorship is an
essential feature of a joint tenancy it is not possible for a deceased owner’s will
to alter this and direct any other devolution of interest by will.
• Where property is owned by more than one person as a tenants in common,
there is no right of accrual by survivorship and each co-owner’s share forms an
asset of his free estate and will devolve according to the terms of his will.
• In both cases, it is only the equitable interests that devolve in this way. The legal
ownership is with the surviving co-owner(s) and it is he/they who have the ability
to appoint a new legal owner (trustee) of the legal title.
capitals are as in the original judgment
152
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8L.08
There are two different aspects to consider with joint property and will
instructions; the draftsman needs to consider the testator’s instructions in the context of both:
1. the assets of the estate, and the instructions that he is given regarding them,
and
2. the terms in which the will must be drafted to give proper effect to
the instructions. 8L.09
It is accepted as standard practice that the preparation of a will
• requires an understanding of what assets are comprised in the testator’s estate
in order that the advice he gives is both accurate and relevant.
• The testator needs to understand which of the assets he owns are capable
of passing under the terms of the will that he requests. The normal testator rarely
understands this fully.
8L.10
If there is any misapprehension about the assets of the estate and their
devolution, the testator will not understand the extent of his free estate and wrongly form an impression of how it should be divided. Once the testator understands correctly the devolution of his jointly owned assets he will need to consider:
[a] changing some aspects of his will instructions to take this new understanding
into account, e.g. an increase in benefit to compensate others or a
decrease in benefit to the surviving joint owner’s share of his estate (to take
into account the joint property potentially passing)
[b] severing his interest in the beneficial joint tenancy in order that he
can quantify his interest and be sure of its devolution to meet his
changed wishes 153
[c] severing his interest in the beneficial joint tenancy in order to meet his
existing wishes.
The suitability of the type of property for severance should also be considered. Joint bank accounts are particularly unsuitable [a] because most banks terms and conditions require the accounts to be beneficial joint tenancies and [b] severance would require a complete analysis, post-severance, of all deposits, withdrawals, interest and bank charges in order to be able to identify the changes to the individual tenancy in common shares. It is easier simply to split a bank account into two new accounts
153
247
Severance 8L.11
A significant feature of a beneficial joint tenancy is that the equitable joint
interests in it can be severed to create tenancy in common interests. There is no comparable act for converting tenancy in common interests into a joint tenancy interests. The ability to sever is of importance for both devolution and estate planning, as severance will prevent the interest of a deceased co-owner from accruing, by survivorship, to the other co-owners. Severance converts the equitable interests in the property into those of a tenancy in common 154 and devolution will then be controlled by the will. 8L.12
The effect of severance is to produce a severed share for the person making
the severance. The size of this share is determined solely by the number of co-owners at the time of severance. Thus, if there are four joint owners, severance by all four (or three out of the four owners, which gives the same effect) will produce interests as tenants in common of four one quarter shares. These equal shares are produced by the act of severance itself and bear no relation to the contributions to the original purchase price or other contributions. 155 8L.13
An act of severance cannot produce unequal shares. 156 If, after severance,
unequal shares are required that must be agreed by all whose interest will be affected by further changes, as the new unequal shares can only then be created by gift. 157 Any further contributions (e.g. expenditure on the property) after severance will alter the equality, if not made equally by all. 8L.14
Severance acts only upon the share, or shares, of the person, or persons, who
chose to sever their interests. In the example of four joint owners of land:
i. severance by one owner will produce a severed share of one-quarter held by
him as tenant in common, with
ii. the other three joint owners holding their severed three-quarter share as
beneficial joint tenants between themselves, but
s.36(2) LPA 1925 Goodman v Gallant [1986] Fam. 106 156 ‘ The Law of Real Property’ Megarry & Wade (Sweet & Maxwell 8th edition) at 13-036 suggests that land subject to a trust might expressly provide that the land is held as a joint tenancy but that severance would produce and unequal split of shares specified in the deed (citing Goodman v Gallant [1986] Fam 106 at 119). Such provisions appear to be very rare in practice and of possibly doubtful validity until fully tested in court. 157 In Singla (Trustee in Bankruptcy for Brown) v Brown [2007] EWHC 405 (Ch) a written notice of severance that purported to sever in 99% and 1% shares was held to be valid, but only by virtue of the other party’s express written agreement. This decision rather stands by itself and should not be relied upon without the point being further considered by the court. The particular circumstances in the case may have led to this unusual result. 154 155
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iii. the three-quarter share is also held as a single tenancy in common share in
relation to the one-quarter severed share.
iv. the interests of the remaining co-owners in their three-quarters share are not
altered by the act of the fourth.
8L.15
Severance can be made by all of the co-owners collectively, but
nonetheless, it remains usually unilateral act of each co-owner. Once a co-owner has complied with the formalities of severance, his severance is binding upon all the other co-owners as regards the share that is being severed. As severance is usually be a unilateral act, there is no necessity for the other owners to have the mental capacity to understand the act of the severer. An exception to this general principle will be where the method of severance used requires agreement or mutual action (see below) in which case all those participating in the action must have the requisite mental capacity for the act being done. 8L.16
Provided the formalities of severance have been complied with, the co-
owners have no ability to reject or ignore the severance. This is the case even with husband and wife co-ownership. 158 8L.17
The mental capacity of a person severing his interest must be sufficient to
understand the nature of the act and its consequences. That capacity will be tested against the individual concerned and the complexity of the transaction undertaken. There is no uniform test of capacity for all individuals in all circumstances. 159
Methods of severance 8L.18
There are five methods of severance. They are usually classified as follows:
1. in the same ways as a joint tenancy of a personal estate could have been
severed prior to 1926
2. by notice in writing to the other joint tenants
3. by the act of a third party
4. by the acquisition of another estate in the land
5. by homicide.
Nothing listed above permits severance by the terms of a will on death.
Re Draper’s Conveyance [1969] 1 Ch 486 Masterman-Lister v Bruton [2003] 3 All ER 162
158 159
249
1 In the same ways as a joint tenancy of personal estate could have been severed prior to 1926 8L.19
This covers three possible methods of severance. The three are expressly
preserved into the post-1925 property regime by s.36(2) LPA 1925: ‘...or do such other acts or things as would, in the case of personal estate, have been effectual to sever the tenancy in equity.’ The methods were set out in Williams v Hensman 160 and these are commented on below: ‘an act of any one of the persons interested operating upon his own share’ 8L.20
English law has always preferred the right of alienation of a person’s property
to that of the right of benefit by survivorship. Therefore, the act of one co-owner that alienates his interest is regarded as severing his share in the joint tenancy to produce a tenancy in common. The person who acquired the co-owner’s interest in this way would take the share as a tenancy in common with the beneficial joint tenancy relating to that share having been severed by the alienation. An act of alienation would be, for example, an assignment of the interest to a third party. 161 No notice of the severance has to be served on the other co-owners, but to do so may document more clearly what has occurred. ‘by mutual consent’ 8L.21
Severance can be effected by the mutual agreement of the co-owners. This
must be the agreement of all co-owners - agreement by only some, or by a majority, is insufficient. 162 The old view that any such agreement had to be by enforceable contract is no longer valid. 163 This form of severance does not require that the coowners are aware that the effect of their agreement is to sever, merely that they are agreeing to deal with the property in a particular manner that is incompatible with the continuation of the beneficial joint tenancy. 8L.22
A practical difficulty with this method of severance is where the mutual
agreement concerns the devolution of all the joint tenants’ interests under the terms of their wills. Where there is an agreement for mutual wills to be entered into and the devolution of the joint property under the will is incompatible with beneficial joint tenancy continuing, then the interests are severed by that agreement. 164 However where;
(1861) 1 J&H 546 Wright v Gibbons (1949) 78 CLR 313 162 Wright v Gibbons (1949) 78 CLR 313 163 Burgess v Rawnsley [1975] Ch 429 164 In re Wilford’s Estate, Taylor v Taylor (1878) 11 Ch.D. 267 160 161
250
• there is an agreement between the joint owners, that falls short of the
necessary binding agreement not to revoke for there to be mutual wills, 165 and
• under that agreement the jointly owned property will devolve in a way that is
incompatible with the continuation of the joint tenancy,
severance can still be effected by that agreement.166 8L.23
An agreement by all to sell the jointly owned property is not an act of
severance. The proceeds of sale remain the subject of the joint tenancy. The joint interests in the proceeds of sale are severed at the time that the co-owners agree to distribute them to the co-owners, but until then the interests remain unsevered. 167 ‘by any course of dealing sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common’. 8L.24
A difficult method of severance, in that identifying it relies upon finding a
course of conduct on the part of one joint owner, or all the joint owners, by which the shares of all the joint owners were affected. 168 One example of this could be the distribution of some parts of the joint property to individual joint owners, 169 but note that this is the distribution of part of the property, not the income derived from it. 2 ‘By notice in writing to the other joint tenants’ 170 8L.25
This method of severance was introduced by s.36(2) Law of Property Act 1925
and has since become the most widely used method of effecting a severance. It is the most commonly used method because of its perceived simplicity and clarity. In practice, the very fact that it is the most used method often means that the other methods of severance listed above are overlooked, particularly prior dealings with the property, which might have produced severance. Too much concentration on whether or not there had been service of a written notice can mean other severance is missed.
Re Goodchild (deceased) 1 WLR 1216 Re Woolnough; Perkins v Borden [2002] WTLR 595; The difficulties posed by this form of severance can cause formidable problems for both the administration of estates and the preparation of wills and they are discussed more fully at L.45. 167 Re Hayes’ Estate[1920] 1 IR 207 168 Williams v Hensman (1861) 1 J&H 546 169 Wilson v Bell (1843) 5 Ir.Eq.R 501 170 There are arguments that the preparation of a notice of severance is a reserved instrument activity under paragraph 5(1)(c) Schedule 2 Legal Services Act 2007 (“preparing any instrument relating to real or personal estate for the purposes of the law of England and Wales”) see Trust and Estates Law & Tax Journal November 2013 page 9 165 166
251
8L.26
s.36(2) provides:
...where a legal estate (not being settled land) is vested in joint tenants beneficially, and any tenant desires to sever the joint tenancy in equity, he shall give to the other joint tenants a notice in writing of such desire... [i] Writing 8L.27
Although the notice must be in writing, there is no prescribed form of notice
and a simple letter may suffice. There is no requirement in the Act that severance must be by deed. The provisions of s.36(2) do not specify that the written notice is signed by the severer, but in practical terms such notices should always be signed, in order to [a] identify the person severing and [b] provide evidence that it was intended act of the coowner. Because the notice does not require a signature, severance by e-mail is in theory possible, but there is no authority on the validity of an e-mail notice for this purpose. E-mail notices are best avoided until the law on service by e-mail and aspects of the evidential value of e-mails are clarified. At the present time there are difficulties in proving who actually drew up or sent any particular e-mail. It is highly likely that service by fax is valid, but good practice must be that this is followed by delivery of the original notice in order to provide clearer proof of the bona fide nature of the notice. 8L.28
A notice of severance by will is ineffective. Although such a notice would be
in writing, 171 the Act makes no provision for it. 172 8L.29
The notice must seek immediate severance 173 and not contemplate some
future or conditional severance. The notice must not therefore direct severance to occur at a future date or at the happening of a future event. 174 [ii]
Delivery
8L.30
The mere signing of a written notice alone is insufficient as the Act further
requires that the notice is ‘given to’ the other owners. 175 Simply signing such a notice and placing it with the deeds will not be a valid act of severance until it is served on the co-owner during the lifetimes of the co-owner. Service on the co-owner Nor would it normally be served on the last known abode or place of business in the UK; s.196(3) Law of Property Act 1925 172 Carr-Glynn v Frearsons [1998] 4 All ER 225; Gould v Kemp (1834) 2 My&K 304 173 Harris v Goddard [1983] 1 WLR 1203 174 Harris v Goddard [1983] 1 WLR 1203; Gore and Snell v Carpenter (1990) 60 P&CR 456 175 See also s.196 Law of Property Act 1925 generally for the requirements concerning written notices under this Act. 171
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before the death of either party is vital. Posthumous service on or by a personal representative will not work (although see L.55 on Deeds of Variation). 176 The death of either co-owner will have resulted in the entire ownership accruing to the survivor before the notice is served. The view that service is not required and that severance may be effected by a unilateral declaration of severance (as was proposed in Re Draper’s Conveyance 177) is widely held to have been in error. 178 8L.31
Service on the co-owner is sufficient if the notice is left at the “last-known
place of abode or business in the United kingdom of the...person to be served”. 179 Service may also be by registered or recorded delivery addressed to the co-owner at the “last-known place of abode or business, office or counting house in the United Kingdom” 180 and if that letter is not returned undelivered 181 then service is deemed to have been made at the time at which the letter would in the ordinary course have been delivered. 182 8L.32
In practical terms, delivery does not have to be made by recorded or
registered post, as compliance with s.196 Law of Property Act 1925 would not require further proof of delivery. A notice posted in compliance with s.196 which was not received has been held to be effective. 183 A notice shown to have been delivered to the co-owner’s address, but not received by him is sufficient notice. But in saying this, the practical imperative must be for the notice to be served in such a way as will be easiest to prove in the event of a dispute. In practice, asking for, and obtaining, an acknowledgement of the service of the notice provides the clearest evidence of service. 184
s.142 91) (a) IHTA 1984: this is understood to be the meaning of ‘or otherwise’ in the legislation. However, note that this “severance” is in fact a fiction for taxation purposes only and that as a matter of property law no severance has occurred – only a post-death gift. 177 [1969] 1 Ch 486 178 e.g. see Burgess v Rawnsley [1975] Ch 429 179 s.196(2) Law of Property Act 1925 180 s.196(3) Law of Property Act 1925 181 Within the meaning of the Postal Services Act 2000 182 s.196(4) Law of Property Act 1925 183 Re Berkeley Road NW 9 [1971] Ch 648; Kinch v Bullard [1999] 4 All ER 650 184 The co-owner is not obliged by s.36(2) to do this, but in the absence of major animosity between the parties he would most likely provide it. 176
253
8L.33
The statutory process of written notice of severance does not apply to
personalty, other than leaseholds. 185 The omission of personalty from s.36(2) has been criticised. 186 Although the omission of personalty seems fairly clear on the face of s.36(2), it is equally clear that in practice written notices are very often used to sever interests in personalty 187 and that this method is widely accepted by both parties. It seems that in order to sever personalty, the acceptance of the written notice by the co-owner forms a mutual agreement as to severance. If the written notice is not accepted, then it must lie to the co-owner who is proposing severance to withdraw their half share, where possible, or to follow one of the other methods discussed above for the severance of personalty established pre-1925. One consequence of this view of severance is that severance of personalty by written notice is not an option where the co-owner lacks the mental capacity to agree to the severance. In such circumstances an alternative form of severance by unilateral action is safer. 8L.34
s.36(2) also expressly applies only where the legal and beneficial joint tenants
are the same. Therefore, for example, if there are four co-owners holding the legal title on behalf of a total of six equitable co-owners this method (but not the other methods of severance) seems not to be possible unless the other co-owners accept the severance (thus making it severance by mutual agreement). 8L.35
The inapplicability of s.36(2) to someone who is a joint owner only in equity
seems unduly restrictive on his dealings with his interest in the property. Unless their co-owners will accept a written notice (thereby reaching an agreement to sever that share) it seems that such a joint owner must resort to one of the other pre-1925 methods to sever his interest. [3]
‘By the act of a third party’
8L.36
This is probably better described as involuntary severance in that it does not
involve any positive decision by the severer to sever his interest in the joint tenancy. It results instead as a consequence of other events. The insolvency of a beneficial joint tenant, for example, will result in severance of his interest. Other events that will also produce involuntary severance will be:
• the imposition of a charging order against one joint tenant in respect of a
money judgment 188 similar to the pre-1925 ‘act of any one of the persons
interested operating upon his own share’ except that the charging in this case
is by a third party
Leaseholds are within s.36(2) see ss.1(1) and 205(1)(x) Law of Property Act 1925 Nielson-Jones v Fedden [1975] Ch 222; Burgess v Rawnsley [1975] Ch 429 187 Perhaps because of a failure to notice that s.36(2) does not apply to personalty? 188 ss2(1), (2) and 3(4) Charging Orders Act 1979; Midland Bank v Pike [1988] 2 All ER 434 185 186
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• the imposition of a charge in favour of the Legal Aid Fund 189
• a successful claim under the Inheritance (Provision for Family and Dependants)
Act 1975 when the court exercises its discretion 190 to treat the deceased’s
severable share as property comprised in the deceased’s “net estate” for the
purposes of this Act.
[4]
‘By the acquisition of another estate in the land’
8L.37
The old common law view was that the acquisition by one co-owner of some
further interest in the land would merge the two interests of that person and destroy the unity of interest thereby effecting severance. This was based on the common law assumption that the interests had merged, although equity tended towards a different view. The matter was resolved by the Judicature Act 1873, which imposed by statute the previous equitable view. Therefore, severance by acquisition of a larger estate has not been inevitable and it will happen only if merger does take place. Merger will now occur only if it is intended that it shall by the person acquiring the enlarged interest. 191 The position now is that this will only destroy the unity of interest if merger takes place. There is little authority on when a joint tenancy will now be held to have been severed by merger. 192 [5]
By homicide
8L.38
See later Section H in this Chapter on Forfeiture
Will instructions that may evidence an act of severance 8L.39
As noted earlier, a notice of severance from one co-owner to another
cannot be given by the terms of a will. Although such a notice of severance would be in writing, s.36 Law of Property Act 1925 makes no provision for service to be by will. In the absence of any statutory provision, the ownership of the property will accrue to the survivor immediately on the death of the other co-owner. 193 Nonetheless the instructions for the will may themselves, in certain circumstances, produce severance of a joint tenancy. Severance can be effected by an agreement between all the joint tenants 194 195
(s.16(6) Legal Aid Act 1988; Bedson v Bedson 1965 2 QB 666) Under s.9 191 Re Fletcher [1917] 1 Ch 339 and also s.185 Law of Property Act 1925 192 ‘ The Law of Real Property’ Megarry &Wade (Sweet & Maxwell 8th edition) 13-048 193 Carr-Glynn v Frearsons [1998] 4 All ER 225, Gould v Kemp (1834) 2 My & K 304 194 but agreement between only some of them would not be sufficient 195 Wright v Gibbons (1949) 78 CLR 313 189 190
255
8L.40
Originally it was thought that any mutual agreement to sever must be by
means of an enforceable contract, but this is no longer the case. 196 Although an agreement is still necessary, the agreement is as to how the property is to be dealt with in the future and there is no requirement that the tenants are aware that either
• they are beneficial joint tenants or
• they understand the nature of that joint tenancy. 197
8L.41
If the beneficial joint tenants need not be aware that they hold as beneficial
joint tenants, then it follows that they need not be aware that their mutually agreed way of dealing with the property will be an act of severance. They merely have to understand that their agreement shows what they want to happen to their property. 8L.42 In re Wilford’s Estate, Taylor v Taylor 198 two sisters agreed to make mutual wills 199 and jointly gave instructions for these wills, which were then duly executed. Certain properties of which they were joint tenants were, however, bequeathed to the survivor of them for life only (with remainder to their nieces). This was a scheme of devolution that was incompatible with the continuation of the joint tenancies. The court observed: “That agreement, which was a dealing by each of the sisters with her moiety of the joint property is proved...It was acted upon by both sisters, their wills being made in accordance with it, and it effected, in my opinion, a severance of the joint tenancy...it would be a monstrous thing to hold, after the agreement had been so far perfected, that after the death of one sister the other could claim the joint property as belonging absolutely to her as survivor.” 8L.43
Although this case involved a binding agreement to deal with property
under the mutual wills, there seems to be nothing within the brief judgement that would make the argument unique to mutual wills. The two elements were:
a) that there was an agreement to treat the property in a specific way in both wills
which were to be made and
b) that agreement was put into practice by the execution of wills containing
those terms.
Burgess v Rawnsley [1975] Ch. 429 Williams v Hensman (1861) 1 J.&H. 546 197 (1878) 11 Ch.D. 267 199 See Section M Chapter for Mutual Wills 196
197
256
8L.44
Severance occurred when the wills were executed; i.e. that act was the
implementation of their earlier agreement as to how the property should devolve in the future. The will is therefore both the implementation of that agreement and also evidence of its existence. 8L.45 In Re Woolnough 200 a brother and sister, L and E, owned their house as beneficial joint tenants. In 1981, L and E went together to see a solicitor for wills to be prepared. These were not mutual wills. The wills had an express reference to the house and each will directed that this house was to be held upon trust for the other sibling for life, with a gift over to a niece or, in default of her survival, to her children (of which there were three). The niece predeceased both L and E in late 1988, and this prompted L only to make a new will in favour of one of the niece’s three children. After E’s death, L made a will in 1992 that was not in favour of any family members. 8L.46
One of the questions after L’s death was whether or not there was anything
in the joint course of dealing evidenced by the terms of the wills that would have constituted a severance of the joint tenancy. If there was a severance, then half of the property would be held under the trusts of E’s will, whereas if severance had not been effected then the whole property would have been an asset of L’s estate. It was found that there was insufficient evidence to find that the 1981 wills were mutual, but that there was sufficient evidence in the way in which the property was to be dealt with under the wills to constitute a severance. 8L.47
The judgment was that an agreement sufficient to create mutual wills was
not needed in order to provide severance by agreement (evidenced by the will instructions): “…it does seem to me that here we have evidence of both a brother and sister having gone together to their solicitor and having instructed their solicitor to give the whole of their estate, plainly including 1 Stanley Road, and to give that share in 1 Stanley Road not to the other joint tenant but to only give a life interest in the property and to make an ultimate gift to (the niece)...I do not myself see why that does not amount to an agreement that the joint tenancy is severed. They both of them made this provision in their will and gave instructions to their solicitors. It is not a case of one of them acting behind the back of another...”
200
Re Woolnough, Perkins v Borden [2002] WTLR 595
257
8L.48
In saying that the sequence of events is fairly commonplace, it follows that, if
the importance of what has happened is not realised at the time by the draftsman, there is every chance that the administration of the estates of those involved will not be carried out correctly on both deaths. The length of time that can be involved will also make it harder to establish the evidence of intention and agreement unless the will files are retained for considerable periods. 8L.49
When taking will instructions from two people together, it is important to
understand the interaction between their assets and their wishes as Woolnough creates a real trap for the unwary draftsman. If the instructions do constitute severance, it will be good practice to evidence the severance more formally, 201 for example by the preparation of a written notice, sufficient for s.36(2) Law of Property Act 1925, in order to avoid a later mistake in the administration of the testators’ estates. 8L.50
If a testators goes ahead with their wills before s.36(2) Law of Property Act
1925 notices can be prepared and, given the need to avoid delays in preparation and execution of wills, 202 there is every reason why the wills should be proceeded with quickly, it is important that clear contemporaneous notes are made and retained. The same comment applies if the testators decline to have s.36(2) notices prepared and served. 8L.51
Evidence of severance that is as clear as possible is important when one
considers the difficulty of finding evidence of agreements that may occur years before death. On the facts of Woolnough it was quite possible that the brother and sister might have made further wills that left all the property absolutely to each other. If they had, the alteration to a gift that was not inconsistent with the beneficial joint tenancy would not have “unsevered� the earlier severance, but it would have obscured it. Indeed, in the absence of anything on the face of the will, it is likely that if this happened the earlier wills would not be reviewed. Reversing severance 8L.52
Once an interest in a joint tenancy has been severed it will require the
collective agreement, and action, of the co-owners to change the tenure back to a beneficial joint tenancy. As with any change in property interests this is most certainly best done only with the benefit of professional advice and with clear documentary evidence as to the change in the equitable interests.
Evidential issues are important in this regard. In Carr v Isard [2007] WTLR 409 lack of evidence was an important reason for rejecting a severance claim. 202 White v Jones [1995] 1 All ER 691 see chapter 10 201
258
8L.53
Where severance has been effected by a notice in writing from one co-
owner, subsequent destruction of the notice would merely be the destruction of part of the evidence of severance and would not be a reversal of the act itself. 203 8L.54
Similarly, severance by, for example, an act of one person operating upon
his own share, such as mortgaging his interest, is not undone simply by the repayment of that mortgage. Nonetheless, it must be admitted that in practice it can be difficult to establish what exactly was done to the joint interests after the passage of time unless events have been fully and accurately recorded when they occurred.
Post-death severance 8L.55
Severance of a beneficial interest after the death of the owner is not possible
as a matter of property law – the surviving co-owners having inherited by survivorship at the moment of death. This point has become more than a little obscured, however, by the creation of a taxation fiction that such severance is achievable. 8L.56
s.142 Inheritance Act 1984 provides for post-death instruments of variation
to be treated, for the purposes of Inheritance Tax and Capital Gains Tax only, 204 as though the disposals that they created had occurred as at death. The instrument of variation gives effect to gifts inter vivos by the heirs of the property, of property that they have inherited, but s.142 permits those gifts to be taxed as though they had been made by the deceased at his death, provided the instrument of variation is made within two years of death. 8L.57
Interests in joint property which have passed by survivorship are within the
ambit of s.142 and it is therefore possible for those inheriting an interest by survivorship to give that interest they have inherited to another. This gift will then, for inheritance tax and capital gains tax purposes, be treated as though it was a gift made at death by the deceased, if the donors choose to have it treated that way. It is open to any such donor not to use the s.142 fiction if it is more advantageous not to. 8L.59
These issues surrounding s.142, and the fiction the section creates, do not
alter the basic operation of property law under which the beneficial joint tenancy property devolves on death to the donor(s). The donor(s) then, to give effect to their gift, will need to convey the property to the donee(s).
Kinch v Bullard [1998] 4 All ER 650 It is important to note that income tax remains unaffected and is outside of the fiction that the variation occurred as at the date of death
203 204
259
Joint gifts in a will 8L.60
Where a testator indicates that he wishes to leave a bequest to two
beneficiaries, the draftsman should establish, as part of the will instruction process, the form of the gift that is intended; i.e. is it to be in the form of a beneficial joint tenancy or a tenancy in common. As testators rarely understand this issue, establishing what the instructions are will involve an explanation of the two types of joint ownership. The choice of a gift as a joint tenancy or as a tenancy in common is a fundamental issue and it requires the draftsman to set out
• the choices
• the differences between them, and
• their practical consequences.
8L.61
In all reasonable circumstances the clearest way of indicating the nature
of the joint gift in the will is for the will to contain an express description of the gift as being one of either a tenancy in common or a joint tenancy. In the absence of any indication, express or implied by other terms of the will, the general principle is that the court will construe the gift as being a joint tenancy. 205 In contrast, the court will find that the gift is one of a tenancy in common where there is any indication in the terms of the gift of words of severance. 206 Terms that imply severance will include any conditions attached to a gift that are inconsistent with a joint tenancy. 207 The following words attached to joint gifts have been found sufficient to sever and thus create tenancies in common: • ‘between’ • ‘divided’ • ‘equally’
• ‘equal proportions’
• ‘equal shares’
• ‘equally divided’
• ‘among’ Any words indicating that the division of the gift between the legatees is not equal are incompatible with a joint tenancy. Crooke v De Vrandes (1803) 9 Ves 197 Billing v Billing (1895) 11 TLR 502 207 Ryves v Ryves (1871)11 Eq 539; L’Estrange v L’Estrange [1902] 1 IL 467 205 206
260
8L.62
Where a gift is to two or more beneficiaries as joint tenants there can be
no lapse of the gift unless all the beneficiaries predecease the testator. If only one beneficiary predeceases the testator the shares of the others are correspondingly increased. 208 This contrasts with a gift as a tenancy in common where the doctrine of lapse will apply to each part of the gift separately. Thus each named tenant in common must survive in order to inherit his legacy. 209 210 8L.63
Where there is a class gift to persons who are to be ascertained either at the
date of the testator’s death, or a later date, lapse will not be applicable irrespective of whether the gift is as tenants in common or joint tenants. Those who predecease the testator never were members of the class specified. 211 8L.64
One particular joint gift that has given rise to frequent misunderstandings
in the past is a joint gift of income. Its practical implications should be carefully considered at the instruction/drafting stage. A joint gift of income from a trust fund is not satisfied by the trustee then dividing the fund equally at a particular date and thereafter paying the whole income from each moiety to one beneficiary: “…it is manifest that an interest in half the income of an undivided fund is quite different from the whole income of a divided part of that fund.” 212 8L.65
In terms of ease of administration, division of the trust fund is often to be
preferred (especially when the investment requirements of each fund are likely to be different) and in that case an explicit direction to divide the trust fund into two shares and to give the income of each share entirely to the relevant life tenant is to be preferred. By contrast, a direction to divide the income will mean that a common fund is to be maintained with a division of the total income.
Morley v Bird (1798) 3 Ves 629 In the absence of any gift over in the event of this happening ( and that would clearly indicate a tenancy in common 210 Page v Page (1728) 2 p Wms 489 211 Shuttleworth v Greaves (1838) 4 M & Cr 35 212 Re Freeston’s Charity [1979] 1 All ER 51 208 209
261
Joint wills 8L.66
A joint will has no real connection with joint property. A joint will is where two
testators execute the same document which is effective to dispose of both estates on its terms. A joint will does not take effect as a single will but as separate wills for each testator, despite being in the same document. Unless the will is also a mutual will 213 it can be revoked at any time by either testator dealing with their own will only. A joint will is a clumsy and not very practical approach to will making and should be avoided whenever possible. 8L.67
It is a misconception sometimes encountered that such wills are needed, or
have some advantage, when dealing with joint property.
M Mutual wills What are mutual wills? 8M.01 Mutual wills are where two, or possibly more, testators enter into a valid agreement that their estates will devolve in particular manner. The features of the agreement are that
• it is to be legally binding on the parties; 214 and
• there cannot be revocation of the agreement by one without the consent of
the other—it is not simply sufficient that they understand that they want to
benefit each other; 215
• if one of them dies without having revoked the will, the other will be bound
by the terms of the mutual will and therefore any changes in the future (such as
remarriage) cannot be catered for in a new will for the survivor
• it is not necessary for the survivor to take any benefit from the estate of the first
to die 216
• the agreement can cover all or part of their estates as the parties agree 217
See Section M of this Chapter A common intention, expectation or desire is insufficient; Re Goodchild [1977] 3 All ER 63 215 Birch v Curtis [2002] WTLR 965 216 Re Dale [1993] 4 All ER 129 217 Re Green [1950] 2 All ER 913 213 214
262
8M.02 To find that there is a mutual will agreement, the court requires “clear and satisfactory evidence on the balance of probabilities”. 218 The Court will not infer that wills are mutual, merely from the fact that they are mirror image wills, 219 but will require evidence of the agreement between the parties. In Charles v Fraser 220 there was no written evidence of the two sisters having entered into an agreement, but it was possible to establish that there was a written agreement from witness evidence about the conduct and statements of the testatrices regarding their wills. 8M.03 In the Court of Appeal in Fry v Denham Smith,221 the major difficulty was the lack of substantial evidence of the agreement
• No wills made by the wife prior to the husband’s death could be produced
• No written mutual agreement was ever produced
• When the husband made his will he did not tell his solicitors that a mutual will
agreement existed, or that his wife was making a similar will
8M.04 The finding of a mutual will by the judge at first instance was based on four factors
1. The husband told his solicitors that his wife had a made a will after their
told by his father and step-mother that he would receive half of the joint estate
3. The terms of a letter written by the wife (but unsent) to her ex-husband to the
straightforward point, nor that his new wife was deceitful
2. The firm belief of the son from the husband’s first marriage that he had been
marriage. The judge saw no reason to find that he was mistaken on such a
effect that her son and step-son would share the estate
4. The contents of phone calls between the wife and her step-son just over a year
before the wife’s death
From Charles v Fraser [2010] WTLR 1489 citing Re Cleaver [1981] 2 All ER 1018 and Re Goodchild [1977] 3 All ER 63 219 Re Oldham [1924] All ER Rep 288; Re Cleaver [1981] 2 All ER 1018 220 [2010] WTLR 1489 221 [2011] WTLR 387 218
263
8M.05 The judge had also found that if there was no mutual will agreement the result might be that the husband’s estate would pass to his wife and thence to her son, who the husband barely knew and certainly disliked (as indeed did happen). An alternative for husband and wife to leave their estates directly to each son was not a viable alternative given the problems that would arise, at least for the husband’s occupation of the house if he was the survivor. For this to be any sort of factor in favour of a finding of mutual wills it presupposes
a) That husband and wife understood the nature of the problem that would arise if
they left their estates to each other (and how many clients have we met would
had worked this one out)
b) That an agreement to make mutual wills could be made and would be binding
It does seem that this is flimsy at best. It is also a long way from the more rigorous approach in Birch v Curtis 222 towards the proof of an agreement. The Court of Appeal upheld the first instance finding, although it is arguable that the evidence, such as it was fell short of that which we have come to believe would usually be expected. Effect of mutual wills 8M.06 Once entered into, but before either party has died, the parties are at liberty to agree to revoke the agreement. This does not necessarily require revocation of the wills themselves. Where the agreement has been recited in the wills, some clear documentary evidence especially a codicil amending the declaration, is preferable in order to establish unambiguously what has occurred. If there is a unilateral breach of the agreement by one party, the other is released from the agreement 223 although the terms of their will remain unaltered until he/she chooses to alter them. 8M.07 Once the first party to the agreement has died, the survivor is bound by the terms of the agreement. Thus any later will inconsistent with the agreement will take effect subject to the agreement which will over-ride the terms of the later will. This is done by way of imposing a constructive trust of the terms of the agreement which is binding upon the PRs of the estate and performance of which can be enforced through the Court by any beneficiary under it. 224
[2002] WTLR 965 Re Hobley [2006] WTLR 467 224 Re Dale [1993] 4 All ER 129; Re Goodchild [1997] [1977] 3 All ER 63; Walters v Olins [2008] WTLR 1449
222 223
264
8M.08 However, the inflexibility of the agreement once the first has died is both a drawback and partly illusory. Where the survivor remarries, he acquires obligations to the new spouse and, even though he might be bound to leave his estate in a certain way by the mutual will agreement. Where he fails to make provision for his new spouse it is at the risk of an I(PFD)A 1975 claim. The same of course goes for any other claimants (particularly children or children treated as children of the marriage) under the Act. The ability of the mutual will agreement to shield the assets from such claims is undecided. 225 Similarly, the ability of the agreement to shield assets from the survivor’s creditors is apparently untested. The illusion may be greater given the ability of the survivor to spend what he has inherited. Money spent by the survivor on his/her general costs of living 226 is irrecoverable for the benefit of the beneficiaries under the mutual will agreement. Gifts might be recoverable, particularly where an intention to defeat the agreement can be shown and there is something to be recovered. 8M.09 Agreements that bind all of the joint estates, including property earned or inherited by the survivor after the first death are particularly inflexible and unlikely to be a practical proposition. 8M.10 There is a need for clarity as to the intentions of the parties in order to establish intention and resist claims of a mutual will agreement. Both the Charles and Fry cases would have posed less of a problem if the wills clearly reflected whether or not there was an agreement. A professionally prepared will that contains a statement that a will is, or is not, being made consequent to a mutual agreement will give greater clarity than no statement. A statement of mutuality in home-made wills would need to be treated with care in order to establish what exactly was understood by it. The modern trend towards including declarations at the start of a will as to whether or not it is made pursuant to a mutual agreement does bring clarity. 8M.11 In Olins v Walters 227 Mummery LJ expressed the view that fewer people in future would choose mutual wills through being warned against them. There is no reason to doubt the Court’s view that the doctrine is a “source of contention” 228 and it is therefore in a client’s interests to try to avoid this contention arising. Barns v Barns [2005] WTLR 1093, an Australian case, found that it would not And importantly nursing costs 227 [2008] WTLR 1449 - “As recent cases have shown this equitable doctrine dating from the 18th century (Lord Camden’s judgment in Dufour v Pereira (1769) Dick 419) continues to be a source of contention for the families of those who have invoked it. The likelihood is that in future even fewer people will opt for such an arrangement and even more will be warned against the risks involved.” 228 In this same case Mummery LJ also observed that “A family apparently united around the grandparents is now divided on the question whether they made a mutual wills contract. The decision in this appeal is unlikely to bring the dispute to an end.” 225 226
265
Drafting 8M.12 Should there be a declaration of non-mutuality in all wills? Of course not, as the question will not arise with many wills. Is it a sensible precaution where spouses, civil partners, siblings or even parent and child are making wills at the same time and on similar terms? The answer to this has to be yes, given the perceived increasing tendency for the point to be argued. 8M.13 Where there is to be a mutual will agreement, clear statements of exactly what is agreed are required. The will should state
• That the wills are made pursuant to a mutual will agreement
• The parties to the agreement
• The date of the agreement
• The terms of the agreement (or referring to the separate agreement of a
particular date).
• The terms of the agreement should
» cover all salient points of what is agreed. (The agreement may not fail just
because some possibilities are not dealt with, but as in Walters v Olins
uncertainty can be the cause of unnecessary litigation.)
» state that it is to be legally binding
» recite that the wills are to be irrevocable as this is regarded as an essential
part of establishing the mutual will agreement 229
» recite that there can be no variation unless it is mutually agreed
» provide that after the death of either party the survivor is bound by the
agreement
» deal with what the intended devolution shall be
» define what property is to be covered by the agreement (e.g. will it cover
property inherited by the survivor after the first death; will it apply to all
property or only specific assets?)
8M.14 Whether or not the agreement should recite that it is entered into with the benefit of legal advice depends very much upon the extent that the parties have been advised as to their options. However, it is difficult to conceive of professionally
229
Re Goodchild [1997] [1977] 3 All ER 63
266
drawn mutual wills where advice is not given. It is possible to perceive issues that could give rise to a conflict of interest in advising both parties. For example where the interests of one party might be better served by a trust in favour of the other rather than a mutual will agreement (if there is a disparity in age and the older has the greater amount of wealth?). 8M.15 Where the terms of the agreement are set out in a separate document a similar approach is needed. A separate document will be needed, following Healy v Brown, 230 where the agreement deals with specifically identified interests in land. 231 In this case, the mutual will agreement which dealt expressly with “all my share and interest in my flat known as 3 Phoenix Court� was found to require a contract for the disposition of an interest in land. On this basis the agreement should have conformed to the requirements of s.2 Law of Property (Miscellaneous Provisions) Act 1989 and as such been in writing and signed by both parties.
N Perpetuities & Accumulations 8N.01 The allied subjects of perpetuities and accumulations have been greatly simplified by Perpetuities & Accumulations Act 2009 which made substantial changes to the previous law. The will draftsman needs to understand the principles involved in order to advise the testator. 232 Perpetuities 8N.02 A fundamental, and old, 233 principle of English law is that property should not be made perpetually inalienable. From this comes the impossibility of a perpetual trust, with the significant exception of a trust for charitable purposes, which can be perpetual. 8N.03 For trusts created, whether inter vivos or by will, after the commencement of the new Act 234 there will be a new perpetuity period of 125 years. 235 The new period will apply to all new trusts without the need to specify this in the deed or will. 236 This does not mean that a trust must last for 125 years. The effect of creating this single statutory period is to abolish the long standing equitable rules 237 from any application to trusts created after the commencement of the new Act. [2002] WTLR 965 See Re Walters, Olins v Walters [2008] WTLR 339 at para 43, implicitly confirmed on appeal in Walters v Olins [2008] WTLR 1449 232 For greater detail of the rule see Lewin on Trusts (19th edition) 5-037 et seq 233 See the Statute De Donis 1285, Statute of Uses 1535 and the Statute of Wills 1540 234 took effect from 6th April 2010 235 s.5 (1) 236 s.5(2) 237 Sometimes referred to as the common law rules 230 231
267
8N.04 Any attempt to specify a different perpetuity period, in a new deed or will, will be ineffective. 238 This will not, of course, prevent trusts being drafted in the future that must terminate before the end of 125 years and specifying, for example, that a discretionary trust must be distributed within 90 years of its commencement remains an option. It will be important, however, to specify the shorter period as the trust period and not the perpetuity period. 8N.05 If it is clear that a whole trust cannot end inside the perpetuity period then it is void for offending against the perpetuity rule. The old common law approach was that if any part of a beneficial class would vest after the perpetuity period closed then the whole gift was void. The Perpetuities and Accumulations 1964 addressed this 242 through the wait and see principle and s.8(2) of the 2009 Act replicates the earlier provision for trusts created after 6 April 2010. If it becomes clear that part of a class will only become entitled outside of the perpetuity period then that part of the class is excluded by s.8(2) from the class with the effect that the rest of class gift is valid. 8N.06 Exceptions to the rule against perpetuities
• charitable trusts have no perpetuity period
• a right of interest arising under an occupational pension scheme, a personal
pension scheme and a public service pension scheme is not subject to any
perpetuity period
• a purpose trust will be void unless it is limited to a period of a life or lives in being
at its inception plus 21 years.
Accumulations 8N.07 The 2009 Act abolished all accumulation periods for new trusts 243 with the consequence that income might be accumulated throughout the trust period, i.e. up to 125 years. Further provisions restrict accumulation within a charitable trust to 21 years.
s.5(2) s.4(4) PAA 1964 243 s.13 Perpetuities and Accumulations 2009 238 242
268
Drafting for the new law in trusts deeds and wills 8N.08 There is no need to specify a perpetuity period for new trusts. The new period of 125 years is the only permitted perpetuity period and it is available without being specifically incorporated into the will. The effect of this should be to simplify drafting. Attempting to draft using any other perpetuity period is to be avoided as no other period is permissible. 8N.09 None of the above prevents a settlor from determining an earlier time for distribution of a trust, but that is not done through attempting to shorten the perpetuity period. 8N.10 It will still be necessary to consider the possibility that interests may vest outside the perpetuity period where trusts of successive interests are being created. It would be wrong to think that the law reform made these problems go away, although it does make them less likely. 8N.11 Accumulations can be made throughout the permitted perpetuity period. In practice, it is very much the case that the implications of accumulations need to be considered in the context of what is appropriate for the individual elements of the trust. Thought needs to be given as to whether or not it is appropriate to a settlor’s intentions for any accumulation to be limited. Unlike perpetuity, accumulations are not constrained by law other than through the permitted duration of a trust. It is therefore open to a settlor to restrict accumulations, even in a discretionary trust, if he does not want his trustees having unlimited powers to accumulate. 8N.12 Where it is decided to update an existing will for these issues in theory this could be done by codicil. Although the Act is silent on the point, a codicil can republish a will 244 and thus make it a document taking effect after the date of the Act. 245 However, the likelihood is that a new will is easier.
A will is republished by a codicil which makes reference to that will. It is sufficient merely to refer to it as being a ‘codicil to my will’ but more usually the codicil will contain a more direct statement such as ‘in all other respects I confirm my will’; see Theobald on Wills 16th edition at 9-11. 245 s.15(2) 244
269
O Prenuptial agreements 8O.01 After the Radmacher 246 decision it can be said that a pre-nuptial agreement, while not necessarily valid, will be upheld by a court if it passes a general test of fairness. The same broad statement can be made about post-nuptial agreements. 247
There are two points on these agreements to be noted in connection with will
drafting.
1. The draftsman needs to be aware of any pre- or post-nuptial agreement as the
existence of an agreement will be highly relevant to the advice given
regarding a new will. It will be relevant to the terms of a new will and may also
have relevance in an I(PFD)A 1975 claim. 248
2. Part of the fact finding exercise in taking instructions may reveal that the client
is one who could benefit from advice on a pre- or post-nuptial agreement.
Clients where the issue could be relevant include
a. The client of whatever age who is independently wealthy prior to an
intended marriage
b. An older couple marrying later in life where they are anxious to preserve
their wealth for the children from previous marriages. These circumstances
may not require the wealth concerned to be particularly large.
There seems to be little point in agreements where the wealth at the outset is small and any divorce is likely to be focussed on the needs of the parties. It will usually be left to specialists in family law to advise on, and draft, such agreements.
P Powers of Appointment 8P.01
A power of appointment is most usually found as a power given in a trust
deed. The power gives to a specified person (the holder of the power) the ability to direct the distribution of all or part of the trust fund at a particular time and in a particular manner.
• A general power of appointment places no limitation on who the trust fund
may be appointed to
• A special power of appointment is limited to appointment among a specified
class
• A hybrid power is a general power of appointment with a limitation attached to
it barring appointment to certain defined persons.
Radmacher v Granatino [2010] UKSC 42 Both types of agreement are applicable to civil partnerships as well 248 As matter within s.3(1)(g), “any other matter…….which in the circumstances of the case the court may consider relevant.” 246 247
270
8P.02
All powers can contain a direction as to how the power can be exercised
and frequently this will be by will (often referred to as a testamentary power). Therefore, when taking will instructions, the draftsman should always ascertain
• whether or not the testator holds a power of appointment given under the
terms of a trust
• the manner in which that power must be exercised
• the specified class, if any in whose favour, it must be exercised
8P.03
Reviewing the terms of any previous wills might reveal the previous exercise
of a power of appointment, but this is not a foolproof investigation as the previous draftsman might not have been aware of the power or it can have arisen after the previous will was prepared. 8P.04
A general power could take the form as being in favour of such persons
as the named person “shall by will or codicil appoint and in default of any such appointment upon trust for such of my grandchildren living at my death who attain 18”. In this power there is no limitation on the choice of person(s) to whom the trust fund may be appointed. But, there is a gift in default of any appointment being made. There is a requirement that the power be exercised by will or codicil. In default of an express exercise of the power in a will, s.27 Wills Act 1837 provides that a general gift of residue in a will operates to dispose of the trust property under the general power of appointment – unless the gift of residue contains a contrary intention. Therefore, the residuary gift in this case would prevent the gift over in default in the trust from taking effect. N.B. s.27 does not apply to special powers of appointment nor to hybrid powers. 8P.05
Because of the power of s.27 to defeat the gift over provisions in the trust,
there is scope for dispute between the residuary beneficiaries of the will and those named in the trust as the default beneficiaries. In Gibbons v Nelsons 249 it was alleged that the solicitor’s failure to ascertain the testatrix’s intentions for the exercise of a power of appointment was a breach of the solicitor’s duty of care to his client when preparing her will. The claim failed as the court found that there was insufficient evidence to show that the will failed to represent the testatrix’s intentions – which does not mean that any such claim is bound to fail in the future. The practical difficulty for the draftsman is that a testator may not sufficiently understand powers of appointment to recognise them by that name or understand the significance of questions about them.
249
[2000] WTLR 453
271
Q Proprietary estoppel 8Q.01 The issue for the will draftsman with this doctrine is being able to recognise, from the testator’s circumstances, if there is a realistic possibility that a proprietary estoppel claim against him, or his estate, may exist. It is far better for the testator to be aware of his true position and take the appropriate action rather than create litigation needlessly. 8Q.02 The application of this equitable doctrine has undergone a significant revolution after the Court of Appeal’s fundamental review of it in Gillett v Holt. 250 Proprietary estoppel has been defined: “The principle in its broadest form is that where one person (A) has acted to his detriment on the faith of a belief which was known to and encouraged by another person (B) that he either has or is going to be given a right in or over B’s property, B cannot insist on his legal rights if to do so would be inconsistent with A’s belief.” 251 8Q.03 Equity is concerned to prevent unconscionable conduct and the test that the court will apply is whether or not in all the circumstances it is unconscionable to permit B to renege on the promise with A having acted on it to his detriment. The element of promise is vital to a successful claim. 252 8Q.04 In Murphy v Burrows 253 the court declined an order, despite the condition of detriment, etc. having been made out. It noted that the assurances were to a degree equivocal and the detriment suffered was minor. 8Q.05 In Uglow v Uglow, 254 although promises were made about the farm, the court held that they were conditional on the intended partnership proceeding well. Therefore, as the partnership did not work out and it was abandoned after eight years (and because by then it would not be unconscionable to go back on the promise), the court found against the proprietary estoppel claim. 8Q.06 Any part of a testator’s estate can be subject to such a claim as the claim can be either in relation to specific assets or for a sum of money. 255
[2001] Ch 210; [2000] WTLR 195 Equity and the Law of Trusts: Pettit (12th edition) p208; Re Basham (deceased) [1987] 1 All ER 405 252 Cook v Thomas (2010) EWCA Civ 227 253 [2004] EWHC 1900 (Ch) 254 [2004] EWCA 987 (Civ) 255 See Jennings v Rice [2002] WTLR 367 for an example of a generalised claim or Dillwyn v Llewellyn (1862) 4 De G F & J 157 for a claim over a particular asset. See also Lissimore v Downing [2003] 2 FLR 308 for a view that the claim must be made in terms which enable an objective assessment to be made as to what is being claimed. 250 251
272
8Q.07 If a claim is successful, it is satisfied by the court awarding ‘the minimum equity to do justice to the [claimant]’ 256 on the basis that there must also ‘be proportionality between the expectation and the detriment’. 257 8Q.08 The House of Lords 258 recently considered the modern approach to proprietary estoppel and in Lord Walker’s analysis, the main issue was the character or quality of the assurances given to the claimant and this was also highlighted in Lord Neuberger’s judgment. Lord Neuberger defined the assurances as being ones that were reasonably understood to be a commitment by the deceased and reasonably relied upon by the claimant. This definition is short of the clear and unequivocal assurances that the Court of Appeal had looked for in the same case.
R Secret and half secret trusts Secret trusts 8R.01
A secret trust in a will arises where the testator communicates, during his
lifetime, to A that he will leave property in his will to A. The property is not for A’s benefit but it is for him to hold in trust for B on the terms that A specifies. In the will there will be an apparently absolute gift to A with no indication of the trust being apparent on the face of the will. Thus the trust is secret as the will gives no indication of it. On the face of it this creates a problem with the Wills Act 1837, but the key to understanding a secret trust is that the trust is created while the settlor is alive and the gift in the will to A merely completes the gift it does not create the gift. Half secret trusts 8R.02
A half secret trust follow a similar approach as a secret trust, except on the
face of the will there is notice of the trust as, typically, it will show “X property to A for such purposes as I have communicated to him”
Crabb v Arun District Council [1976] Ch 179 Jennings v Rice [2002] WTLR 367 258 Thorner v Majors [2009] UKHL 18 256 257
273
Features 8R.03
It is important to distinguish between what is a secret trust and what is a
half secret trust, as the elements involved in creating them are different. As are the consequences of their failure. The main features are summarised in the table below:-
Secret Trust
Half Secret Trust
[1]
No notice of the trust on the face
Notice of the trust on the face of the
of the will
will, but the words used must not point to the future communication of it to the legatee 259
[2]
Communication of the details of
Communication of the details of the
the trust to the trustee/legatee
trust to the trustee/legatee must be
must be during the testators
during the testator’s lifetime 261
lifetime 260 [3]
Communication can be after the
Communication must be before the
date of the will as long as it is
date of the will
before the testator’s death
[4]
The trustee must accept the
The trustee must accept the burden of
burden of the trust 262
the trust
[5]
In the event of failure of the trust
In the event of failure of the trust the
the legatee in the will takes the
legatee in the will not take the gift
gift absolutely 263
absolutely,264 but hold the property instead on a resulting trust for the testators estate
[6]
Cannot be vehicle for illegal or
immoral purposes 265
Cannot be a vehicle for illegal or immoral purposes
[1937] Ch 236 – on the basis that the will must not contradiction the facts of the trust Wallgrave v Tebbs (1855) 2 K&J 313; Re Bateman’s Will Trusts [1970] 3 All Er 817 261 Blackwell v Blackwell [1929] AC 318 262 Silence is treated as consent Moss v Cooper (1861) 1 John & H 352 263 Wallgrave v Tebbs (1855) 2 K&J 313; Re Hawkesley’ Settlement [1934] Ch 384 264 “equity will not permit a statute to be used as an instrument of fraud” Jones v Badley (1868) 3 Ch App 362 265 Secret and Half Secret trusts must conform to the legal requirements for a valid trust 259
260
274
Evidence 8R.04
Evidence of both the terms of the trust and communication and
acceptance is important for the proof of existence of the trust and its validity. The adviser should ensure that that there is a full and accurate record of this. The more accurate the terms of the trust are the less potential for dispute in its later administration. Where the subject matter of the trust is significant, there is much to be said in practice for the trust deed to formally drawn up and executed. The trust would therefore be fully recorded, although incompletely constituted, becoming fully constituted when the testator’s personal representatives distribute the subject matter.
S Unincorporated Associations 8S.01
These are usually societies, clubs or associations that are not incorporated
i.e. they have no separate and individual legal identity and therefore they cannot hold property in their own name. Such associations have been defined as “two or more persons bound together for one or more common purposes, not being business purposes, by mutual undertakings each having mutual duties and obligations, in an organisation which has rules which identify in whom control of it and its funds rests and on what terms and which can be joined or left at will”. 266 While this illustrates the point well, in practice such associations may never have produced written rules or constitutions. Charities may be unincorporated associations, but because they can have perpetual existence, the perpetuities problems dealt with below cannot arise. 8S.02
For the will draftsman, identifying the true legal nature of the beneficiary is
important as it then enables him to advice the testator correctly and draft the will to meet the client’s instructions. 8S.03
Where a gift is left to an unincorporated association there are four possible
constructions that a court can apply.
1. The gift could be construed as a gift to the individual members of the
association as at the date of death of the testator. Such a gift will be as a
beneficial joint tenancy between the members. If this construction is applied,
each member can sever his share and take it absolutely 267
2. The gift can be construed similarly to 1. above, but as not being limited to
existing members and instead including all future members as well. The difficulty
that this will give rise to is that without any form of limitation on future members,
it would be an invalid gift for offending the perpetuity rule.
Conservative and Unionist Central v Burrell [1982] 1 WLR 522 Re Drummond [1914] 2 Ch 90; Re Prevost [1930] 2 Ch 383
266 267
275
3. The gift may be construed as a gift to trustees for the association, to be held for
the purposes of the association. This would produce an invalid purpose trust. 268
4. The gift may be construed as a gift to the existing members beneficially. In
addition, that the existing rules of the association require that the funds be held
as funds of the association. These rules bind the members of the society
between themselves to deal with funds in this way and therefore prevent
the individual member from severing his beneficial interest and it remains within
the association. Each members share passes by survivorship on death or
resignation to the other members (including later members) 269
8S.04
When a testator intends to make bequests to unincorporated associations
he will not usually be aware of these difficulties and the draftsman should assist in effective drafting to reflect what the testator want in the light of what is possible. Few testators are also aware that when through death of members, and a failure to recruit new ones, that the sole remaining member will become the absolute owner of the remaining assets. 270 At this point the association drops away a sole member cannot “associate� with himself.
Morice v Bishop of Durham (1805) 10 Ves 522 Neville Estates v Madden [1962] Ch 832; Re Recher’s Will Trusts [1972} Ch 526 270 Hanchett-Stamford v Attorney-General [2009] WTLR 101 268 269
276
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Chapter 9 Intestacy
9.01 A knowledge of intestacy is important to the will draftsman as dying intestate is, even for the client of modest means, a far less enticing prospect that dying testate and thereby controlling the devolution of his estate. Only the rare client will have an informed understanding of the devolution of his estate on his intestacy. 9.02 An intestacy may be either total (no valid dispositions under a will at all 1) or partial (a valid testamentary disposition of only part of the estate).
The basics of intestate entitlement 9.03 The general statutory basis of distribution on intestacy 2 is set out in s.46 Administration of Estates Act 1925. This chapter deals with the rules of distribution for death after 1st October 2014. 9.04 In the authors’ opinion, the clearest way of understanding the statutory distribution is to break it down into two distinct schemes of distribution. To decide which of the two schemes of distribution is used, each intestacy should be approached initially by asking the question “Is there a surviving spouse or civil partner?” 3 The answer to this initial question then clearly defines which of the two possible schemes of distribution is to be applied.
1. If there is a surviving spouse or civil partner, then Distribution A is applied, but if
there is no surviving spouse or civil partner
2. then Distribution B is applied.
Distribution A: where there is a surviving spouse or civil partner 9.05 [a] The surviving spouse or civil partner will receive
• the personal chattels 4
A will which contains no valid dispositions, but has a valid appointment of executors would be a partial intestacy as well. 2 As recently amended by the Inheritance and Trustees’ Powers Act 2014 3 In this context, where the deceased was married at the time of death, but there are also living two former spouses, only the person to whom he is married is a surviving spouse. The other two have also survived him but are no longer spouses. 4 See 9.08 1
278
• a statutory legacy of £250,000
• interest on the statutory legacy which is calculated at the “Bank of England
rate”. 5 This interest is primarily a charge on the whole income of residue, 6
but where the income is insufficient the balance is paid from capital. N.B.
where recourse to capital is necessary in this way the payment is deducted
before division thus it reduces the available residue.
• a right to acquire the deceased’s interest in the matrimonial home 7 for its full
value This basic entitlement of the surviving spouse or civil partner applies to all circumstances where there is a surviving spouse or civil partner. 9.06 In addition to the above, the remainder of the estate, if any, after the spouse or civil partner entitlement, and the costs of administration etc, will be distributed as below:
[i] Where there is also surviving issue of the deceased
1. the spouse or civil partner will receive a one half share of the residue
absolutely and
2. the surviving issue will receive a one half share of residue on statutory trusts 8.
[ii] Where there is no surviving issue of the deceased, the surviving spouse or civil
partner takes the whole net residue of the estate absolutely
Method B: where there is no surviving spouse or civil partner 9.07 The entire net estate is held is for the below listed classes of beneficiaries. The classes are set out in order of priority. Thus, only if there is no one entitled in the first class would one proceed to the second class, and so on through the classes. In order the classes are 1. the issue of the intestate on statutory trusts, but if none, then 2. the parents of the intestate (if more than one equally, but not on statutory
trusts), but if none, then
s.46(1A) Administration of Estates Act 1925; s.46(5)-(9) sets out the definition of this rate and the manner in which it may be amended by the Lord Chancellor 6 s.46(4) 7 See 9.41 8 See later in this Chapter for an explanation of the statutory trusts 5
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3. the brothers and sisters of the whole blood of the intestate (if more than one
equally) on statutory trusts for, but if none, then
4. the brothers and sisters of the half blood of the intestate (if more than one
equally) on statutory trusts for, but if none, then
5. the grandparents of the intestate (if more than one equally but not on statutory
trusts), but if none, then
6. the aunts and uncles of the whole blood of the intestate (if more than one
equally) on statutory trusts for, but if none, then
7. the aunts and uncles of the half blood of the intestate (if more than one
equally) on statutory trusts for, but if none then
8. the Crown, Duchy of Lancaster or Duke of Cornwall (as bona vacantia). 9 There
is a discretion for the Crown/Duchies to make provision for those not related to
the intestate where he might reasonably have made provision for them.
Personal Chattels 9.08 The statutory definition of personal chattels for the purposes of intestacy is in s.55(1)(x) Administration of Estates Act 1925:- “Personal chattels means tangible movable property, other than any such property which consists of money or securities for money, or was used at the death of the intestate solely or mainly for business purposes or was held at the date of death of the intestate solely as an investment”.10 9.09 The previous definition of personal chattels was the original definition in the 1925 Act --“carriages, horses, stable furniture and effects (not used for business purposes), motor cars and accessories (not used for business purposes), garden effects, domestic animals, plate, plated articles, linen, china, glass, books, pictures, prints, furniture, jewellery, articles of household or personal use or ornament, musical and scientific instrument and apparatus, wines, liquors and consumable stores, but do not included any chattels used at the death of the intestate for business purposes nor money or securities for money” The distinction between the Crown and the two Duchies is based on the residence of the intestate. It is best to approach this as being that all bona vacantia (ownerless goods) passes to the Crown, unless the intestate resided in [1] the County Palatine of Lancaster (this not the current administrative county of Lancashire but the old boundaries before the 1974 local government reorganisation) in which case the estate passes to the Duchy of Lancaster, or [2] the intestate resided in the county of Cornwall, in which case the estate passes to the Duchy of Cornwall. 10 As amended by s.3 Inheritance and Trustees’ Powers Act 2014 w.e.f. 1st October 2014 9
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9.10 This previously used definition, which was conceivably out-dated when originally introduced, had led the court into taking a fairly broad approach to the definition. 11 There was a tendency to treat individual words in the definition as having their ordinary meaning and not attempting to construe them applying ejusdem generis. 12 This approach may well be applied in practice to the new definition, indeed “tangible moveable property” is almost certainly of wider meaning than the previously used “articles of household or personal use or ornament”. 9.11 The value of chattel, either in absolute terms or as a percentage of the overall estate, is not a relevant factor in deciding whether or not an item is within the statutory definition. 13 Collections of items can pose problems, but unless there is clear evidence of the collection being traded as a business there seems little reason why a library or collection of antique items will not be personal chattels. 14
Spouse or civil partner 9.12 The entitlement on intestacy of a spouse or a civil partner is identical.
Civil Partner 9.13 A civil partner is a person of the same sex as the intestate, where they have formed a relationship with each other under the registration process introduced for England and Wales, Scotland and Northern Ireland by the Civil Partnership Act 2004. The Act also recognises similar relationships entered into in some other jurisdictions. 15 A civil partnership can only be ended by death, dissolution or annulment. 16 9.14 To be eligible to register as civil partners, persons must not be:
• of opposite sexes
• already married
• already a civil partner
• within the prohibited degrees of relationship 17
Re Crispin’s Will Trusts [1975] 1 Ch 245; Re Hutchinson deceased [1955] 1 Ch 255 “of the same type” -a rule of construction where when there is a list of words containing specific descriptive words followed by more general words, the general words will be construed as being confined to things of a like nature to the specific words. 13 Re Crispin’s Will Trusts [1975] 1 Ch 245; Re Collins’ Settlement Trusts [1971] 1 WLR 37 14 Re Reynold’s Will Trusts [1966] 1 WLR 19 15 see generally Part 5 Chapter 2 Civil Partnership Act 2004 16 see generally Part 2 Chapter 2 Civil Partnership Act 2004 17 s.3 Civil Partnership Act 2004 11
12
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Spouse 18 9.15 A spouse’s entitlement arises out of the fact of being the spouse of the intestate – it does not depend on the quality of the relationship. Therefore
• separation (unless it is a judicial separation)
• brevity of marriage 19
• being a second or later spouse
• a non-cohabitation order issued by magistrate 20
are not bars to inheritance. Where there is a decree of judicial separation in force and one spouse dies intestate, the estate is distributed as though the surviving spouse has pre-deceased. 21 9.16 But equally, the strength or quality of a relationship that is not one of marriage gives no entitlement on intestacy as a spouse. 22 9.17 Where a marriage has been dissolved by decree absolute a spouse has no entitlement on intestacy. At the stage that only a decree nisi has been issued, both spouses still retain the potential to inherit on the other’s intestacy. This is only lost on the issue of the decree absolute. 23 9.18 A voidable marriage is treated a valid until a decree of nullity is issued. 24 A void marriage 25 on the other hand has never existed and therefore there is no spouse from it. 26 9.19 A new feature of this subject arises out of the terms of the Gender Recognition Act 2004. 27 Where a person, who is already married, or is a civil partner, applies for a gender recognition certificate after a change of gender, and the application This will include spouses within a same-sex marriage as a consequence of paragraph 1 schedule 3 Marriage (Same Sex Couples) Act 2013 19 17 days in Re Park [1954] P.59 20 ss.16-18 Domestic Proceedings and Magistrates’ Courts Act 1978 21 s.21 Family Law Act 1996 22 Shaw v Shaw [1954] 2 QB 429: a woman, unknowingly went through a bigamous marriage ceremony and then lived with the man for many years until he died intestate and she had no entitlement to the estate. N.B. but now she would have a claim under s.1(1A) Inheritance (Provision for Family and Dependants) Act 1975. 23 Re Seaford (deceased) [1968] P.53; Re Collins [1990] 2 WLR 161 24 Re Roberts (deceased) [1978] 1 WLR 653; 25 Morley-Clarke v Brooks [2011] WTLR 297; for the distinction between a void and a voidable marriage see s.11 Matrimonial Causes Act 1973 26 Re Roberts (deceased) [1978] 1 WLR 653 27 Commencement 04/04/05 18
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is accepted, an interim recognition certificate was originally the only certificate that could be issued. The Gender Recognition Panel in these circumstances could not issue a full recognition certificate. The amendments in Schedule 2 of the Act amended the Matrimonial Causes Act 1973 to make the issue of an interim certificate an additional ground for the marriage to be voidable 28 and on the termination of a marriage on these grounds a full recognition certificate could then be issued. Failure to terminate the marriage in this way would have prevented a full certificate being issued and without this there would be no general legal recognition of the gender change. The issue of an interim certificate was also a statutory ground for a civil partnership to be voidable. 29 However, this has now been modified, so that where a person applying for a gender recognition is married a full certificate can be issued without divorce, provided the spouse consents to the application. 30 9.20 The interim certificate 30.1 does however create the position, for intestacy, that while an interim certificate is in issue the person concerned remains the spouse or civil partner (this accords generally with the treatment of voidable marriages/civil partnerships). Similarly for questions of tax that person would remain a spouse or civil partner until the marriage is terminated and a full certificate is issued. 9.21 Polygamous marriages 31 pose greater problems and there is some substantial uncertainty as to the law. There is some evidence to suggest that the court will recognise a polygamous spouse’s entitlement to inherit on death 32 and that where there is more than one spouse surviving then the spouse’s entitlement will be divided between them. 33 However, division of the spouse’s entitlement may give rise to I(PFD)A claims 34 depending upon the individual circumstances of the spouses.
now s.12(f) and Paragraphs 11(1)(e) and 11(3A) Schedule 1 Matrimonial Causes Act 1973 s.50(1)(e) 30 By statutory declaration, s.3 (6A), (6B) and (6C) inserted by paragraph 2 Schedule 5 Marriage (Same Sex Couples) Act 2013 30.1 “the interim certificate rout still exists where the spouse does not consent to an application for a full certificate” 31 A polygamous marriage is one where it is validly contracted in a jurisdiction that permits polygamy. Polygamy is distinct from bigamy. Bigamy is illegally marrying a second spouse while still married to the existing spouse in a jurisdiction that does not permit polygamy. 32 Baindail v Baindail [1955] AC 107; Coleman v Shang [1961] AC 481. 33 Coleman v Shang [1961] AC 481 (see also The Law and Practice of Intestate Succession Sherrin & Bonehill (3rd edition 2004) at 16-17 34 For this purpose a polygamous wife can be recognised as a spouse; Re Sehota (deceased) [1978] 1 WLR 1506. 28 29
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Children 9.22 A child of the intestate for this purpose includes
• A legitimate children
• A illegitimate children
• An adopted children
• A child en ventre sa mère 35 at the time of his intestate’s death, provided that it
is born alive 36
9.23 A child of the deceased for this purpose does not include
• an unadopted step-child
• a child who is treated as a child of a marriage for the purposes of s.1(1)(d)
Inheritance (Provision for Family and Dependants) Act 1975 who is neither
adopted nor the issue of the intestate
• a child of the intestate who has been adopted by others before the intestate’s
death 37 9.24 The area of parentage of those born by the various methods of assisted reproduction is still developing and is beyond the scope of this book. 38
Adoption 9.25 The question of adopted children must be approached with great care. The basic propositions are that
1. A child adopted by the intestate is entitled to share in the distribution equally
with the other children 39
A child en ventre sa mère is included by s.55 (2) Administration of Estates Act 1925. This provision was necessary at the time because then a child en ventre was not regarded as living at death (Villar v Gilbey [1907] AC 139; Elliott v Joicey [1935] AC 209). s.33 Wills Act 1837 (as amended by s.19 Administration of Justice Act 1982) now provides that such children are to be treated as living at the testator/intestate’s death. 36 Re Wilmer’s Trusts, Moore v Wingfield [1903] 1 Ch 874 37 This is adopted to the exclusion of the natural parent. If a person is the sole parent of a child, the adoption of that child by the parent’s subsequent spouse does not affect the existing parent/child relationship. 38 Reference should be made to family law textbooks such as Bromley’s Family Law by Lowe & Douglas (11th edition 2015 OUP) 39 s.67(1) Adoption and Children Act 2002 35
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2. A child of the intestate who is adopted by others before the intestate’s death is
not entitled to share in the distribution of the estate 40
3. A child of the intestate is entitled to share in the distribution and this will not be
affected if that child is adopted by others after the death of the intestate. 41
Children of polygamous marriages 9.26 There now seems little doubt that such issue are entitled to inherit as issue. Before the Family Reform Act 1969, this question was obscured by arguments regarding the validity of the parents’ marriage, but, whether legitimate or illegitimate, they are nonetheless issue.
[3] Parents 9.27 Parents will usually mean the natural parents of the intestate whether or not the intestate was legitimate or illegitimate. 42 9.28 Where the child is illegitimate there is a rebuttable presumption that the deceased child is not survived by his father 43. The practicality of this presumption is that it prevents the administrator of an intestate estate trying to identify and find a father when there is no father named on the birth certificate. This presumption must be remembered when a mother has more than one illegitimate child. In the absence of evidence of paternity, the children will be presumed to be brothers and sisters of the half-blood i.e. they share a common mother but not a common father. In practice the obvious evidence of rebuttal is the father being named on the birth certificate or other proof as to the identity of the father. 44 9.29 Care must also be given to the position of an intestate who has been adopted. Where this happens, the natural parents are excluded and the intestate is then treated as the child of the adoptive parents for the purposes of intestacy, therefore the natural parents would not then inherit on the child’s intestacy (unless either parent was involved in the adoption 45). 9.30 A step-parent, or even a parent-in-law, stands in no relationship to the intestate that is recognised by statute and thus they do not take on the child’s intestacy. s.67(1) Adoption and Children Act 2002 s.69 Adoption and Children Act 2002 (as amended by s.4 Inheritance and Trustees’ Powers Act 2014) 42 ss.1-18 Family Law Reform Act 1987 43 s.18(2) Family Law Reform Act 1987 44 This is now recognised by statute with a new s.18(2ZA) inserted into the Family Law Reform Act 1987 by s.5 Inheritance and Trustees’ Powers Act 2014 45 s.39 Adoption Act 1976 40 41
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[4] Brothers and sisters 9.31 Brothers and sisters-in-law stand in no relationship to the intestate that is recognised by statute and thus they do not take on intestacy. Step-brothers or stepsisters similarly stand in no relationship to the intestate that is recognised by statute and thus they do not take either. However, brothers or sisters who were adopted by the intestate’s parents, or who are the children of the parents who adopted the intestate, are brothers and sisters who do inherit. 46 (N.B. see 9.32 for commentary on whole and half blood.)
[5] Whole Blood and Half-Blood and step relationships 9.32 Distinctions:
1. A sibling of the whole blood is one who shares both the same parents as
the intestate.
2. A sibling of the half blood is one who shares only one parent with the intestate.
3. An aunt or uncle of the whole blood is one who is a brother or sister of the
4. An aunt or uncle of the half blood is one who is a brother or sister of the half
whole blood of either of the intestate’s parents.
blood of either of the intestate’s parents.
5. A step-brother or step-sister stands in no blood relationship to the intestate. They
are the children of someone who is not a natural parent of the intestate, but
who is the spouse of a natural parent of the intestate. This is not the same as the
half-blood relationship defined above.
N.B. it is important to note that
[a] where there are any brothers or sisters of the whole blood (or if they have
died, their issue) all of the siblings of the half blood (and their issue) are
excluded from inheritance;
[b] where there are any aunts and uncles of the whole blood (or if they have
died, their issue) all of the aunts and uncles of the half blood (and their issue)
are excluded;
46
s.39 Adoption Act 1976
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The statutory trust 9.33 “In trust in equal shares if more than one, for all or any of the children or child of the intestate, living at the death of the intestate, who attain the age of eighteen 47 years or marry under that age, 48 and for all or any of the issue living at the death of 9.34 Although this definition expressly refers to years “children” and “issue”, s.47 (3) provides the intestate who attain the age of eighteen or marry under than age of any 9.34 Although this definition expressly refers to “children” and “issue”, s.47 (3) provides childthat of where the intestate who predeceases the intestate, such issue the Act provides for other relatives to take upon statutory trusts taking s.47(1)(i)through shall be all 9.34 Although this definition expressly refers to “children” and “issue”, s.47 (3) provides degrees, according todefinition theirforstocks, in equal shares more than share that the Actthis provides other relatives to to take uponif statutory trustsone, s.47(1)(i) shall bewhich 9.34 where Although expressly refers “children” and “issue”, s.47 the (3) provides read byAlthough substituting references toexpressly the relevant class e.g. brothersand and“issue”, sisters for children 9.34 this definition refers to “children” s.47 (3) provides wherewould the Act have provides for other relatives to take upon of statutory trusts s.47(1)(i) be no theirthat parent taken if living at the death the intestate, and shall so that read by substituting references the relevant e.g.upon brothers and sisters children that where the Act provides fortoother relativesclass to take statutory trusts for s.47(1)(i) shall be where thewhose Act provides fortois other relatives to death take trusts for s.47(1)(i) be issuethat shall parent living at the ofstatutory theand intestate and soshall capable of read by take substituting references the relevant class e.g.upon brothers sisters children read by49substituting references to the relevant class e.g. brothers and sisters for children taking…” read by substituting references to the relevant class e.g. brothers and sisters for children The effect s.47(1)(i) expressly is to create refers a stirpital by s.47 the simple 9.34 9.35 Although this of definition to distribution, “children”better and known “issue”, (3) 9.35 The effect of s.47(1)(i) is to create a stirpital distribution, better known by the simple provides thatper where the Act provides fordistributing other relatives to take upon statutoryastrusts expression stirpes. Per stirpes means by the stocks (stems or lineages), 9.35 The effect of s.47(1)(i) is to create a stirpital distribution, better known by the simple expression stirpes means by the the stocks orby lineages), as 9.35 shall The per effect of s.47(1)(i) is to create a distributing stirpital distribution, better(stems known the simple s.47(1)(i) bestirpes. read byPer substituting references to relevant class e.g. brothers opposed to per capita which would be by athe head. distribution, Thus, if abetter childknown has predeceased the 9.35 The effect of s.47(1)(i) is to create stirpital by the simple stirpes. Per stirpes means distributing by the stocks (stems or lineages), as andexpression sisters, to forper children opposed per stirpes. capita which by the head. Thus, a child has predeceased expression per Per would stirpes be means distributing by theifstocks (stems or lineages),the as intestate leaving four children, one means of whom has also died leaving threeorchildren, the expression per stirpes. Per stirpes distributing by the stocks (stems lineages), as opposed to per capita which would be by the head. Thus, if a child has predeceased the 9.35 intestate The effect of s.47(1)(i) is to create a stirpital distribution, better known by leaving four which children, onebeofbywhom has also diedif leaving three children, thethe opposed to per capita would the head. Thus, a child has predeceased fragment of the family tree is opposed to per capita which would beofbywhom the head. Thus, a child has predeceased the or intestate leaving fourstirpes. children, one has distributing also diedif leaving three children, the simple expression per Per stirpes means by the stocks (stems fragment the family is intestate of leaving four tree children, one of whom has also died leaving three children, the lineages), asleaving opposed to per capita by leaving the head. if a child intestate four tree children, one ofwhich whom would has alsobe died threeThus, children, the has fragment of the family is Intestate parent fragment of the tree is leaving four children, one of whom has also died leaving predeceased thefamily intestate Intestate parent fragment of the family tree is three children, the fragment of the Intestate family tree is parent Child 1 (deceased) Child 2 Child 4 Intestate parent Child 3 Intestate parent Child 3 Child 1 (deceased) Child 2 Child 4 th th th th 4 Child Child Child 3 Child 1/4 1 (deceased) 1/4 2 1/4 1/4 Child 1 (deceased) Child 2 Child 3 Child 4 1/4th 1 (deceased) 1/4th 2 1/4th 3 1/4th 4 Child Child Child Child 1/4th 1/4th 1/4th 1/4th th th 1/4th 1/4 1/4 1/4th th th th 1/4 1/4 1/4 1/4th Grandchild 1 1/3rd of 1/4th (1/12th) Grandchild 1 1/3rd of 1/4th (1/12th) rd th (1/12th th) Grandchild 1/3 of 1/4th Grandchild 1 2 1/3rd rd of 1/4th (1/12th) Grandchild 1 1/3rd of 1/4th (1/12th) Grandchild 2 1/3 of 1/4 (1/12 ) 1 rd of 1/4th th (1/12th th) Grandchild 3 2 1/3rd Grandchild 1/3 rd of 1/4th (1/12th) Grandchild 2 1/3rd of 1/4th (1/12th) Grandchild 3 1/3 of 1/4 (1/12 ) 2 Grandchild 3 of 1/4th (1/12th ) 1/3rd th Grandchild 3 of 1/4 (1/12th ) 1/3rd rd th th Grandchild 3 47 of 1/4 (1/12 ) Reform Act 1969 1/3 18 was substituted for 21 by s.3(2) Family Law 9.36 Thetoper stirpes distribution starts with stocks stems deriving from This means marry and it is immaterial if it isidentifying before orthe after the or intestate’s death or if the marriage still exists at the time of distribution. However, although marrying at say 9.36 The per stirpes distribution starts with identifying the stocks or stems deriving from17 will the intestate i.e. 4 the (onechild for each and theoftherefore the interests will involve produce a vesting is stillchild) incapable providing PR or or stems trustee withquarter afrom valid 9.36 The per stirpes distribution starts with identifying the the stocks deriving receipt until the i.e.stirpes 4 (onedistribution for each child) therefore the the stocks interests will involve quarter 9.36intestate The 18. per startsand withthe identifying or stems deriving from shares, one per for stock. However, Child 1age” has predeceased and therefore histhat quarter 9.36 The stirpes starts with identifying the or stems deriving from After theeach “oreach marry under that become “or marry age or the 05.12.05 intestate i.e. 4words (onedistribution for child) and the therefore the stocks interests will under involve quarter shares, onepartnership for stock. However, Child 1 therefore has predeceased andextract therefore his quarter4 Part 1 the aintestate i.e.each 4 (one for each child) and the interests will involve form civil under that age” in the both references in this (Schedule the i.e.each 4 (one for each child) and the1 therefore the interests will involve quarter para 8intestate Civil Act 2004) shares, onePartnership for stock. However, Child has predeceased and therefore his quarter shares, one for each However, Child varied 1 has predeceased andoftherefore his1958 quarter 49 s.47(1)(i). These trustsstock. are capable of being by Variation Trusts Act shares, one for each stock. However, Child 1 has predeceased and therefore his quarter application; S v T [2006] WTLR 1461 48
287
9.36 The per stirpes distribution starts with identifying the stocks or stems deriving from the intestate i.e. 4 (one for each child) and the therefore the interests will involve quarter shares, one for each stock. However, Child 1 has predeceased and therefore his quarter share is to be divided equally for this three children i.e. each is entitled on statutory trusts to a third of a quarter or one-twelfth. 9.37 A key feature of stirpital distribution is that one descends no further down a stock than is necessary to find a living beneficiary. In the example above if Grandchild 2 had a child, that child would not be taken into account unless, and until, Child 2 predeceased before attaining 18. Although the children of a common parent will always share equally, issue of the same degree (i.e. grandchildren) will not necessarily share equally (if at all). 9.38 If a trust fund is created for the issue of an intestate and all of the issue fail to attain vested interests the trusts fail and s.47(2) then directs “If the trusts in favour of the intestate fail by reason of no child or other issue attaining an absolutely vested interest
(a) the residuary estate of the intestate and the income thereof and all statutory
accumulations, if any, of the income thereof, or so much as may not have
been paid or applied under any power affecting the same, shall go, devolve
and be held under the provisions of this Part of the Act as if the intestate had
died without leaving issue living at the death of the intestate.�
Notes on the example of 9.35
[a] if none of Child 1’s children attain 18, or marry under that age, the stem
ceases and his stock is distributable to the other three stocks so that each
child receives one third.
[b] if Grandchild 1 failed to attain 18, but left two children of his own then
his one third of a quarter share is itself divisible between the two thereby
producing shares of a half of a third of a quarter ( a one twenty fourth
share) each.
[c] any child of the intestate parent who predeceases without issue is not taken
into account in calculating the stocks.
288
9.39 A child’s interest in a statutory trust is not defeated by it being adopted by others after the death of the intestate parent. This point had been in doubt, 50 but s.69 Adoption of Children Act 2002 has been amended to ensure that a child adopted after the death of an intestate parent will not lose its entitlement to the statutory trust at 18 (or marrying under that age). 51 9.40 The trustees of a share of an intestate estate will, by definition, not have any administrative powers and duties defined by a will. The law governing their powers and duties is therefore generally to be found in Trustee Acts 1925 & 2000.
Spouse’s (or civil partners’) right to acquire the matrimonial home 9.41 Where the intestate owns a house, or an interest in a house (i.e. as tenant in common 52) in which the surviving spouse or civil partner lives at the time of the intestate’s death the administrator of the estate will need to consider that spouse’s, or civil partner’s, rights in that property. As well as freehold property, this right also applies to leasehold property, provided the lease has more than two years left to run at the date of death. 53 9.42 The surviving spouse or civil partner of an intestate has a statutory right, 54 should he or she elect to exercise it in writing within twelve months of the issue of grant letters of administration, to have the matrimonial home, or the intestate’s interest in it, appropriated “in or towards satisfaction of any absolute interest” the spouse has in the estate. 55 Once the election has been made, it can only be withdrawn with the consent of the personal representatives. The right is not exercisable by personal representatives, if the surviving spouse or civil partner dies within the twelve month period without having exercised the right. 56 However if the surviving spouse or civil partner dies after having given the required notice, the procedure is completed with their personal representatives. In Staffordshire County Council v B [1998] ! FLR 261 it was thought that adoption would not defeat a contingent interest to a child in a will, but in S v T [2006] WTLR 1461 it was thought that the position for a statutory trust was sufficiently doubtful to warrant a variation of the statutory by application under the Variation of Trusts Act 1958 51 s.4 Inheritance and Trustees’ Powers Act 2014 – this amendment also applies to interests in a testate estate. 52 The right that the intestate’s surviving spouse or civil partner has concerns “an interest in a dwelling-house” (para 1(i) Second Schedule Intestates’ Estates Act 1952) and clearly this will include a share in the property owned by the intestate as a tenant in common. A interest as beneficial joint tenant passes by survivorship on death an those cannot come within this provision. 53 para 1(2)(a) Second Schedule Intestates’ Estates Act 1952 54 generally Second Schedule Intestates’ Estates Act 1952 55 para 1(1) Second Schedule Intestates’ Estates Act 1952 56 para 3(1)(b) Second Schedule Intestates’ Estates Act 1952 50
289
9.43 The absolute interests of the spouse or civil partner will be
• the interest in the whole estate where there are no other relatives interested in
the estate
• the statutory legacy and a half share of residue where there are children
interested in the estate (plus the interest accrued on the statutory legacy)
9.44 The spouse or civil partner has a right to require appropriation of the house, or the intestate’s interest in it, and therefore this appropriation, unlike other appropriations by a personal representative, 57 is not at the discretion of the personal representative. The spouse’s or civil partner’s right to require the appropriation is protected during the twelve months after grant 58 and this prevents the personal representative from disposing of the intestate’s interest in the property during this period without the written consent of the spouse or civil partner (unless the debts of the estate and the administration expenses make its sale necessary). 59 9.45 There is no requirement of purpose attached to this right. Therefore the spouse or civil partner may call for the appropriation whether he or she intends to continue occupation or sell. 9.46 If the surviving spouse or civil partner makes this election, the value of the interest in the property is, as usual, to be determined at the date of appropriation, not the date of death. 60 This has huge practical implications, as during the past 50 years we have generally (but not always) been working with high rates of property appreciation. Early planning of what can be appropriated and when is vital, if advice is being given to a surviving spouse or civil partner. 9.47 The determination of the value, where the spouse or civil partner is the administrator will be subject to the self dealing rule. 61 If that value exceeds the total value of the spouse’s or civil partner’s absolute interests in the intestate estate, the spouse or civil partner can introduce the balance of funds needed from their own resources, including other amounts inherited absolutely from the intestate’s estate.62 The valuation will be subject to the surviving spouse’s or civil partner’s rights of occupation and, where it applies, co-ownership.
compare s.41 Administration of Estates Act 1925 para 4(1) Second Schedule Intestates’ Estates Act 1952 59 para 4(1) Second Schedule Intestates’ Estates Act 1952 60 Re Collins, Robinson v Collins [1975] 1 WLR 309 61 Kane v Radley-Kane [1998] 3 All ER 753 62 Re Phelps [1979] 3 All ER 373 57 58
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9.48 There could have been further difficulty with this right to acquire the dwelling house if the rule against a trustee purchasing trust property had not been expressly barred where there is more than one personal representative 63 acting. However, where the spouse or civil partner is the sole personal representative he or she is prevented from exercising this power. The practical implication of this is that where there is a matrimonial home to be appropriated under this power the spouse or civil partner should not act by themselves as personal representative. 9.49 The matrimonial home is defined as “a dwelling-house in which the surviving [spouse or civil partner] was resident at the time of the intestate’s death”. 64 This definition may not necessarily accord with how a matrimonial home is usually defined and indeed may allow an interest in a property which was not the usually accepted matrimonial home to be appropriated (or a property where the intestate did not live). 9.49 Where the dwelling forms part of a larger building which is owned by the intestate the spouse’s or civil partner’s right to elect for appropriation must be approved by application to the court 65 as it must where part of the dwelling was used by the intestate for purposes other than domestic. This definition does not require that both husband and wife, or civil partners, to have lived in the property before the death of the first to die, but only that the survivor was resident there at the time of the first death. 9.50 It would seem that these provisions are capable of being applied to a partial intestacy, but if this is the case, then clearly it would only apply where the surviving spouse or civil partner is both entitled to absolutely to some of the undisposed of part of the residuary estate and that part contains the intestate’s interest in the matrimonial home. 66
para 5(1) Second Schedule Intestates’ Estates Act 1952 para 1(1) Second Schedule Intestates’ Estates Act 1952; the words in square brackets inserted by the Civil Partnership Act 2004 65 para 2 Second Schedule Intestates’ Estates Act 1952 66 for a discussion of this point see Sherrin & Bonehill 3rd edition at p240/1 63 64
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Chapter 10 The Duty of Care
Negligence What is negligence 10.01
The standard definition of negligence was in McNair J’s direction to the jury in
Bolam v Friern Hospital Management Committee: 1 “… I must explain what in law we mean by ‘negligence’. In the ordinary case which does not involve any special skill, negligence means this: Some failure to do some act which a reasonable man in the circumstances would do, or doing some act which a reasonable man in the circumstances would not do; and if that failure or doing of that act results in injury, then there is a cause of action. How do you test whether this act or failure is negligent? In an ordinary case it is generally said, that you judge that by the action of the man in the street. He is the ordinary man. In one case it has been said that you judge it by the conduct of the man on the top of the Clapham omnibus. He is the ordinary man. But where you get a situation which involves the use of some special skill or competence, then the test whether there has been negligence or not is not the test of the man on the top of the Clapham omnibus, because he has not got this special skill. The test is the standard of the ordinary skilled man exercising and professing to have that special skill. A man need not possess the highest expert skill at the risk of being found negligent. It is well established law that it is sufficient if he exercises the ordinary skill of the ordinary competent man exercising that particular art. I do not think I quarrel much with any of the submissions in law which have been put before you by counsel. Counsel for the plaintiff put it this way, that in the case of a medical man negligence means failure to act in accordance with the standards of reasonably competent medical men at the time. That is a perfectly accurate statement, as long as it is remembered that there may be one or more perfectly proper standards; and if a medical man conforms with one of those proper standards then he is not negligent.”
1
[1957] 1 WLR 582
292
10.02
When dealing with failures, or omissions, that fall short of acceptable
standards it is important to differentiate between these and errors of judgement for which a professional need not be culpable. i. “The onus of proving professional negligence over and above errors of
judgement is a heavy one”. 2
ii. “… .the duty of care is not a warranty of a perfect result” 3 iii. “Many would wish that the right to recovery….did not depend on proof of
negligence. But as long as it does, defendants are not to be held
negligent unless they are in truth held to have fallen short of the standards
I have mentioned.” 4
iv. “It is of equal importance that the actions which are being judged are
judged in accordance with prevailing knowledge and circumstances and
not in retrospect and with the benefit of hindsight.” 5
10.03
The court does not require a solicitor to have been faultless in his judgement6
(except in basic or extremely simple matters); nor does the court expect that a solicitor should have an all-encompassing knowledge of the law. 7 But, the view has been expressed in Canada that a solicitor:
Martin Boston and Co v Roberts [1996] PNLR 45, CA, citing Rondel v Worsley [1969] 1 A.C. 191; see also “At best, the case against the defendant is marginal, and a marginal case does not make negligence” Duchess of Argyll v Beuselinck [1972] 2 Lloyd’s Rep 172; at 185 3 Wilsher v Essex Area Health Authority [1987] AC 1074 4 Eckersley v Binnie (1988) 18 Con LR 1 5 “In this world there are few things that could not have been better done if done with hindsight. The advantages of hindsight include the benefit of having a sufficient indication of which of many factors present are important and which are unimportant. But hindsight is no touchstone of negligence. The standard of care to be expected of the professional man must be based on events as they occur, in prospect and not in retrospect” Duchess of Argyll v Beuselinck [1972] 2 Lloyd’s Rep 172 6 Godefroy v Dalton (1830) 6 Bing 460 “… he is not answerable for error in judgement upon points of new occurrence, or of nice or doubtful construction, or of such as are usually entrusted to men in the higher branch of the profession of the law”; approved in Fletcher & Son v Jubb, Booth & Helliwell [1920] 1 KB 275 7 “No attorney is bound to know all the law; God forbid that it should be imagined that an attorney, or a counsel, or even a Judge is bound to know all the law; or that an attorney is to lose his fair recompense on account of an error, being such an error as a cautious man might fall into.” Montriou v Jefferys (1825) 2C & P 113; “….it is not the duty of a solicitor to know the contents of every statute of the realm. But there are some statutes which it is his duty to know….” Fletcher & Son v Jubb, Booth & Helliwell [1920] 1 KB 275 2
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“… must have sufficient knowledge of the fundamental issues or principles of law applicable to the particular work he has undertaken to enable him to perceive the need to ascertain the relevant point.” 8 The clear implication of this, which must be correct in this jurisdiction as well, is that, for will preparation, a sound knowledge of the fundamentals of the law relating to wills is vital for the draftsman to operate safely. 10.04
Despite earlier decisions to the contrary, 9 it is currently regarded as
settled that a solicitor’s duties in contract and tort co-exist 10 in so far as a client is concerned. For a breach of either duty to occur, the solicitor must have been negligent in the sense that he failed to meet the standard which can reasonably be expected of him: “The basic rule is that negligence consists in doing something that a reasonable man would not have done in that situation or omitting to do something that a reasonable man would have done in that situation.” 11 10.06
In considering whether or not a solicitor’s actions, or inactions, are negligent,
it should be noted that professionals are not to be liable for loss caused by, what in the light of events transpires to have been, an error of judgement in a matter where the opinions of reasonably well informed and competent members of the same profession might have differed. Liability should only arise for matters that no member of the profession, who was reasonably well informed and competent, would have done or omitted to have done. 12 However, the difference between an act of negligence and an error of judgement is difficult. 13 In the latter, the circumstances under which advice was given (particularly time pressure) can be a factor, 14 as can the degree of risk attached to the original advice.
Central Trust Co v Rafuse [1987] 31 DLR (4th) 481 Groom v Crocker [1938] 2 All ER 394, but also Clark v Kirkby-Smith [1964] 2 All ER 835, Bagot v Stevens Scanlan & Co Ltd [1966] 3 All ER 577 and Cook v Swinfen [1967] 1 All ER 299 (“an action against a solicitor is always one for breach of contract”) 10 Henderson v Merrett Syndicates Ltd [1994] 3 All ER 826 approving Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1978] 3 All ER 571 on this point 11 Hazell v British Transport Commission [1958] 1 WLR 169 12 Saif Ali v Sidney Mitchell [1980] AC 198 13 “Merely to describe something as an error of judgement tells us nothing about whether it is negligent or not. The true position is that an error of judgement may, or may not be, negligent; it depends on the nature of the error”. Whitehouse v Jordan [1981] 1 WLR 246 14 Griffin v Kingsmill [2001] Lloyd’s Rep PN 716 8 9
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The standards applied 10.07
The standard applied for will preparation must be that of the reasonably
competent practitioner in the profession in question. McNair J explained this as: “Where you get a situation which involves the use of some special skill or competence, then the test as to whether there has been negligence or not is not the test of the man on the top of the Clapham omnibus 15, because he has not got this special skill. The test is the standard of the ordinary skilled man exercising and professing to have that special skill. A man need not possess the highest expert skill; it is established law that it is sufficient if he exercises the ordinary skill of an ordinary competent man exercising that particular art.” 16 10.08
But, significantly, a solicitor must not be judged by the standard of a
particularly meticulous and conscientious practitioner. The test is what the reasonably competent practitioner would do having regard to the standards normally adopted in his profession. 17 However, in applying this standard it that:
• ordinarily achieved by members of the profession; 18 or
• in the view of the court, the standard which members of the profession ought
to achieve? 19 10.09
The difference between these two possibilities might sometimes be slight. As
the court is the arbiter of the standard, the second view is the one that will normally prevail, albeit that the court will at least be informed of the former and may choose to apply it as their appropriate standard. In Bolitho v City and Hackney HA it was observed in the House of Lords that: “The court is not bound to hold that a defendant doctor escapes liability for negligent treatment or diagnosis just because he leads evidence from a number of medical experts who are genuinely of the opinion that the defendant’s treatment The famous man on the Clapham omnibus from Hall v Brooklands Racing Club [1933] 1 KB 205 16 Bolam v Friern Hospital Management Committee [1957] 1 WLR 582. It is suggested in Jackson & Powell on Professional Liability (6th edition) 011–080 that nineteenth-century decisions on the standard of skill and care expected of solicitors should now be treated with caution except to the extent that they set out matters of principle that may have been approved more recently. Clearly both the nature of practice and the standards expected have changed considerably since then. 17 Midland Bank v Hett Stubbs & Kemp [1978] 3 All ER 571 approved in Martin Boston & Co v Roberts [1996] 1 PNLR 45 18 Bolam v Friern Hospital Management Committee [1957] 1 WLR 582 19 Midland Bank Trust Co Ltd v Hett, Stubbs &Kemp [1979] 1 Ch 384 “The extent of the legal duty in any given situation must, I think, be a question of law for the court”; Bown v Gould & Swayne [1996] PNLR 130; X v Woollcombe Yonge [2001] WTLR 301 15
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or diagnosis accorded with sound medical practice … responsible, reasonable and respectable – all show that the court has to be satisfied that the exponents of the body of opinion relied upon can demonstrate that such an opinion has a logical basis.” 20 10.10
This was later applied in Patel v Daybells with the explanation:
“If a practice in the profession exposes clients or patients to a foreseeable and avoidable risk, the practice may not be capable of being defended on rational grounds, and in those circumstances the fact that it is commonly (or even universally) followed will not exclude liability for negligence.” 21 This means that evidence of what constitutes the standards set and widely attained in the profession can be of prime importance. 10.11
There is a difference in the standard of care expected of a remunerated
trustee and unremunerated trustee, 22 but as yet there is no definite answer to the question as to whether or not within the legal profession there are differences based upon claimed expertise (which will often be reflected in different levels of remuneration). There is a real prospect of a court imposing on parts of the profession a higher duty than might be imposed upon the rest. This had earlier been left unanswered in Duchess of Argyll v Beuselink: 23 “No doubt the inexperienced solicitor is liable if he fails to attain the standard of a reasonably competent solicitor. But if the client employs a solicitor of high standing and great experience, will an action for negligence fail if it appears that the solicitor did not exercise the care and skill expected of him, though he did not fall below the standard of a reasonably competent solicitor? If the client engages an expert, and doubtless expects to pay commensurate fees, is he not entitled to expect something more than the standard of the reasonably competent? I am speaking not merely of those expert in a particular branch of the law, as contrasted with a general practitioner, but also of those of long experience and great skill contrasted with those practising in the same field of law but being of a more ordinary calibre and having less experience. … If, as is usual, the retainer contains no express term as to the solicitor’s duty of care, and the matter rests upon an implied term, what is that implied term, what is that term in the case of a solicitor of long experience and standing or specialist skill? … I wish to make it clear that I have not overlooked the point which one day may require further consideration.” [1997] 4 All ER 771 [2002] PNLR 6 22 ‘ … a paid trustee is expected to exercise a higher standard of diligence and knowledge than an unpaid trustee…’ Re Waterman’s Will Trusts [1952] 2 All ER 1054 23 [1972] 2 Lloyd’s Rep 172 20 21
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10.12 In Nederlandse Reassurantie Groep Holding NV v Bacon & Woodrow and Ernest & Young 24 on special skills it was found that “… having undertaken to provide that advice (they) were obliged to exercise all reasonable professional care in their work. … The standard of care to be expected is to be measured by reference to the quality of work reasonably to be expected from a professional firm … possessed of the skills which by undertaking the work in question that firm … warranted that it had. If the skill that is warranted is a specialist skill, the client is entitled to the standard of work reasonably to be expected of a specialist professional possessed of that skill. To measure the standard of care in such a case by reference to a non-specialist professional would be wrong in principle because it would involve a dislocation between the skill that was contractually assumed and the quality of work to be expected. The standard of care is further to be measured by reference to the purpose for which the client required the advice. The magnitude of the loss that the client might suffer if the advice given turned out to be wrong is a material factor in setting the standard of professional care to be expected.” 10.13
This goes some way to addressing the unanswered question (above) in
Duchess of Argyll v Beuselink. Whilst the question cannot be said to be definitively settled
i. it would be imprudent not to act to the accepted standard (the reasonably
ii. at the same time being aware that a court could, quite possibly, hold a solicitor
competent practitioner) for the area of work in which a solicitor specializes, 25
accountable for any higher expertise that he has claimed in that area of work.
iii. Although not yet a factor in liability, it is possible that a court could expect a
higher standard from a solicitor whose charging rate was higher than his peers
in order to reflect his claimed skills and experience. 26
[1997] LRLR 678 Matrix-Securities Ltd v Theodore Goddard [1998] PNLR 290: “such skill and care as a reasonably competent solicitor in the relevant sector of the profession”. See also Elcano Acceptance Ltd v Richmond, Richmond, Stambler & Mills [1989] 68 OR (2d) 165; also Grimm v Newman (unreported Chancery, 1st November 2001): “the way in which a reasonably competent accountant tax adviser, with the same specialism as the First Defendant, would have responded to the request for advice” 26 In Matrix Securities v Theodore Goddard [1998] PNLR 290 however, the standard applied to a city firm giving corporate tax advice was that which could be expected of a reasonably competent firm with a specialist tax department, i.e. that there was no higher duty expected within those specializing in the same field.
24
25
297
10.14
The Court of Appeal in Balamoan v Holden & Co, 27 held that a small country
solicitor instructed by a legally-aided client in a comparatively small claim, should not be the subject of too rigorous a standard of care in those particular circumstances as the solicitor was anxious not to incur costs which could not be recovered from the other side. It was held to be of ‘critical importance’ that too rigorous a standard was not applied. However, notwithstanding this, the Court of Appeal also observed that: “… it is necessary to apply the standard of care reasonably to be expected of a reasonably careful litigation solicitor who holds himself out as competent to practise in the field of law in which his client has engaged his services. A one man firm cannot expect a lower standard of care to be applied to it merely because it delegates the conduct of its client’s affairs to an unqualified member of its staff, however experienced. If the conduct of that member of staff falls below the standard appropriate for a solicitor, and he does not seek appropriate advice from counsel or from a solicitor in the firm when need arises, then the firm cannot complain about a finding of negligence against it.” The latter part of this passage highlights an additional area of risk for the practitioner who may overlook that the standard of care will remain that of the solicitor despite delegation to others of his staff. 28 10.15
A solicitor acting outside of his area of knowledge runs a substantial risk of
negligence through his lack of knowledge and experience of the area of law he is attempting to work with. An example of this risk is to be found in Credit Lyonnais v Russell Jones & Walker. 29 The defendant firm were found to have breached their duty of care in that they allocated the claimants’ property work to a corporate lawyer who was not “and never claimed to be, a property lawyer’. The court said that there was no reason to doubt that the solicitor concerned was “an able and industrious corporate lawyer. No lawyer can hope to be an expert in all areas of law and he has never claimed to be an expert in property law. The fault which led to [the claimant’s] problems can be traced back to the [defendant firm’s] decision to assign a corporate lawyer to a property case.” In Hurlingham Estates Ltd v Wilde & Partners, 30 it was held that a solicitor who had “next to no knowledge of tax law and was quite unqualified to give tax advice” breached his duty of care to the client in failing to appreciate and advise on an exposure to tax in a property transaction. (1999) 149 NLJ 898 Richards v Cox [1943] 1 KB 139 involved a question of the solicitor’s liability for the actions of his clerk. The Court of Appeal in Balamoan described it as ‘an example of the principle that a solicitor may be acting at his peril if he creates unnecessary risks for his client by letting his clerk act in matters beyond his competence by advising on points which ought to be referred to counsel’. 29 [2002] EWHC 1310 (Ch) 30 [1997] STC 627 27 28
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10.16
It is regretted that it is not uncommon to encounter will drafting being
undertaken by those unskilled in this area of law. In all probability they are unaware that the duty applicable to them will be that of the reasonably competent solicitor practicing in the area of will preparation.
The duty of care in relation to wills 10.17
Before the decision in White v Jones 31 the duty of care of the will draftsman
was limited to the duty of care that he owed to his client, the testator. The duty did not extend to anyone else. The view had long prevailed that the draftsman’s duty could extend no further than his client because of privity of contract that applied to his contract with his client. 32 There was a successful attempt to expand this duty to include disappointed beneficiaries in Ross v Caunters 33 but the decision was not well received and was little applied. 34 10.18
The duty of care of the draftsman was thoroughly reviewed in White v
Jones35, with House of Lords finding by a bare majority in favour of the draftsman’s duty of care extending to the beneficiaries. 36 This was not done by way of the creation of a new and independent duty of care being directly owed to the beneficiaries. It was instead, the court finding that in some circumstances the duty of care owed to the testator could transfer to the beneficiaries. Where;
• the draftsman is breach of his duty of care to the testator and
• the testator of his estate has suffered no financial loss as a consequence of that
breach, then
• that same duty of care can transfer to the beneficiaries of his will (or of an
intended but invalid will that was invalid because of the breach of duty)
• if the beneficiaries suffered loss because of the breach of duty.
[1995] 1 All ER 691 Robertson v Fleming (1861) 4 Macq 167 33 [1979] 3 All ER 580 34 Despite having some support from the Court of Appeal in Clarke v Bruce Lance & Co [1988] 1 All ER 364 35 [1995] 1 All ER 691 36 For a much more detailed review of negligence and the duty of care for wills see Risk and Negligence in Wills, Estates and Trusts by Frost, Reed QC and Baxter (2nd edition Oxford University Press April 2014) 31 32
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10.19 In White v Jones, the elderly testator had requested a new will, but this was not prepared before his death (approximately 44 days after the instructions were given). The delay was found to have breached the draftsman’s duty of care and that he was liable, to the intended beneficiaries, for the loss occasioned. 37 The time delay in White v Jones was found to have breach the duty of care by being excessive for an elderly client. While a will for the elderly or ill client clearly needs to be dealt with more expeditiously than this, it should not be inferred from the judgment that this time would be suitable for the younger or healthier client. 10.20
It is important to note that it is the duty of care that is that owed by the
testator that transfers to the beneficiary that has suffered loss. Therefore, the service that the draftsman has contracted to provide defines what is included in the duty of care. Any valid restrictions on the service that is to be provided will restrict the duty and the beneficiary would find it difficult to argue for a wider duty.. When looked at from this point of view the retainer becomes important as evidence of what has been agreed and what has been excluded. Exclusions (e.g. not to provide tax advice if the client does not want it) should be reasonable both in extent and in the circumstances of the testator. 38 Exclusions should not breach the requirements of any professional body that the draftsman is a member of, nor should exclusions breach the Unfair Contract Terms Act 1977 or the Unfair Terms in Consumer Contracts Regulations 1999. 39 Where standard contractual terms for the preparation of wills are envisaged a careful reading of this statute, and statutory instrument, are essential. 10.21
The House of Lords in White v Jones did not attempt to draw clearly the
limits of the duty of care – this was expressly left to other judges in other cases. As, result we cannot regard the boundaries of the duty of care of the will draftsman to be precisely or definitively drawn. In the light of this, good practice argues against operating at the boundaries of safe practice.40
Note that the liability is that of the draftsman (or his insurers) to compensate the beneficiaries for their loss. The court cannot rearrange benefit under the existing will of intestacy. 38 In Catling v Catling [2014] EWHC 180 (Ch) the terms of business of the will draftsman were described by the judge as “self-evidently ones which nobody in their right mind would sign” and that the testatrix “would never have signed these terms has she understood how disadvantageous they were”. The draftsman claimed that he could not have misled the testatrix as she “was virtually blind, practically deaf” and that he did not read them to as she was only interested in his hourly rate. As the judge observed that compounded, and did not exculpate, the wrong he had committed. 39 SI 1999/2083 40 The principle decisions relating to time and will preparation since White v Jones are: Bacon v Kennedy [2000] WTLR 169; X v Woollcombe Yonge [2001] WTLR 301; Hooper v Fynmores [2001] WTLR 1019; Trusted v Clifford Chance [2001] WTLR 1219; Feltham v Freer Bouskell [2013] WTLR 1363 37
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Who the duty applies to 10.22
The duty of care applicable to any will draftsman for profit, whatever his
qualification or profession, is that of a solicitor. “I do not however accept that White v Jones is confined to solicitors. The essence of the decision was that the solicitor’s assumption of responsibility carried with it an assumption of responsibility to prospective beneficiaries of whom he was aware. The solicitor had assumed responsibility in their case because it was part of a solicitor’s business to assume that sort of responsibility. If however a non-solicitor assumes the same sort of responsibility I see no reason why such a person should be exempt from the general principle there laid down … It seems to me in this case Allied Dunbar did assume responsibility in the same way …” 41 10.23
The duty of care is not diminished simply because a low fee is to
be charged.42
Time taken for a will 10.24
White v Jones was about delay by the draftsman and much of the
subsequent litigation has looked at this question. The single most important observation on this area was that of Neuberger J (as he was then) in X v Woollcombe Yonge 43 : “It can always be said that, when a client indicates to a solicitor that he or she wants to make a will, or wants to make a substantial change to a previous will, the solicitor should draw up something very quickly for the client to sign then and there as a holding operation. There can always be a risk of death from heart attack, stroke or accident. 44 The question as to whether a solicitor should be concerned about that possibility must, as I have said, be one of fact and degree. Where the client is old or ill, the delay which may be acceptable will obviously be less than in the absence of age or illness. Where there is a plain and substantial risk of the client’s imminent Esterhuizen v Allied Dunbar [1998] 2 FLR 668 QB Johnson v Bingley, Dyson & Furey [1997] PNLR 392 ; Investors’ Friend Ltd v Leathes Prior [2011] EWHC 711 QB “When solicitors undertake work at a specific fee, they are generally speaking obliged to complete it exercising the ordinary standard of care, even if it has become unremunerative.” ; Paratus AMC Ltd v Countrywide Surveyors Ltd [2011] EWHC 3307 Ch “a valuer is not excused from doing what is necessary to provide a competent valuation merely by the low level of his remuneration”: Hicks v Russell Jones & Walker [2007] EWHC 940 Ch “As [the claimants] were legally aided, RJW were bound to act on their behalf as if they were private client of moderate means” 43 [2001] WTLR 301 44 Although the judge did not say so, loss of testamentary capacity arising from these accidents should also be included in this risk. 41 42
301
death, anything other than a handwritten rough codicil prepared on the spot for signature may be negligent. It is a question of the solicitor’s judgment based on his assessment of the client’s age and state of health… . So far as preparing the will promptly is concerned, I consider a period of seven days [for a late middle aged cancer sufferer with no imminent expectation of death], as she appeared [to the solicitor] was not an unreasonable period…. … …[the] suggestion that a solicitor should only act urgently when he thought that there was a likelihood, by which I take it to mean a more than 50 per cent risk, of his client dying before he could return with the will, appears to me a significantly too generous a test to solicitors. I consider that the right test is whether there was a real prospect of such an eventuality.” 45 10.25
The judgment draws specific attention to two factors; age and state of
health 46. The factors must be ascertained and assessed by the solicitor in order to determine urgency and the time that should be taken. Omitting this assessment will, prima facie, breach the duty of care if loss ensues. The importance of age had been highlighted earlier by Chadwick LJ in Carr-Glynn v Frearsons 47 where he observed: “… .it is necessary to bear in mind that the testatrix was 81 years of age when she made her will in 1989. It must have been within the contemplation of a solicitor who was instructed to make a will for a client of that age that the matter ought to be dealt with promptly, lest the client’s testamentary intentions be defeated by events beyond his or her control.” 10.26
It was suggested that the draftsman should, under the circumstances in X v
Woollcombe Yonge, be required to inspect the client’s medical notes or consult the hospital staff to determine the client’s state of health and life expectancy to validate the conclusion that the solicitor had reached about his client’s lack of imminent expectation of death. The judge rejected this as potentially placing the medical staff in a position of conflict with their duty of confidentiality to their patient.
X v Woollcombe Yonge [2001] WTLR 301 In practice, urgency is not driven solely by the possibility of death, but also by the possibility of medical events, such as strokes, which, while not immediately resulting in death, may deprive the client of testamentary capacity. Other obvious factors would be the implications of any forthcoming serious medical treatment (e.g. surgery) or hazardous employment 47 [1999] Ch 326 45 46
302
10.27
The passage on likelihood of death, at 10.24 above, is more difficult to
understand. Clearly Neuberger J envisaged that treating as urgent only a 50% or greater risk of death was to be too conservative. However, although these remarks indicate that a less than 50% or less risk should be the threshold, how much less is hard to quantify. Does a “real prospect” mean “within the bounds of real possibility” as opposed to a remote possibility? Despite this difficulty with semantics, the course for safe practice must be to err on the side of caution, Some help, as far as the elderly are concerned, can be found in those judgments that express a need for the elderly to be treated as having a greater risk of death. 48 10.28
The draftsman’s assessment of the client could conclude that there was not
a high degree of urgency attached to the client’s circumstances and that he is later proved wrong by later events (as happened in X v Woollcombe Yonge). A test of reasonableness will be applied to the solicitor’s judgment in forming his view of the client. 49 10.29
Neuberger J’s suggestion that a draftsman might well prepare a will or
codicil as “a holding operation” was not an indication that this should be done in all cases. The advice could be applicable where there is a plain risk that the client might not survive the short time taken to have a will prepared in the draftsman’s office. Such a temporary will can also be significant where there is a change of wishes by the testator, and it is important that the dispositive terms of the will are changed to reflect this, while more careful planning of the taxation structure of the will is considered further. This is a point to discuss with the client where significant changes or a substantial estate planning exercise are contemplated. Tax planning exercises are not easily fitted into the timescales of will preparation, and it is therefore much safer for the solicitor to discuss the question of time and give advice on whether or not an interim will is needed.
White v Jones [1995] 1 All ER 691, Carr-Glynn v Frearsons [1998] 4 All ER 225, Gartside v Sheffield Young & Ellis [1983] NZLR 37 49 “On the facts of this case, it does appear to me, as I have said, that [the solicitor] took a view which a reasonable solicitor could perfectly well have taken….” Neuberger J in X v Woollcombe Yonge [2001] WTLR 301, having earlier cited with approval Lord Diplock in Saif Ali v Sydney Mitchell & Co [1980] AC 198: “Those who hold themselves out as qualified to practice other professions, although they are not liable for damage caused by what in the event turns out to be an error of judgment on some matter upon which the opinions of reasonably informed and competent members of the profession might have differed, are nevertheless liable for damage caused by their advice, acts or omissions in the course of their professional work which no member of the profession who was reasonably well- informed and competent would have given or done or omitted to do.” 48
303
10.30
The test that Lord Neuberger set out in his judgment leads to the following
practical steps when taking will instructions
• establish the client’s age and state of health together with any other factors
• in the light of these factors consider how quickly the will should be prepared
that could have a bearing on the urgency of the will;
(N.B. this is not how quickly the draftsman would like to proceed, but how
quickly his client’s circumstances require him to proceed);
• if it is appropriate discuss whether or a holding, or interim, will or codicil should
• set a reasonable time limit for the will to be ready for execution and agree this
be prepared;
with the client.
10.31
Time delay in itself is not evidence of negligence, as there may be valid
reasons for it. 50 The delay in having the will prepared or executed, in terms of negligence, must be delay that is attributable to the will-preparer. There can be no liability for delay where it results solely from the actions or inactions of the testator.51 Delay which is genuinely attributable to the client should not give rise to liability for the draftsman. However, unnecessary procedures imposed on the client by the draftsman may well not be safe. It is not, for example, reasonable to attribute delay to the client if the client has had to take time to reply to unnecessary letters. If the process has been delayed by letters that should not have been written, or if all the information/questions should have been dealt with in one letter (or at the stage of instructions), the delay is more likely to be attributable to the draftsman. 52
Smolinski v Mitchell [1995] 10 BCLR (3d) 366. Invalid reason will not assist the draftsman. Zurich @risk newsletter April 2003 contained reference a claim where a will for an 88-year- old in hospital was not prepared within 17 days because of a three-week typing backlog. A second example, where over five weeks elapsed without a will being prepared for a 93-year-old in a home, was attributed to pressure of work and staff absences on holidays. A third example was of preparation of a will not being followed up where the member of staff had left the firm and telephone messages and a letter were left on his desk. Systems that produce these errors are not robust enough to control risk. Zurich observe that: “what is clear is that pressure of work, typing backlogs, or the absence from the office of the will drafter or staff to act as witnesses due to illness or holiday will not provide a defence to a professional negligence claim.” 51 Smolinski v Mitchell [1995] 10 BCLR (3d) 366; Trusted v Clifford Chance [2000] WTLR 1219; Atkins v Dunn & Baker [2004] WTLR 477 52 See Bacon v Kennedy [1999] 1PNLR 1 for examples of unnecessary letters of this nature
50
304
10.32
Some testators do not proceed with their wills once the document has been
drafted or even engrossed. Where this occurs the will draftsman should ensure that he has done all that can possibly be required of him. If this is the case, the failure to execute the will is down to the testator. In Atkins v Dunn &Baker 53 the testator took no action after receiving the draft will for approval. The draftsman was found to be under no duty to remind the client. It is prudent, despite the Atkins judgment, to send a letter, or to make a contemporaneous note of a conversation (but a letter is better) in which the testator is asked quite clearly if there is anything further that the testator requires the will draftsman to do to assist with the execution of the will. A letter in unequivocal terms, should be clear evidence that the draftsman can go no further in default of the client’s further instructions regarding execution. Delay at this point is clearly not the fault of the draftsman.
The Cancellation of Contracts made in a Consumer’s Home or Place of Work etc Regulations 2008 54 10.33
Leaving matters outstanding with the client for too long without a warning
of the dangers should always be avoided at the very least on the grounds of good client care. These regulations were clearly not designed to deal with any known or perceived mischief arising from a draftsman taking will instructions at a client’s home. But, the regulations give a client a seven day period, after entering into the contract, for the supply of goods or services to be cancelled. This does not sit easily with the draftsman’s post-White v Jones obligation to act expeditiously. 55 However, the risk of cancellation is fairly marginal given that will instructions are not that often cancelled and that there are some safeguards with the Regulations.
[2004] WTLR 477 This particular claim appeared to have most significant problems of causation, as the Court of Appeal also indicated 54 SI 2008/1816 which came into force on 1 October 2008; these Regulations revoke the Cancellation of Contracts Concluded away from Business Premises Regulations 1987 and re- implement the requirements of EC Directive 85/5777/EEC. It is not possible to contract out of these regulations see Regulation 15(1) 55 Even less where there are additional factors of urgency 53
305
10.34
The Regulations make provision for the client to request, in writing, for the
work to start immediately when he does not want the work to be delayed. 56 This will almost invariably be the case with a will. The client should provide a simple written confirmation that he requires work to start straight away, once he understands the risk of the draftsman waiting seven days. Once the work has started, the client must pay for any work done before cancellation if the contract is cancelled within the seven day period. 57
Areas of concern for the duty of care 10.35
In addition to the need to control time, highlighted in White v Jones, there
are other areas of where the duty of care needs to be considered. Bearing in mind that the precise boundaries of the duty of care are not exactly determined, new issues, other than those discussed below may arise. Taking instructions 10.36
Where the standard of instruction taking is so far below standard practice
as to be negligent, the draftsman is at risk of claims from beneficiaries for lost benefit that arises out of the defective will. This inevitably throws much weight onto the care and thoroughness with which will instructions are taken. Drafting 10.37
Erroneous drafting because of a clerical error or a failure to understand the
testator’s instructions is capable of being rectified by the court using the powers under s.20 Administration of Justice Act 1982. Where the error arises out of the negligence of the draftsman, the costs of the action usually lie with him (or his insurer 58). An error in drafting that arises out of the draftsman’s negligence that is not capable of being rectified in this way has the real possibility of giving rise to a claim against the draftsman by the disappointed beneficiary.
Regulation 9(1) without this authority ‘the trader’ is not required to start work on his ¬contract for seven days after agreement and that in terms of the will draftsman’s duty of care would be potentially dangerous. 57 Regulation 9(2) 58 Zurich @risk newsletter May 2008 “Where the “clerical error” or “the failure to understand the testators instructions” is caused by the solicitor, it is likely that the solicitor will have failed in his or her duty of care to the testator and the costs will be recoverable against the solicitor. Similarly where the costs are so obscure or ambiguous that they give rise to a construction action, the solicitor runs the risk of being liable for the costs of that action” 56
306
10.38
Where the drafting is obscure or ambiguous because of the negligence of
the draftsman, the costs of a construction are likely to fall against the solicitor. This is not to say that all constructions are necessarily the fault of the draftsman – much will depend upon the circumstances. Joint property bequests 10.39
Where it is necessary for the operation of the terms of a will that the testator’s
interest in property owned as a beneficial joint tenancy is severed, the Court of Appeal have held that it is negligent for the draftsman not to effect severance. The finding was that where severance was required “the service of a notice of severance was part of the will-making process”. 59 In Carr-Glynn, the draftsman was aware of the joint ownership but did not know whether it was a beneficially joint tenancy or a tenancy in common. Had the draftsman not been made aware of the joint ownership it is difficult to see that liability would have arisen. Simply not asking about joint ownership of major assets, when taking will instructions, would not be safe practice. 10.40 In Carr-Glynn. the Court of Appeal only referred to severance by a written notice on the co-owners as provided for by s.36(2) Law of Property Act 1925, but s.36(2) also permits severance by “such other acts or things as would, in the case of personal estate, have been effectual to sever the tenancy in equity” i.e. the pre1925 methods of severance can still give severance. This proved to be an important point in the will preparation in Re Woolnough. 60 The will draftsman should be aware of the pre-1925 61 methods :
1. an act of any one of the persons interested operating upon his own share
2. by mutual consent
3. by any course of dealing sufficient to intimate that the interests of all were
mutually treated as constituting a tenancy in common. 61.1
This suggests more than just be familiarity with the preparation of a written notice, but also the requirements of service s.196 Law of Property Act 1925; Quigley v Masterson [2012] WTLR 521 See section 8L on severenace of joint property generall , and fn 170 in that section. 60 Re Woolnough, Perkins v Borden [2002] WTLR 595 61 As defined in Williams v Hensman (1861) 1 John & H 546; there is, additionally, severance by a third party (one co-owner being made bankrupt), one co-owner acquiring another interest in the land and by homicide, 61.1 see 8L.17 et seq on severance 62 [1998] 2 FLR 668
59
307
Execution 10.41
There is no decision to the effect that a draftsman has an unqualified duty
to supervise the execution of a will he has prepared. The nearest to such a position is the judgment in Esterhuizen v Allied Dunbar 62 where it was observed: “Any testator is entitled to expect reasonable assistance without having to ask expressly for it. It is in my judgement not enough just to leave written instructions with the testator. In ordinary circumstances, just to leave written instructions and to do no more will not only be contrary to good practice but also in my opinion negligent.” 63 Also: “… a prudent solicitor regards it as his duty to take reasonable steps to assist his client in and about the execution of his will, rather than merely to inform the client how it is to be signed and attested. This means that once the client has approved the draft of a will a prudent solicitor will either invite the client to his office so that the will can be executed there or visit him with a member of his staff to execute the will at the client’s house.” 64 Taken together these two statements clearly expect that in normal circumstances the execution will be supervised by the draftsman, but they do not go far as to state that as an invariable requirement. 10.42
To weigh against the above this is the judgment in Gray v Richards Butler 65
where a different view was taken of the duty: “What steps are appropriate in discharge of these various duties in any given situation may depend on who the client is and the view that the solicitor has formed, or ought to have formed if acting with reasonable competence, as to the ability of the client to understand and follow advice as to the relevant procedures.” 66 While these judicial two views are not irreconcilable, the Gray extract takes a less definite view in allowing the draftsman to form a view of what is appropriate. The draftsman needs to be aware of both cases and standards indicated. Not supervising execution where the elderly, infirm or vulnerable are involved must have an element of risk to the draftsman (as well as deprive the court of important evidence about the testator at the time of execution of the will. [1998] 2 FLR 668 [1998] FLR 668 at 677 (authors’ added emphasis) 64 [1998] FLR 668 at 674 (authors’ added emphasis) 65 [2000] WTLR 143 (despite the date of reporting, this judgment pre-dates Esterhuizen by almost a year. Gray does not appear to have been considered in Esterhuizen) 66 [2000] WTLR 143 62 63
308
10.43
Following the Supreme Court’s decision in Marley v Rawlings 67, rectification is
available to rectify some errors in execution at the expenses of the draftsman where his supervision of the execution was negligent. Storage 10.44
Where wills are stored by the draftsman he must be aware of the importance
of the document that he has been entrusted with and take all reasonable steps to keep it secure loss, destruction or unauthorised release to a third party. Loss caused through the negligence of the storer is potentially a claim against him, depending upon the extent of the loss.
The draftsman’s duty to assess the testator’s capacity 10.45
A will draftsman has no general duty to obtain a medical report, for
testamentary capacity purposes, for all clients, 68 but where
• the circumstances of the testator (age, illness etc.) or
• the circumstances of the interview, or
• the terms of the new will,
raise genuine issues relating to capacity 69 then the draftsman would be very ill advised to ignore the question of a medical report. The presumption of capacity in s.1(2) Mental Capacity Act 2005, is not applicable and should not be cited in this context. It is not an authority for the draftsman to proceed without enquiry into the capacity of the testator. It is a presumption “for the purposes of this Act” only and therefore does not apply to testamentary capacity until the court might choses to adopt it. 69.1
[2014] WTLR 299 (where a husband and wife had executed each other’s wills, but the supervision of the execution had not picked this up) 68 In Thorpe v Fellowes [2011] EWHC 61 (QB) it was said in connection with a contract issue that “A solicitor is generally only required to make inquiries into a person’s capacity to contract if there are circumstances such as to raise doubt as to this in the mind of the reasonably competent practitioner”. This is often misunderstood and cited as authority for there being no need to make any enquiry into testamentary capacity in the absence of patently obviously impaired capacity. This is not what the judgment says. Further, it was not a decision about will instructions (where capacity is a core issue) and none of the leading cases on testamentary capacity, or the capacity to make gifts, was considered. 69 And also undue influence, fraud or want of knowledge and approval 69.1 See 2.12 et seq for more on this point
67
309
10.46
Obtaining a medical report is an issue that is separate from the need for the
draftsman to otherwise satisfy himself as to his client’s capacity. In order to be able to accept instructions for a will, the draftsman must be satisfied that the client has the capacity to engage him. 70 In Feltham v Freer Bouskell 71 it was observed that : “Where a solicitor is instructed to prepare and execute a will for a client, if the client does not have capacity, he has no client and cannot accept instructions. If he has concerns as to mental capacity, he must either refuse the instructions and make the position clear to the client, or take steps to satisfy himself as to his client’s mental capacity promptly.” 72 10.47
Where the client’s circumstances do not give rise to any concern as to
capacity, it would clearly be inappropriate for a draftsman to spend time, and the client’s money, on an unnecessary capacity assessment. This is provided that the draftsman is satisfied that his client has capacity from his dealings with him. 73 However, even where the draftsman is quite satisfied as to his client’s capacity there may be other circumstances, such as family animosities etc, that might lead him to advise his client that such a report is a sensible precaution. 10.48
Where the draftsman has any concerns at all, he should ask further questions
of his client in an attempt to satisfy himself, as far as is reasonable, that the client has capacity. 74 Capacity issues are more often encountered with the elderly and infirm, therefore ignoring the issue and assuming capacity for these clients, instead of asking further questions, will fall well short of the standards expressed in English judgments. 75
“The relationship of solicitor and client is primarily a contractual one and, as with any contractual relationship, a solicitor’s retainer is governed by the terms of the contract agreed with his or her client” `Solicitors’ Negligence and Liability` Flenley and Leech (3rd edition Bloomsbury Professional 2013). There is no single standard for the capacity to enter into a contract, the person must be able to understand the nature and effect of the particular contract (Boughton v Knight (1873) LR PD 64 at 72). The Law Society Practice Note on `Financial Abuse` 13th June 2013 when dealing with precautions to be taken against financial abuse “If you are in any doubt as to whether a client has capacity to provide instructions, you must perform a capacity assessment before any instructions are acted upon.” 71 [2013] WTLR 1363 72 Authors’ emphasis 73 Jeffrey v Jeffrey [2013] WTLR 1509 74 Legal Services Commissioner v Ford [2008] LPT 12 (Queensland) and a finding of unsatisfactory professional conduct was made where the solicitor’s conduct in preparing and arranging for the execution of an EPA and a will “fell short of a standard of competence and diligence that a member of the public was entitled to expect of a reasonably competent Australian legal practitioner”. Also, see the criticism of the draftsman in Re Key, Key v Key [2010] WTLR 623 for failing to address the issue of capacity 75 Re Key, Key v Key [2010] WTLR 623
70
310
10.49
The Golden Rule, 76 as originally stated, clearly indicates that, for the aged or
seriously ill testator, there is a duty for the draftsman to take steps to satisfy himself as to capacity. However, the Golden Rule is now acknowledged, by the court, not to be a rule.77 It has been repeatedly been accepted by the court as a sound guide to practice, and there is often strong support from the court for the application of the rule 78 with adverse comment where there has been non-compliance for no good reason. This makes it reputationally dangerous for a draftsman to ignore the Rule without good, and documented, reasons: “Contrary to the clearest guidance in well-known cases, academic texts and from the Law Society, [he] accepted instructions for the preparation of the 2006 will…..without taking any proper steps to satisfy himself of Mr Key’s testamentary capacity….” 79 10.50
It appears to be acceptable practice for the Golden Rule be complied with
by either
• the draftsman following the Golden Rule and involving a medical
practitioner or
• the draftsman otherwise satisfying himself properly as to his client’s capacity, at
least sufficiently as to reasonably not require any medical view of capacity.
Either of these two courses should be sufficient compliance with the Rule to satisfy the court as to proper conduct, even if ultimately the court concludes that the testator lacked capacity. 80 From the draftsman’s perspective, the importance is not that he is required to reach a correct conclusion as to capacity but that he has properly made sufficient enquiries to arrive at a reasonable conclusion (even if the later the court reaches a different conclusion.
Re Simpson (1977) 127 NLJ 487 (Templeman J as he was then) – “In the case of an aged testator or one who has suffered a serious illness, there is one golden rule which should always be observed…..” 77 Hoff v Atherton [2005] WTLR 99 CA “to briefly reported to be of much assistance, contains prudent guidance for solicitors and does not purport to lay down the law”. See Chapter 6 for more detailed comment on the Golden Rule 78 Re Key, Key v Key [2010] WTLR 623; Re Morris deceased, The Special Trustees for the Great Ormond Street Hospital for Children v Rushin [2001] WTLR 1127 79 Re Key, Key v Key [2010] WTLR 623 80 Scammell v Farmer [2008] WTLR 1261 76
311
10.51
English court decisions appear to proceed on the implied basis that the
draftsman has a duty to satisfy himself of his client’s capacity. 81 A duty to do so has been much more clearly expressed in Canadian judgments: “….the solicitor does not discharge his duty by simply taking down and giving legal expression to the words of the client, without being satisfied by all available means that the testable capacity exists and is being freely and intelligently exercised…The solicitor is brought in for the very purpose of ascertaining the mind and will of the testator….” 82 A solicitor cannot discharge his duty by asking perfunctory questions, getting apparently rational answers, and then simply recording in legal form the words expressed by the client. He must first satisfy himself that true testamentary capacity exists, that the instructions are freely given, and that the effect of the will is understood.” 82.1 10.52
Also, in Australia, the following has been expressed regarding the draftsman’s
duty 83 “That does not, however, mean that no ethical considerations arise in such a circumstance. The essence of a solicitor’s fiduciary obligations to a client is the unfettered service of that client’s interests…….. The testator should be assisted by his or her legal adviser only in making a valid will.” 10.53
None of the above judgments have been considered or approved by the
English court, but there must be a strong possibility that they would be accepted in support of the implicit recognition of the duty ascertain capacity mentioned above. In Feltham v Freer Bouskell the court made the clearest statement yet that the English court regards there as being a requirement that the draftsman must satisfy himself of his client’s capacity:“[The solicitor] accepted instructions to act for [the testatrix] in relation to her desire to change her will. He did so subject to the requirement to satisfy himself that she was of sufficient mental capacity to alter her will.” 84
Wintle v Nye [1959] 1 WLR 284; Re Parsons, Borman v Lel [2002] WTLR 237; Re Key, Key v Key [2010] WTLR 623; Feltham v Freer Bouskell [2013] WTLR 1363 82 Murphy v Lamphier (1914) 31 OLR 287 (affirmed (1914) 32 OLR 19), cited in Maw v Dickey(1974) 52 DLR (3rd) 178; Friesen v Friesen Estate (1985) 33 Man R (2d) 98; Scott v Cousins (2001) 37 ETR (2d) 113; Hall v Estate of Bruce Bennett [2003] WTLR 827 82.1 Frisen v Friesen Estate (1985) 33 Man R (2d) 98 83 Pates v Craig, the Estate of the late Joyce Jean Cole [1995] NSWSC 87 at [143] and [147] per Santow J 84 [2013] WTLR 1363 81
312
10.54
Should a draftsman refuse instructions to prepare a will when he is not
satisfied that his client has capacity? The clear implication of Re Simpson 85 , Re Morris86 and Re Key 87 is that he should - it would be a strange, position both ethically and practically, if a draftsman could proceeded where he believed the testator lacked capacity. In Knox v Till 88 the court found that there was no duty to refuse to prepare a will where the client lacked capacity, “There is generally an obligation to carry out the client’s instructions. In the situation under discussion no disqualifying factor such as illegality, unlawfulness or breach of ethical responsibilities arises to negate that duty. The giving of advice on the question of testamentary capacity and recording the advice which would appear to be possible appropriate responses to a situation where capacity is apparently in question, are far removed from a possible refusal to act.” But, this view is not in line with the English and Canadian cases cited earlier. Further, it does not address how a retainer to prepare a will can be offered to, and accepted by, someone who, the draftsman believes, lacks the capacity to understand the subject matter of the retainer. 10.55
The draftsman has a duty to clarify what it is that the client is instructing him
to do, where the instructions are in imprecise or non-legal terms. 89 There is a much greater possibility of this being the case with the elderly or infirm. The extent of the retainer and duty of care will then be determined by the extent and nature of the advice required.
Re Simpson (1977) 127 NLJ 487 Re Morris deceased, The Special Trustees for the Great Ormond Street Hospital for Children v Rushin [2001] WTLR 1127 87 Re Key, Key v Key [2010] WTLR 623 88 [2000] Lloyd’s Rep PN 49 (a New Zealand case) there was a further attempt, Public Trustee v Till [2002] WTLR 1169, in the same estate where the executors attempted to recoup the probate costs, which also failed. 89 Gray v Buss Murton [1999] PNLR 882 (noted with approval in Feltham v Freer Bouskell [2013] WTLR 1363); Groom v Crocker [1939] 1 KB 194 “it is an incident of that duty that the solicitor shall consult with his client on all questions of doubt which do not fall within the express or implied retainer” 85 86
313
10.56
What is less clear is where a will is prepared negligently, and it is later
found to be invalid with costs (in whole or in part) being left in the estate, can the personal representatives recover those costs from the draftsman on the basis that he breached his duty of care? The possibility of this was not ruled out by the Court of Appeal in Worby v Rosser. However this is view is not easy to reconcile with the later Court of Appeal judgment in Corbett v Bond Pearce. 90 This point remains to be fully explored by the court. 91
Negligence and tax advice 10.57
There is no duty to give tax advice when taking all will instructions. To
determine if there might be a duty, the client’s requirements must be the start point. If the client does not require tax advice on the terms of his will clearly the matter must rest there as the draftsman is not retained to provide it. The matter should therefore rest with the client requires, but this cannot be determined without asking the client what they require. There are two important aspects to asking the client if tax advice is required 1. From Carradine Properties Ltd v D J Freeman 92 comes the proposition that, in
the absence of express terms on engagement, the draftsman’s duty will
depend upon the extent that the draftsman perceives that he needs advice.
The less knowledgeable of the relevant issues the client is, the greater the need
for the draftsman to ascertain what the client requires.
2. From Gray v Buss Murton, 93 the draftsman has a duty to clarify what the client
actually requires him to do where the instructions are given in imprecise or
layman’s terms. Taken together, these two points could be summarised as there
being no general duty to give tax advice, but there is a requirement to ask if
the client requires it.
The claimant was successful on this point in Sifri v Clough Willis [2007] WTLR 1453, where she recovered in part the costs of the successful want of knowledge and approval claim, but there appears not to have been a full consideration of the two Court of Appeal cases. There is a strong suspicion that given the severe remarks made about the draftsman’s conduct in Re Key, Key v Key [2010] WTLR 623 that his insurers paid some of the costs, but this suspicion cannot be confirmed. 82 [1999] Lloyd’s Rep PN 483; Groom v Crocker [1939] 1 KB 194 “it is an incident of that duty that the solicitor shall consult with his client on all questions of doubt which do not fall within the express or implied retainer” 93 [1999] PNLR 882 QBD 91
314
10.58
Where the client requires taxation advice and is given negligent advice,
the position as to liability has been made difficult by the Court of Appeal’s decision in Daniels v Thompson. 94 This decision has been much criticised. The Court took the view that the wrong advice given 95 had not caused any loss to the testatrix as the tax liability arose after her death. On two subsequent occasions other judges have refused to strike out similar matters 97 and one has suggested that the Court of Appeal might like to reconsider its views in Daniels. The correctness of Daniels must be in doubt and no doubt will be revisited when a suitable opportunity arises.
Risk Management 10.59
The relatively new significance of professional negligence in will preparation
now requires that risk management policies must be developed in order to control a firm’s risk – reputational, regulatory and financial risk. 10.60
The management of risk for solicitors is required by Principle 8 of the SRA
Code of Conduct 2011. For corporate entities, good corporate governance requires management of risk. Other professional bodies have Codes of Conduct that requires standards to be observed by their members. Most Codes of Practice require management of risk to ensure compliance with a code’s requirements. 10.61
Risk management should aim to
1. Identify risk in the work processes
2. Identify any legal, regulatory and/or professional code compliance needed in
the work processes
3. Construct safe work processes in the light of the above 98
4. Monitor compliance, within a firm, with those processes
5. Review of operation of the processes
6. Update processes in the light of experience and changes to the law
and regulation This only works safely with consistency of approach across all areas involved with wills. It will also only work safely with written guidance that is readily accessible to all who need it. [2004] WTLR 511 That the transfer of the house she lived in to her son would avoid IHT on her death, notwithstanding that would continue to live in it (a gift with reservation s.102 Finance Act 1986) 97 Rind v Theodore Goddard [2008] EWHC 459; Vinton v Fladgae Fielder [2010] EWHC 904 (Ch) 98 Remembering that risk management is not necessarily about the elimination of risk but is more often concerned with acceptable and safe levels of risk 94 95
315
10.62
Obvious areas to examine closely are
• Control of time – this is not only the time involved from will instructions to
execution, but how the time responding to a request for a will to be prepared
is managed, particularly for the old or infirm. A common approach with
monitoring of compliance reduces the risk.
• Knowledge – are the skills available sufficient to handle the demands of wills
and are controls necessary on types of advice given, and wills prepared, by less
experienced or qualified individuals? Should this require limits being place on
who can give advice on cross-border and domicile issues?
• Will instructions – is a uniform standard being achieved? This is usually helped
by developing a standard instruction form used by all within a firm who take
will instructions thereby ensuring a standard level of basic information is
established for each client
• Drafting and checking – common use of the same system of precedents and a
common approach to who checks drafts. The later point will often involve
whether or not drafts should always be checked with a second pair of eyes.
• Elderly and infirm clients – these clients present particular challenges and not
adopting common approaches will leave important decision making too often
at inappropriate levels. Written policies can ensure a standard approach which
will assist both risk management and ensuring that decision making is consistent.
• Communication
• Knowledge of the correct test of capacity
• Understanding of the Golden Rule and its practical implications
• Responsibility of the person taking instructions
• Recording of observations and instructions
• Policy on instructions for medical reports
• Security of documentation including storage – loss of documentation or
destruction is potentially expensive
• Out of area of practice work – should wills ever be prepared outside of the
private client department?
316
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Chapter 11 Inheritance Tax (IHT) – Introduction
11.1. Basic Features 11.1.
As far as individuals are concerned, IHT has four essential features:
(a) it taxes the gratuitous transfer of capital whether by a voluntary
lifetime act or on the more involuntary act of death;
(b) it is a tax raised on and by reference to the donor rather than (as
(c) it is cumulative; and
elsewhere in Europe) a tax on donees;
(d) although historically the rate of charge has been progressive it is now
based on two flat rates, one for lifetime the other for death.
11.1.2.
For settled property, including created by Will, the broad principle is that
overall the charge to IHT should over a generation (say 30 years) be
equated with that which would have been levied if the property had not
been put into trust. 11.1.3.
The starting point for the rules is the Inheritance Tax Act 1984 (IHTA 1984)
which has been amended and extended each year by the respective
Finance Acts. 1.4.
IHT applies:
(a) to property passing on death (including jointly owned property and
certain settled property in which the deceased had an interest in
possession (see Chapter 13) – s3 provides that the value transferred on
death is the value of the deceased’s estate immediately before
a death;
(b) the death of the donor of a lifetime potentially exempt transfer (PET)
within seven years of the gift; and
(c) as a result of a lifetime chargeable transfer (LCT).
1.5.
By s2 a chargeable transfer is:
318
(a) a transfer of value by an individual which is not exempt; and
(b) a disposition (not defined) by a person which reduces the value of his
estate, the value transferred being the reduction in value.
2. Territorial Scope 2.1.
IHT applies to individuals who are:
(a) domiciled in the United Kingdom to all their worldwide assets; and
(b) not domiciled in the United Kingdom to all assets situated in this country.
2.2.
Domicile is the important factor, rather than residence of nationality.
Any question as to an individual’s domicile is dealt with under English law by
applying the general principles, i.e. domicile of origin and domicile
of choice. 2.3.
For IHT (and only for IHT) there is a further concept of ‘deemed domicile’.
s267 provides that a person becomes domiciled in the UK once they have
been resident for 17 out of 20 tax years. For these purposes, a person has to
start counting at 6 April in the tax year in which he/she first arrived in the UK.
2.4.
A person remains deemed domicile for a period of three tax years after
losing their UK domicile (either of origin or choice) by leaving the UK
permanently and therefore subject to IHT on their worldwide assets.
2.5.
If a transferor (lifetime or death) is domiciled in the UK but their spouse is
not domiciled (or deemed domiciled) in the UK, then there is only a limited
spouse exemption available (see Chapter 12 spouse exemption).
2.6.
s18(2) as most recently amended by Finance Act 2013 limits the exemption
to the amount of the nil rate band from time to time (e.g. now £325,000).
2.7.
The Finance Act 2013 provided that a non-domiciled spouse can elect for IHT
to be domiciled to the UK for gifts made to them on death or within seven
years of the donor’s death.
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3. Other Scope Issues 3.1.
The value transferred can be reduced by a variety of exemptions and reliefs
– see Chapter 12 - to give a Gross Figure. The Gross Figure is then reduced
by the transferor’s available nil-rate band – see Chapter 12 (having first
deducted from the nil-rate band any chargeable transfers – including on
death previously PETs – which have eroded or extinguished the amount to
give the Net Figure. Tax is paid then at 40% (or 20% for a LCT) on the
Net Figure. 3.2.
Dispositions of “excluded property” are not taxable. “Excluded property”
includes:
(a) property situated outside the UK beneficially owned by a non-UK
(b) certain British Government Securities beneficially owned by an
domiciled individual (s6(1));
individual neither domiciled or resident in the UK (s6(2));
(c) certain reversionary interests in settled property (s48).
3.3.
Certain Double Taxation Treaties, e.g. India, Pakistan, may take certain assets
outside the scope of IHT, e.g.
Tom dies domiciled in India in accordance with both England and Indian
law but deemed domiciled in the UK under s267. Tom’s estate will not be
liable to IHT on any property situated outside the UK and which passes under
a disposition or devolution regulated by a law other than that of
Great Britain. 3.4.
Any attempt to rely on such a Treaty will require advice from lawyers duly
qualified in the other jurisdictions.
3.5.
Schedule 6 para 2 provides that where one spouse died before 13
November 1974 and estate duty was paid (or would have been paid if the
estate had been large enough, i.e. below the nil-rate band) on property in
which the surviving spouse took a life interest then that property is exempt
from IHT on the survivors death. Clearly, this exemption will have reducing
impact as time goes by.
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4. Relationship with other Capital Taxes 4.1.
IHT is a charge imposed on capital gifts. The rules do not exclude the
imposition of other taxes, e.g. Capital Gains Tax (CGT), Stamp Duty and
Land Tax. 4.2.
However, although IHT and CGT are not mutually exclusive, the general
thinking is that only one or the other is charged on a transaction/disposition,
e.g. no CGT is payable on death.
4.3.
If a disposition attracts both then for IHT the reduction in value of the
transferor’s estate is calculated ignoring any liability for CGT.
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Chapter 12 Inheritance Tax (IHT) – Exemptions and Reliefs
1. Exemptions
Exempt gifts should not be confused with taxable gifts which qualify for relief.
1.1.
Lifetime and death transfers
(a) Spouses/civil partners – s18 IHTA 1984 (NB Chapter 11.2.6);
(b) Charities – s23 IHTA 1984 – (see Chapter12.1.3.1);
(c) Political parties – s24 IHTA 1984 (see Chapter 12.1.3.2);
(d) Housing Associations – s24A IHTA 1984;
(e) National purposes – s25 IHTA 1984;
(f)
Funds for historical buildings – s27 IHTA 1984; and
(g) Employee trusts – s28 IHTA 1984.
1.2.
Lifetime transfers
(a) Annual – s11 IHTA 1984 - £3,000 with one year carried forward of
(b) Small gifts to same person – s20 IHTA 1984 - £250 each tax year;
(c) Marriage – s22 IHTA 1984; and
unused element;
(d) Made as normal expenditure out of income – s21 IHTA 1984 – not
capital gift. 1.3.
Further points
1.3.1
Charitable Gifts
1.3.1.1 There are important conditions for the charity exemption to apply under s23
IHTA 1984 to a legacy:
(a) it must either become the property of a charity or be held for
charitable purposes only;
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(b) the legacy must be used exclusively (and immediately without any
(c) charitable purposes is as defined in s2 Charities Act 2011;
(d) ‘charity’ includes those established in the EU and other specified
intervening interest) for charitable purposes;
relevant territories, e.g. Lichtenstein, Iceland and Norway;
(e) charities must be subject to the jurisdiction of the High Court or a court
exercising a corresponding jurisdiction in countries referred to in (d);
and
(f)
the charitable purpose does not have to be carried out in the UK.
1.3.1.2 By s23(6)(b) IHTA 1984 the charity exemption extends to registered
Community Amateur Sports Clubs.
1.3.2
Gifts to Political Parties
1.3.2.1 To qualify for the IHT exemption the political party must have at the last
general election before the legacy takes effect either:
(a) have had two members elected to the House of Commons; or
(b) have had one such member and at least accumulated 150,000 votes.
1.3.2.2 To qualify as a valid gift (irrespective of any IHT exemption), the deceased
must have been registered on the electoral roll in the United Kingdom
for at least five year ending on the date of death (Political Parties Elections
and Referendums Act 2000).
1.3.3
Death on Active Service
1.3.3.1 s154 IHTA 1984 an exemption from IHT on death which was as a result of active service. 1.3.3.2 The death does not have to occur whilst on active service as a member
of the armed forces of the Crown. Death can be many years later. The
important conditions are:
(a) the death is as a result of a wound inflicted, an accident occurring or a
disease contracted whilst on active service or other service of a
war-like nature;
(b) the causation link has to be certified by the Secretary of State for
Defence; and
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(c) “other service of war-like nature” is decided by the Treasury.
1.3.3.3 For deaths on or after 19 March 2014 the exemption was extended to
emergency services personnel and humanitarian workers responding to
emergency circumstances.
2. Reliefs
These apply to transfers of property which are not exempt.
2.1. Agricultural Property Relief 2.1.1.
The farmer has very particular problems in relation to estate planning.
• He owns a valuable capital asset which is absolutely vital to his business.
• Farming structures have changed as more farmers are engaging farming
contractors to farm their land
• Farming subsidies are essentially no longer related to production but
are based on area and historical entitlement through the single
farm payment.
• Planning may also be complicated by the fact that the farmer may want
one of several children to succeed to the farming business.
• The farmer may be a sole proprietor of the farming business; or there may
be a partnership or a family company, each of which will be complicated
by the existence of the farmland itself and with different estate
planning ramifications.
2.1.2.
Farming is a business. The availability of business property relief for IHT is
not to be ignored. Agricultural property relief (APR) is applied first. Relief is
for the agricultural value of agricultural property.
2.1.3.
‘Agricultural property’ has three limbs to its definition – see s115(2) IHTA 1984:
(a) agricultural land or pasture;
(b) woodland and any building used in connection with the intensive
rearing of livestock or fish if the woodland or building is occupied with
agricultural land or pasture and the occupation is ancillary to that of
the agricultural land or pasture;
(c) such cottages, farm buildings and farmhouses, together with the land
occupied with them, as are of a character appropriate to the property.
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2.1.4.
For a transfer to qualify for APR, the following need to apply:
• it must be attributable, at least in part, to the agricultural value of
agricultural property that is situated in the United Kingdom, Channel
Islands or Isle of Man or a state other than the United Kingdom which is
within the European Economic Area at the time of the transfer of value
s115(5) IHTA 1984;
• the agricultural property must not be subject to a binding contract for
• the ownership or occupation conditions must be satisfied.
sale; and
2.1.5.
For the application of APR under s117 IHTA 1984, agricultural property must
be occupied for the purposes of agriculture and must have been either:
• occupied by the deceased/transferor for the purposes of agriculture
throughout the two years preceding the transfer; or
• owned by the deceased/transferor throughout the seven years
immediately preceding the transfer and the property must have been
occupied throughout the period for the purposes of agriculture.
NB
(a) The identity of the occupier does not matter, but the continuity of such
occupation is vital.
(b) The occupation and ownership conditions of s117 do not affect the
rate of relief due on the agricultural property.
(c) A tenant farmer who purchases land they have been farming for their
own profit will have been in occupation of the land, not their landlord.
Accordingly, as long as that occupation has been for the purposes
of agriculture throughout the two years preceding the transfer, the
occupation condition is satisfied.
(d) The general rule re ownership is relaxed in certain circumstances for
replacement property s118 IHTA 1984 and on second transfers where
the first transfer was on a death s120 IHTA 1984 – see later in this chapter
at 2.1.13 and 2.1.14.
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2.1.6.
The following land uses qualify as for the ‘purposes of agriculture’ within the
meaning of s117 IHTA 1984:
• cultivation to produce food for human and animal consumption;
• use to support livestock kept to produce food for human consumption,
• the keeping of such other animals as may be found on an ordinary farm,
such as meat or milk or other products such as wool;
for example, horses kept for farm work,
• the breeding and grazing of racehorses on a stud farm. (This is not
an agricultural purpose under general law, but is made one for the
purposes of agricultural relief by s115(4)IHTA 1984);
• land set aside for permanent or rotational fallow;
• cultivation of short rotation coppice;
• tree nurseries;
• nurseries growing seeds and plants; and
• biomass crops or bio-energy crops.
NB
(1)
Land that is normally used for agricultural purposes may occasionally
be used for other purposes, provided those other purposes are not
the primary reason for the occupation of the land, e.g. a normal
working farm over which an annual point-to-point horse race is run.
(2)
The following uses do not qualify:
• reeds for thatching;
• grouse moor;
• fishing and sporting rights/keeping birds for sport; and
• intensive buildings without supporting land. 2.1.7.
The test of occupation is factual and so:
• a person who farms a property is in occupation;
• in connection with partnerships in England, Wales and Northern Ireland,
each partner is in ‘occupation’ of the whole land farmed by the
partnership;
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• under s119(1) IHTA 1984, occupation by a company controlled by the
deceased/transferor is treated as occupation by the deceased/transferor.
(‘Control’ is defined by s269 IHTA 1984 and means voting control); and
• where the deceased/transferor farms agricultural property owned by
a trust in which he has a qualifying interest in possession for their own
benefit – see Chapter 13, he is treated as occupying the property. This
is very important as it is the life tenant who is the transferor for the purposes
of the charge to tax when their life interest comes to an end.
NB
(a) Where a person becomes beneficially entitled to an interest in
possession on or after 22 March 2006, the interest will only be treated
as forming part of their estate for IHT purposes if it is an Immediate
Post Death Interest, a Disabled Person’s Interest, or a Transitional
Serial Interest.
(b) Trustees who employ a farm manager and who take the profits (or bear
the losses) of a farming enterprise are in occupation.
2.1.8.
Ownership means:
• in the case of property subject to relevant property trusts, legal ownership
• in all other cases, beneficial entitlement which includes entitlement
by the trustees;
to settled property in which the deceased/transferor had a beneficial
interest in possession. NB
Under s91 IHTA 1984, where an unadministered residuary estate includes
agricultural property, a residuary beneficiary is treated as owning the
agricultural property, or an appropriate share of it.
2.1.9.
There are two rates of agricultural relief for IHT – see s116 IHTA 1984:
2.1.9.1. a higher rate, now 100%, originally this was intended to benefit “working
farmers”. It was available where the deceased/transferor’s interest in the
property immediately before the transfer carried with it the right to vacant
possession or the right to obtain it within the next 12 months (s.116(2)(a) IHTA
1984). This has been extended to cover the following additional situations,
where the deceased/transferor let land.
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(a) where the interest of the deceased/transferor in the property
immediately before the transfer carries with it the right to vacant
possession or the right to obtain it within the next 12 months, s116(2)(a)
IHTA 1984. This will include land let on grazing licences which are
essentially for less than a year.
(b) ESC F17 applies to extend the period of 12 months specified in IHTA
1984 s116(2)(a) to 24 months or if the land is still viewed at broadly
vacant possession value.
(c) property is let on a tenancy beginning on or after 1 September 1995.
(d) the transitional provisions for let property apply, s116(2)(b) IHTA 1984.
2.1.9.2. a lower rate, now 50%, for other let land. NB
(a) Whether the higher or lower rate of relief applies to a lifetime transfer
depends on the facts at the date of transfer, not the date of death,
even where the tax is payable only because of the transferor’s death,
as is the case with potentially exempt transfers.
(b) For property within the European Economic Area but outside the United
Kingdom, Channel Islands and Isle of Man, the right of or to obtain
vacant possession will need to be considered on the basis of any
equivalent rights (or lack of such rights) under the law governing
dispositions of that property, in the Country or State where it is held
s116(7A) IHTA 1984. 2.1.10.
Agricultural Value
2.1.10.1. APR is calculated by reference to the “agricultural value” of agricultural
property, s116(1) IHTA 1984. The “agricultural value” is defined by s115(3)
IHTA 1984 as the value the agricultural property would have if it were
subject to a perpetual covenant prohibiting its use otherwise than as
agricultural property. 2.1.10.2. In the case of property within the European Economic Area but outside
the United Kingdom, Channel Islands and Isle of Man, the agricultural
value is the value as if it were subject to provisions equivalent to
that covenant. 2.1.10.3. Purchasers may be prepared to pay a price above the level which would
be achieved if the property were subject to the perpetual covenant of
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s115(3). The agricultural value therefore may be less than the open
market value of the property because of:
(a) development value; or
(b) mineral value; or
(c) because the farm is in a desirable part of the country; or
(d) the house would be suitable for wealthy commuters; or
(e) prospective purchasers of the farmhouse as a residence or for some
(f)
other reason not directly connected with agriculture; or a desire to live a rural lifestyle.
2.1.10.4. The Lands Tribunal considered the assessment of agricultural value in the case of Lloyds TSB (Personal representatives of Rosemary Antrobus
Deceased v Commissioners of Inland Revenue (Antrobus No. 2). The
Tribunal considered evidence on the effect of the perpetual restrictive
covenant in s115(3), and agreed with the District Valuer’s view that it
was extremely limiting. In the case of Antrobus No. 2 the tribunal
accepted the District Valuer’s conclusion based on his evidence of other
settlements and sales of properties with agricultural occupancy planning
conditions, and determined the agricultural value at 30% less than the
market value. 2.1.11.
“Character Appropriate”
2.1.11.1. To come with the definition of ‘agricultural property’ farmhouses, cottages
and outbuildings must be ‘of a character appropriate to the property’
s115(2) IHTA 1984. 2.1.11.2. The words ‘of a character appropriate to the property’ are ordinary
English words. Statute does not provide any specific criteria to be used
in deciding whether the test of being ‘of a character appropriate to the
property’ has been fulfilled. Each case must be determined as a matter
of fact and degree, having regard to all relevant material considerations.
2.1.11.3. Factors to be applied when determining whether a farmhouse is of a ‘character appropriate’ are:
• Is the farmhouse appropriate when judged by ordinary ideas of what is
appropriate in size, layout, content and style and equality of
construction in relation to the associated land and buildings?
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• Is the farmhouse proportionate in size and nature to the requirements of
• Within the agricultural land does the land predominate so that the
farmhouse is ancillary to the land?
• Would a reasonable and informed person regard the property simply as
the agricultural activities conducted on the agricultural land?
a house with land or as a farmhouse?
• Applying the “elephant test”, would you recognise this as a farmhouse
if you saw it?
• How long has the farmhouse and agricultural property been associated
and is there a history of agricultural production?
• Considering the relationship between the value of the house and the
profitability of the land, would the house attract demand from a
commercial farmer who has to earn a living from the land, or is its value
significantly out of proportion to the profitability of the land?
• Considering all other relevant factors, including whether any land is let
out and on what terms, is the scale of the agricultural operations
in context?
• To be of character appropriate there must be a connection or nexus
between “such cottages, farm buildings and farmhouses, and the land
occupied with them”. This connection is based on land occupied for
agricultural purposes (rather than land owned) and therefore includes
land formed under a tenancy. NB
(1)
For s115(2) IHTA 1984, property can include:
(a) the deceased’s/transferor’s interest in an agricultural tenancy or
farm business tenancy, even though the tenancy may be treated as
of negligible value as an asset in the deceased’s estate; and
(b) agricultural land or pasture owned by a company controlled by the
deceased/transferor, or owned by a partnership of which the
deceased/transferor was a partner. 2.1.12.
Occupation of farmhouses and other buildings
2.1.12.1. A farmhouse was defined in Rosser v IRC [2003] WTLR 1057 by the Special
Commissioner as ‘a dwelling for the farmer from which the farm is
330
managed.’ Unless farming operations or management activities were
conducted at the property it cannot be a farmhouse.
2.1.12.2. Antrobus No2 concluded “the farmer is the person who farms the land on
a day-to-day basis rather than the person who is in overall control of the
agricultural business conducted on the land”.
2.1.12.3. The typical problem case is one in which the deceased had formerly
been a working farmer, either on their own account or as a member of a
partnership, had retired and continued to live in the former farmhouse.
They may also have retained some nominal farming activity. The bulk of
the farmland may have been given to the family, sole or let. In such
circumstances HMRC may argue that at the date of death the house
is neither agricultural property nor occupied for the purposes of
agriculture. This was the situation in Rosser referred to above.
2.1.12.4. If all the land owned by the deceased/transferor is let out to a tenant
farmer under an Agricultural Holdings Act tenancy or farm business
tenancy, then the deceased/transferor will not normally be considered by
HMRC to be in occupation of the land for agricultural purposes. Therefore,
he will not be in occupation of the farmhouse for agricultural
purposes either. 2.1.12.5. In establishing occupation for agricultural purposes, there has to be
an objective connection between the use made of the farm building and
the agricultural activities on the farm, e.g. the fact that a person
accommodated is working on the farm is enough.
2.1.12.6. Continuous residence is not necessary in all cases. Tenants or other
occupiers can take holidays or be temporarily absent from home for
health reasons without thereby ceasing to occupy their home for the
purposes of agriculture. That is not to say, that gaps in the
accommodation of the resident can be ignored however long and for
whatever reason. 2.1.12.7. Other problems leading to no APR are:
• buildings used in connection with the breeding and rearing of horses
that are not stud farms;
• occupation of buildings that is not ancillary to that of qualifying
agricultural land or pasture;
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• buildings used for intensive rearing or cultivation if their occupation was
not ancillary to that of qualifying agricultural land or pasture; and
• empty farm buildings. 2.1.13.
Replacement property - s118 IHTA 1984
2.1.13.1. The occupation and ownership conditions can be satisfied where the
agricultural property transferred has replaced other agricultural property.
2.1.13.2. The two year occupation condition will be satisfied if the two (or more)
properties concerned (original and replacement) were occupied by the
deceased/transferor for the purposes of agricultural for an overall period
of at least two years out of the five years immediately before the transfer.
2.1.13.3. The seven year ownership condition will be satisfied if the two (or more)
properties concerned were both owned by the deceased/transferor and
occupied (by the deceased/transferor or another) for the purposes of
agriculture for an overall period of at least seven out of the ten years
immediately before the transfer. 2.1.13.4. The provisions are restricted by s118(3) IHTA 1984 to prevent avoidance
by increasing the relief available, e.g. by buying a more expensive
property shortly before death. However, s118(3) does not apply if the
change resulted from formation, alteration or disposition of a partnership.
2.1.14.
Successions – s120 and s121 IHTA 1984
2.1.14.1. Under s120 IHTA 1984 where the deceased/transferor has inherited the
agricultural property on death then for the purposes whether the
occupation and ownership conditions in s117 IHTA 1984 are satisfied:
(a) they are deemed to have owned it (and, if they subsequently
occupy it, to have to occupied it) from the date of death; and
(b) if the deceased was their spouse or civil partner they are deemed
to have owned the property and occupied it for the purposes of
agriculture for any period during which the spouse or civil partner
so did.
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2.1.14.2. Under s121 IHTA 1984, when a second transfer is made before the period
for either the occupation or ownership tests in s117 IHTA 1984 has expired,
APR will still be available provided all the following conditions are met:
(a) The whole of part of the value transferred by the earlier transfer
was eligible for APR (or would have been if such relief had then been
operative); and
(b) The whole or part of the property which was or would have been
eligible for relief:
•
became, through the earlier transfer, the property of the
subsequent transferor or his spouse or civil partner; and
•
is, at the time of the subsequent transfer, occupied for the
purposes of agriculture either by the subsequent transferor or by
the personal representatives of the earlier transferor; and
•
that property or part (or any property which it has replaced)
would be eligible for relief on the subsequent transfer apart from
the s117 occupation and ownership tests); and
•
the earlier or the subsequent transfer was or is a transfer
on death.
2.2. Business Property Relief 2.2.1.
The availability otherwise of Business Property Relief (BPR) for IHT purposes
has become more important:
• Many clients have taken to mixing trading with property businesses –
the relief is intended for trading entities only.
• The restrictions on potentially exempt transfers into trust in 2006
highlights the importance of securing BPR or APR.
2.2.2.
Relief at Higher Rate – 100%
Under s 105 IHTA 1984 100% relief from Inheritance Tax is provided if the
whole or part of the value transferred by a transfer of value is attributable
to the value of any relevant business property consisting of:
(a) A business or interest in a business.
(b) Securities of a company which are unquoted and which gave the
transferor control of the company immediately before the transfer.
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(bb) Any unquoted shares in a company.
NB
(1)
(bb) talks of any unquoted shares. That is not limited to ordinary shares but includes preference shares, deferred shares,
redeemable shares.
(2)
In (b), loans to a private company would not normally qualify for
relief because although they fall within the definition of “securities�
they do not give the transferor control. Control means voting control
(s269 IHTA 1984).
(3)
However, if a shareholder has shares which give him control of
the company and some loan stock or loan notes, the shares will be
relevant for business property but the loan notes will not. If it is an
issue because the loan notes are significant, it may be worth
considering tying the ownership of the shares to the issue of the loan
notes so that effectively control of the company through the shares
depends on connection with the loan notes.
2.2.3.
Relief at Lower Rate – 50%
Under s105 50% relief is given in the following circumstances:
(cc) shares or securities in a company which are quoted and which gave
the transferor control of the company immediately before
the transfer.
(d) Any land or building machinery or plant which immediately before
the transfer was used wholly or mainly for the purposes of a
business carried on by a company of which the transferor then had
control or by a partnership where he was then a partner.
(e) Any land or building, machinery or plant which immediately before
the transfer was used wholly or mainly for the purposes of a
business carried on by the transferor and was settled property in
which he was then beneficially entitled to an interest in possession.
(1)
In (d) control of a company carried out by a transferor is needed.
That simply means the voting control (s269 IHTA 1984). It is possible
to separate the greater value elements of the shares in a company
from the control element, e.g. to pass the value down whilst still
NB
retaining control.
(2)
In (d) a partner does not have to control the partnership. 334
2.2.4. Miscellaneous points 2.2.4.1.
The asset must be owned for 2 years (s116 IHTA 1984) but does not have to
have been relevant business property throughout that period, merely at
the point of transfer. 2.2.4.2.
There must have been a business for the 2 year period.
2.2.4.3.
Under s131 IHTA 1984 the value of a PET which becomes chargeable
because of the death of the donor within 7 years can be re-examined
and a lower value at death substituted for the value as at the date of the
gift if appropriate. 2.2.4.4.
s105(1)(a) provides relief in respect of an interest in a business. In HMRC
v Trustees of Nelson Dance [2009] AIIER 185 the court effectively extended
the scope of this provision where the transfer was of an asset used in an
ongoing trading business which reduced the value of that business. If it
was a proper characterisation of the attribution of the value transferred
that it could be regarded as attributable to the value of the business then
BPR was available. 2.2.4.5.
Companies in liquidation – s105(5). No relief is available on shares or
securities if at the time of the transfer a winding up order has been made
or a resolution for a voluntary winding up has been passed by the
members unless that winding up is really part of a reconstruction
arrangement which will see the business which is to continue.
2.2.4.6.
Property under contract for sale. If there is a contract to sell the business,
the relief is lost because effectively, the business is cash at that stage.
There are two exceptions to that rule, namely:
(a) Where there is a business or an interest in a business which is
incorporating and the deceased was to receive shares in the
company which was incorporating; or
(b) The deceased held shares in a company and effectively the sale is
part of a reconstruction or amalgamation because the business is
carrying on. NB Provisions in articles of association or a shareholder agreement
providing for the temporary acquisition of the shares of a deceased
shareholder constitute a binding contract for sale which will
deny BPR.
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2.2.5.
Exclusion from Relief
2.2.5.1.
The principal exclusion to Business Property Relief is found in s105(3):
“a business or an interest in a business or shares in or securities of a
company are not relevant business property if the business or as the case
may be the business carried out by the company consists wholly or mainly
of one or more of the following that is to say, dealing in securities, stocks or
shares, land or buildings or making or holding investments”.
2.2.5.2.
This raises the question in many cases of whether a business/company is
really trading (for which BPR is designed) or is one wholly or mainly making
or holding investments. There have been a number of cases over
the years. 2.2.5.3.
The importance of this distinction between wholly or mainly investment or
wholly or mainly trading is shown in the application of BPR.
(a) To a business/company which is 50.1% investment – no BPR at all.
(b) To a business/company which is 50.1% trading – full BPR (subject to
2.2.6 below). 2.2.5.4.
The tests to be applied have been the subject of judicial consideration
in a serious of cases where taxpayers (frequently executors) have
attempted to claim BPR in circumstances where HMRC consider the
business/company to be an investment entity particularly where receipt of
rents are involved. 2.2.5.5.
In George v IRC [2013] EWCA 1763 Civ Carnworth LJ in the Court of
Appeal set out the following principles, which have been followed in
a number of cases where the business has a number of different elements,
some trading and some investment, in assessing the correct nature of
the business:
(a) The split of the following elements between trading and investment
should be assessed:
•
overall context of the business;
•
capital employed;
•
time spent by employees;
•
turnover; and
•
profit.
336
(b) In light of the assessment, it is necessary to stand back and consider
“in the round” whether the business consists wholly or mainly of
making or holding investments.
(c) The importance of each of the elements will be different in each
case depending on the particular business/company. 2.2.5.6.
In HMRC v Pawson [2013] UKUT 50 the Upper Tier Tax Tribunal stressed
following earlier cases re rent receipts that:
(a) the starting point was that a business involved in letting out a building
and collecting rent (holiday, residential, commercial or industrial)
would normally be the holding of an investment;
(b) the provision of additional services over and above normal active
management was likely to be incidental to the investment; and
(c) the quality or nature of the activity is more important than the
quantity/volume of overall activity. 2.2.6.
Excluded Assets
2.2.6.1.
S112 IHT 1984 looks at excluded assets which are effectively disqualified
for IHT relief thus restricting the amount of relief in assets which
otherwise qualify. Sub-section (2) reads:
“An asset is an excepted asset in relation to any relevant business property
if it was neither –
(a) used wholly or mainly for the purposes of the business concerned
throughout the whole of the last two years of the relevant period..nor
(b) required at the time of the transfer for future use for those purposes.”
2.2.6.2.
The major concerns here are:
(a) excess cash held in the company beyond what might be reasonably
needed to run the business; and
(b) assets held for the personal use of directors or shareholders, e.g.
holiday homes, boats.
337
2.2.6.3.
The sub-section was looked at in two contrasting cases:
(a) in Barclays Bank Trust Company Limited v IRC [1981] STC 238. This
case involved an unquoted company dealing in bathroom and
kitchen fitments with a turnover of ÂŁ600,000 but with ÂŁ450,000
cash. The cash was found not to be required at the time for the
trade. No BPR was available. (b) in Browns Executors v IRC (1996) STC SCD 277 SPC 83, an unquoted
UK company, Gaslight Limited had owned a nightclub. That
nightclub had been sold and unfortunately the shareholder then
died whilst the company was holding a large amount of cash. The
evidence from the Executors was that the company had intended
to purchase suitable alternative premises from which effectively to
conduct a further nightclub business. Holding the cash in a deposit
account was a necessity short term to enable them to seek to
conclude a deal. BPR was granted. 2.2.6.4.
The exclusion from BPR in sub-section 2(a) is directed at assets not used for
the purposes of the business, not the nature of the business.
2.2.6.5.
If a company has an ancillary business of holding investments (and that
can be a minimum of a couple of investments, holdings on the stock
exchange or a large amount of cash, there has to be more than one so
that you can say there is a business of holding investments) the scale of
which in value terms is less than the trading activities, then the investment
business property is not excluded under the excepted assets rule. It is
part of the assets of the business. The business may consist of trading and
holding investments. It is the nature of the assets which defines the
exclusion, not the nature of the business. A minor element of the business
can be non-trading as long as it is a business within the overall framework
of the business and is carried on by the company.
2.2.7.
Replacements – s107 IHTA 1984
2.2.7.1.
The requirement for two year ownership for BPR may be satisfied if the
business property replaced other business property and a number of
conditions are met. 2.2.7.2.
The original property, the replacement property and any property directly
or indirectly replaced were owned by the deceased for periods totalling
two years out of the five years before death.
338
2.2.7.3.
s107(2) restricts BPR by providing that the relief shall not exceed what it
would have been had the replacement not been made.
2.2.7.4.
However, s107(3) provides that replacement resulting from the formation,
alteration or dissolution of a partnership, or from the acquisition of a
business by a company controlled by the former owner if the business is to
be disregarded for the purposes of s107(2).
2.2.7.5.
Although strictly not a replacement shares acquired through a bonus of
capitalisation issue which are strictly referable to an original holding which
qualifies for BPR will also qualify notwithstanding that the new shares were
issued less than two years before the transfer or death.
2.2.8.
Successions –s108 and s109 IHTA 1984
2.2.8.1.
A person who inherits property is deemed to have owned it from the
date of death. The two year period therefore runs from that date
not the date the property was vested in him. Business property included in
an unadministered residuary estate also comes within the provision.
2.2.8.2.
Where the deceased becomes entitled to property on the death (only on
death) of their spouse or civil partner they are deemed to have owned
the property for any period of ownership of this spouse or civil partner. If
that combined period is at least two years, then ownership test is satisfied
irrespective of the length of the marriage or civil partnership.
2.2.9.
Groups of Companies
2.2.9.1.
The important issue is that full IHT BPR is available for the shares in the
holding company (notwithstanding that this company carries on no trade
itself) if there is overall a trading group.
2.2.9.2.
Where there are significant investment assets in the holding company
(which do not themselves qualify as trading assets) it is important that the
majority business carried out by the holding company is still the holding of
shares in a trading group in order not to fall foul of the “wholly or mainly”
provisions meaning there is an “investment” company not a holding
company of a group of trading subsidiaries.
2.2.9.3.
The value of the trading subsidiaries must be greater than investment
assets in the holding company. If so it is a holding company of a trading
group and there is full relief without restriction for the group as a whole.
339
2.2.9.4.
S.111 IHTA 1984 provides that for the purposes of calculating the
availability of BPR it is necessary to take out of the value of a group of
companies the value of any company which is effectively an investment
company rather than a trading company, unless that company (which is
regarded as the investment company) in fact holds land or buildings used
by other members of the group as part of their trading activities, in which
case, there is no disallowance of any BPR.
2.2.9.5.
If in a simple group structure you have one company which is an
investment company, then for BPR purposes, that element of the overall
value of the group is disregarded. For the purposes of calculating that
disregard, the valuation is made simply excluding the assets and earnings
of the non-qualifying company. (That can be quite serious in its
consequences if that company for example happens to own valuable
intellectual property rights which are used by the group).
2.2.9.6.
In relation to intra group loans, these are regarded as non-investment
where the loans are used by the subsidiaries for the purposes of their non-
investment businesses and the amounts are reasonable in the context of
the group business as a whole.
2.2.9.7.
In deciding whether a subsidiary is wholly or mainly an investment or
trading company the tests outlined in 2.2.5.5 are applied.
2.3. Woodland Relief 2.3.1.1.
Because growing trees commercially may take several generations to
mature and would otherwise be taxed on each successive death, there is
a specific relief for transfers of woodlands on death, under s125 IHTA 1984.
• Where the relief is available, the person liable for the tax may elect to
exclude the value of the trees or underwood (but not the land itself)
from the value transferred by the chargeable transfer on the
deceased’s death and instead pay IHT when the trees are disposed of,
for example, by sale or gift, other than to the disposer’s spouse or civil
partner at the rate applicable at the date of disposal.
• If there is a disposal, IHT is charged on the death in the usual way, unless
another election is made to defer the tax.
• Short rotation coppice is treated as agricultural property.
340
2.3.1.2.
Under s125 the relief is available only if all the following conditions are
satisfied.
(a) The value of the deceased’s estate immediately before death must
be partly attributable to the value of land:
•
situated in the United Kingdom or another state within the
European Economic Area,
•
on which trees or underwood are growing, but
•
which is not agricultural property as defined for the purposes
of APR. (b) The deceased must either:
•
have been beneficially entitled to the land throughout the five
years immediately before death, or
•
have become beneficially entitled to the land other than for
consideration in money or money’s worth. NB
This provision means that if the deceased purchased the land, then he
must have owned it for at least five years before his death which is
designed to stop exploitation by deathbed purchases.
(c) The person liable (usually the personal representatives) for the whole
part of the tax must elect in writing within two years of death for
the relief. 2.3.1.3.
The effect of a claim under s125 IHTA 1984 is to reduce the overall IHT on
the estate. However, the election acts only to give a deferral of the tax
that would otherwise have been charged rather than a total exemption.
2.3.1.4.
Post deferral
(a) The deferred IHT will become chargeable on the first disposal of
the trees or underwood in respect of which relief has been claimed
(excepting a disposal to the transferor’s spouse (s126 IHTA 1984)),
provided the disposal occurs before the land on which the trees or
underwood stood again passes on someone’s death.
(c) If the recipient of woodlands on another’s death makes a gift of the
trees or underwood or sells it during his lifetime, the IHT deferred from
the deceased’s death will become chargeable.
341
(d) If, however, the recipient dies with the trees or underwood still
forming part of his estate the IHT charge deferred from the first
deceased owner’s death will fall out of charge (although the trees
or underwood will form part of the second deceased owner’s estate
and relief may again be claimed under s125 in relation to the IHT
chargeable on the estate). 2.3.1.5.
The IHT which arises on the subsequent disposal depends on whether the
disposal is a sale for full consideration in money or money’s worth. If it
is, the amount on which tax is calculated is the net proceeds of sale
whether the disposal is of the trees and underwood or of an interest
therein. If the disposal is not such a sale, the amount on which tax is
calculated is the net value at the time of disposal of the trees or
underwood (s126 IHTA 1984). 2.3.1.6.
The IHT charged as a result of the subsequent disposal is payable by the
person entitled to the sale proceeds or who would be so entitled if the
disposal were a sale (s208 IHTA 1984). This is notwithstanding that the
executors originally had responsibility and the Will may have made other
parties liable to the burden of tax. The tax is due six months after the end
of the month in which the disposal took place (s226(4) IHTA).
2.3.1.7.
If the woodlands was agricultural property, relief is not available under
s125 (although APR will be available if the woodlands are occupied and
the occupation is ancillary to that of the agricultural land or pasture).
2.3.1.8.
If the woodlands constitute ‘relevant business property’ for the purposes
of BPR, the relief is still available to relieve the land on which the trees or
underwood stand where a s125 election is made.
2.3.1.9.
For land on which the timber stands, there is no relief for the tax
chargeable in respect of its value, apart from BPR. The tax can, however,
be paid in ten equal annual instalments provided a written election is
made (s227 IHTA 1984). 2.3.1.10. There is generally no specific relief for a lifetime gift (chargeable transfer or
potentially exempt transfer) of woodlands unless BPR is available.
2.3.1.11. An interest in a woodland or forestry syndicate can be relevant business
property within the definition of s105 IHTA 1984. In order to qualify for BPR
the participant of the scheme must have an interest in the underlying
assets, i.e. they must own a definable share of the relevant business
property. As most woodland syndicates allocate to their participants 342
an identifiable share of the underlying assets, the syndicate managers
have been regarded as bare trustees of the members’ interests. Provided
therefore that the other requirements for BPR have been satisfied relief at
a higher rate will be available.
NB
It is immaterial that the investment by each investor is comparatively small
and/or that the actual forestry business is operated by professional
managers. 2.4.
Heritage Property Relief
2.4.1.
The will writer needs to be aware of this relief or (more correctly)
conditional exemption. However, the number of occasions when it will be
applicable is limited and detailed rules (ss30-36) are not within the scope
of this book. 2.4.2.
The essential conditions to the exemption are:
(a) the property is within the terms listed in s31 (e.g. stately homes and
their contents, architectural or industrial heritage) and agreed by the
Treasury to be of the finest quality; and
(b) the owner has to give undertakings to allow public access and
enjoyment of the heritage property and also to publicise the access
arrangements. 2.4.3.
If the property is sold then the exemption is lost and IHT becomes payable.
2.5.
Quick Succession Relief
2.5.1.
S141 provides relief from IHT where a beneficiary dies within five years of
death when the testamentary gift increased the value of his estate. (The
gift to the beneficiary can also be lifetime).
2.5.2.
The relief is a percentage (starting at 100% reducing by 20% per annum)
of the IHT paid on the property transferred to the beneficiary. The relief is
deducted from the IHT due on the beneficiary’s estate
343
3. Transferrable Nil Rate Band (TNRB) 3.1.
The ability to transfer nil rate band (TNRB) between the estates of husband
and wife or civil partners was introduced in the Finance Act 2008. The
legislation relating to the transfer of unused nil rate band is contained
within s8A-C IHTA1984. 3.2.
The effect of TNRB is that when a surviving spouse or civil partner dies, the
nil rate band available at their death will be increased by the proportion
of the nil rate band that was not used on the death of their spouse or civil
partner. The TNRB has to be claimed by the personal representatives of
the surviving spouse or civil partner.
3.3.
TNRB is available where the death of the surviving spouse or civil partner
occurs on or after 9 October 2007. For spouses, the first death can have
occurred at any time before or after that date and the relief therefore
applies where the first death occurred under IHT, Capital Transfer Tax or
Estate Duty and there was unused nil rate band.
3.4.
For civil partnerships the first death must have occurred on or after 5
December 2005, the date the Civil Partnership Act became law in the
United Kingdom. While it was possible to enter into a civil partnership
in other countries prior to this date, the Act states that where a relationship
was recognised under overseas law before the UK Act came into force,
the parties to the relationship are to be treated as having formed a civil
partnership recognised in the UK on the date the Act came into force.
3.5.
While the benefit of the unused nil rate band accrues to the estate of the
surviving spouse or civil partner, there is no requirement for assets to
have passed to the spouse or civil partner on the first death. The
legislation refers to unused nil rate band rather than property passing
to the surviving spouse or civil partner. So property that passed as an
exempt or relievable transfer (for example, a transfer to charity or for
national purposes or property that attracted business or agricultural relief)
will not use up the nil rate band. And where the value of an estate is
below the IHT nil rate band at the date of the first death, the full amount of
the nil rate band that is not used is available for transfer.
3.6.
Because it is the unused nil rate band that is transferred, there can be
no TNRB at the second estate if IHT (or CGT or Estate Duty) was paid on
any part of the estate on the death of first spouse or civil partner. Estate
here has the normal meaning for IHT and includes assets held in trust, gifts
344
with reservation and joint property passing by survivorship. Gifts that
cumulate with the death estate will also use up the available nil rate band
at the first death.
3.7. Issues 3.7.1.
HMRC has published the various tables giving the rate back to the
introduction of IHT. They also had to deal with what happened prior to
IHT, i.e. in capital transfer tax and estate duty days. One of the issues in
claiming the unused nil rate band part is that the records do not exist,
either in the hands of family or in fact at HMRC, e.g. at one stage returns
were not required for IHT on the first death, where it was an
excepted estate. 3.7.2.
In many cases valuations of assets passing on the first death but clearly
within the nil rate band have never been agreed. Hopefully common
sense will prevail in the short term.
3.7.3.
There was no spouse exemption under Estate Duty until November 1972.
3.7.4.
Where no claim is made by the personal representatives to transfer
unused nil rate band, perhaps because there is no need to take out
a grant, any other person liable for tax on the survivor’s death, for
example, the trustees of a settlement or the donee of a gift, may make a
claim – but only when the initial period for claim by the personal
representatives has expired. A provisional claim can be made by trustees
e.g. if it is clear no grant is to be taken out.
3.8.
Arrangements in practice:
3.8.1.
Married couples effectively at the moment benefit from a combined nil
rate band of £650,000. This works by allowing the transfer of any unused
portion of the nil rate band on the first death so that the surviving spouse
will be entitled to “double up” that nil rate band and claim double the
amount against chargeable gifts on the survivor’s death.
3.8.2.
Where part of the individual’s nil rate band was used on the first death,
the pro-rata equivalent in current value terms will then be made available
on the second death. Example 12.1
Tom died in 2002 when the nil rate band was £250,000. He used half of
that figure i.e. £125,000 in taxable gifts in his will. If Wendy died in March
345
2008, she would have 50% of the then current nil rate band e.g. £150,000
available on top of her own nil rate band, making an overall total (in 2007-
8) of £450,000 i.e. not £600,000 less £125,000 = £475,000
Example 12.2
On Tom’s death the entire estate valued at £150,000 was left to his son
Andrew. If the nil rate band was £300,000, this would result in 50% of the nil
rate band being available to transfer to Wendy his widow.
3.8.3.
The basic principles apply when it comes to a situation when on the
second death the spouse has a limited free estate but has an interest in
possession in a significant trust fund. The prime claim to the TRNB lies with
Wendy’s executors. The trustees must also submit a claim.
Example 12.3
Tom died in 1990 leaving all his estate to Wendy. Wendy died a widow
in 2010 with a free estate if £200,000 and an interest possession to a pre
March 2006 trust worth £1 million.
Wendy had her own nil rate band of £325,000 plus Tom’s £325,000.
Tax calculation: Total estate
£1,200,000
Less NRB x2
650,000
550,000
220,000
Tax @ 40%
Estate 2/12
36,667
Trust 1/12
183,333
3.9.
Miscellaneous Points re multiple nil rate bands
3.9.1.
No individual can have more than two nil rate bands.
3.9.2.
Previous marriages bring another dimension to this issue (which is of course
not only limited to tax issues).
Example 12.4
Tom is married to Wendy who was previously widowed from her first husband Frank who did not use his nil rate band (NRB).
346
• Tom has one NRB.
• Wendy has two potential NRBs. Her own and Frank’s.
• If Tom dies first and leaves the whole of her estate to Wendy then
since she cannot have more than two NRBs, one of the three potential
NRBs will be wasted.
• Tom should create a NRB trust in his will.
Example 12.5
Tom is a widower (whose first wife Francoise did not use her NRB) married
to Wendy.
• Tom has two potential NRBs.
• Wendy has one NRB.
• If Tom died first and leaves the whole of his estate to Wendy one
potential NRB will be wasted.
• Tom should create a NRB trust in his will.
Example 12.6
Tom is a widower with two NRBs and Wendy a widow with two NRBs.
• Tom should create a trust in his will equal to two NRBs.
NB
(1)
Tom and Wendy will each need to have sufficient assets to establish
the NRB trusts in full.
(2)
3.9.3.
Where a nil rate band legacy is desired the following wording is
appropriate to define the amount of the gift:
Wendy could execute a variation under s142 IHTA 1984.
“The Legacy” means the maximum amount of cash which I can give on
the terms of the Legacy Fund without incurring any liability to inheritance
tax on my death.”
This will carry a TNRB where one is available, provided the executors so claim. NB
• It may be sensible to include a direction that the executors are to make
any claim open to them under s.8A. 347
3.9.4.
Wills executed before the TNRB was announced were obviously not
drafted with TNRBs in mind. Whether gifts of the nil rate band include a
TNRB depends on the precise wording used. Take the following examples.
Example 12.7 “I give free of tax to my trustees such sum as at my death equals the
maximum amount which could be given to them by this Will without
inheritance tax becoming payable in respect of my estate.”
This is similar to the wording in 3.9.3 above and will include a TNRB.
Example 12.8 “To my trustees such sum as I could leave immediately before my death
without IHT becoming payable.”
This will not include a TNRB since the increased NRB only applies to the t
transfer of value made on death, not to one made “immediately
before” death. Example 12.9
“I give free of tax to my trustees an amount equal to the upper limit of the
nil per cent rate band in the table of rates in Schedule 1.”
This will not include a TNRB.
Example 12.10 “To my trustees an amount equal to the nil rate band in force at
my death.”
This will not include a TNRB. 3.10.
Points to note
3.10.1.
Historically before the introduction of the TNRB, wills of spouses (and civil
partners) sought if possible to use the nil rate band of the first to die rather
than providing for the whole estate to pass to the survivor, usually using a
nil rate band discretionary trust.
3.10.2.
If the first of the couple died before 8 October 2007 then care needs to be
taken in establishing whether there is any TNRB.
348
3.10.3.
There may still be circumstances where wills drafted now may not provide
for the survivor to inherit everything possibly utilising a discretionary trust:
• For assets that qualify for BPR or APR the principles still apply. That
still gives the opportunity for double dipping. The surviving spouse
buys out of the discretionary trust the assets which qualify for the relief.
Therein, the survivor’s estate then after two years will again qualify
for relief.
• There may be a consideration around those concerns about losing part
of the value of a property in paying for nursing home fees for the
survivor in seeking to ring-fence half the property.
• Including a nil rate band discretionary trust in a will gives flexibility. The
executors/trustees can exercise their powers under s144 IHTA 1984 (see
Chapter 14) to pass the whole of the estate to the surviving spouse/civil
partner within the two year period and claim the spouse exemption.
• Flexibility of having two discretionary trusts each with a nil rate band if
the intention is that the survivor’s estate is left on discretionary trusts.
• If assets left to the NRB trust on the first death are likely to increase in
value to outstrip any indexed nil rate band. (This is also now relevant
with the nil rate frozen for the foreseeable future).
349
Chapter 13 Tax & Practice
1. Basic Options 1.1. Absolute Gift
IHT treatment of absolute interests under a Will is straightforward. The
transfer gives rise to a charge to IHT unless:
(a) the beneficiary is exempt; and
(b) the amount is within the nil-rate band of the Testator
(including any TNRB). 1.2. Life Interests 1.2.1.
Prior to Finance Act 2006, the IHT treatment of all life interests created by
Will was generally the same as for absolute interests. Life interests were
used for non-tax reasons. 1.2.2.
Since 2006, the position has become more complicated. Certain life
interest trusts created by Will (see below) are still treated as historically but
others are now within the relevant property regime. The different rules are
dealt with in the following sections of this chapter.
1.3.
Relevant Property Trust
1.3.1.
A new trust will be subject to the following rules:
1.3.1.1.
A lifetime gift into a trust will be a chargeable transfer taxed at 20% once
the cumulative total exceeds the nil rate band in any 7 year period.
1.3.1.2.
Periodic charges will be levied to a maximum of 6% every ten years.
1.3.1.3.
Exit charges will apply on the distribution of trust capital.
1.3.1.4.
No aggregation of the trust fund with any beneficiary’s free estate
on death. 1.3.1.5.
No CGT uplift will apply on the death of a beneficiary.
350
2. Interest in Possession 2.1.
Immediate Post-Death Interest (“IPDI”)
In simple terms as IPDI is an interest in possession trust set up in a Will.
NB
The necessary conditions are set out in IHTA 1984 s49A.
• Condition 1 - settlement is effected by a Will or intestacy
• Condition 2 - successor life tenant (2) became beneficiary entitled to
the interest in possession on the death of the testator or intestate
• Condition 3 - (a)
(b)
s71A does not apply
it is not a disabled person’s trust
• Condition 4 - Condition 3 has been satisfied at all times since he
became beneficiary entitled to the interest in possession
The most significant is condition 2 which requires the beneficiary to
become beneficially entitled to the interest in possession on the death of
the testator. The interest must therefore be immediate.
Example 13.1
Tom’s Will leaves the residue of his estate on trust for Wendy his wife for life,
then for his daughter Brenda for life and, subject thereto, for his
grandchildren in equal shares at 25. Tom dies, survived by Wendy and
Brenda and a number of grandchildren.
(a) Application
Wendy’s interest is an IPDI and the residue of Tom’s estate is therefore
spouse exempt on death.
(b) On the death of Wendy the continuing trusts for Brenda and the
grandchildren will, however, fall within the relevant property regime
for IHT purposes. NB
(1)
Brenda’s interest is not an IPDI since it only takes effect on her
mother’s death. If, however, Wendy had predeceased Tom then
Brenda’s interest would be an IPDI. Mirror image Wills of Tom and
Wendy lead to different consequences.
(2)
The interest will be “immediate” for these purposes even if the gift is subject to the normal survivorship clause. See s91 IHTA 1984. 351
(3) If the interest comes into being under any of the “reading back”
provisions, it will also satisfy the s49A requirements for an IPDI. s142
IHTA 1984.
(4)
The trusts will not, however, fall within s49A as IPDI’s if the conditions
for the operation of s71A (Bereaved Minor Trust – see 13.3.2) are
satisfied nor if the interest is a disabled persons interest.
NB
Order of priority.
(5)
Prior to 22 March 2006, an attraction had been that if the Will Trustees
had an overriding power after the termination of the interest in
possession of Wendy, the surviving spouse could still benefit from the
property without falling foul of the reservation of benefit rules (this
was because the termination of the interest, whilst it involved a
transfer of value by the spouse, did not involve the making of a “gift”
as required if the reservation of benefit rules are to apply).
(6)
FA 2006 altered this by providing that in respect of terminations of
interests in possession after 21 March 2006 notwithstanding the
Trustees’ exercise of the power, the beneficiary is treated as making
a gift of the property. Accordingly, if the spouse retains or
subsequently obtains benefits from that property, the reservation
rules apply. See s49A(4) and (5).
(7)
The termination of Wendy’s interest will generally only be a PET if the
settlement comes to an end at that time so that Wendy is treated as
making a gift to another individual for the purposes of IHTA
1984 s3A (1A)(c)(i).
(8)
If the settlement continues, it will generally (see below) be as
a relevant property trust with the result that Wendy is treated as
making an immediately chargeable transfer for IHT purposes when
the interest is terminated. Example 13.2
Wendy is given an interest in possession under the Will of her late husband
Tom. The trustees exercise their overriding powers of appointment to
terminate her interest in:
(a) £[equal to NRB] which is appointed on continuing trusts for her
grandchildren;
352
(c) the family’s holiday home which is appointed outright to Brenda.
NB
(a) In the case of (a) Wendy makes an immediately chargeable transfer
(but the value will fall within her IHT nil rate band) – seven years starts
to run.
(b) In the case of (b) she makes a PET – seven years starts to run.
(c) If the trustees had appointed property on to continuing trusts
which satisfied the requirements of 71(A) (i.e. a Bereaved Minor Trust)
or if they had appointed property on to a disabled persons trust
then, in both cases, Wendy would make a PET (these are the only
exceptions to the general rule that an appointment on to continuing
trusts involves a chargeable transfer by Wendy into a relevant
property settlement).
(d) In all cases Wendy makes a gift for the purposes of the reservation
of benefit rules and so she must not reserve any benefit from the
property which had formerly been subject to her interest in
possession. She must be excluded from benefit.
(e) Be watchful re CGT consequences if there are continuing trusts of
assets. If a separate trust is created by the exercise of power of
the advancement or power of appointment? If so, the trustees are
potentially chargeable to CGT.
3. Will Trusts for Testator’s Children 3.1.
A number of choices for parents are available. The age of the children
may be important.
• Two privileged trusts are available for young children, namely:
• the bereaved minor trust (BMT) under s71A; and
• the 18-25 (s71D Trust).
• A further option is a bare trust
• For all, especially older children, if trusts are desired, the further
choice is between:
• the IPDI; and
• the relevant property regime.
353
Historically, it had been common to create life interest trusts for older
children with a successive life interest for the child’s surviving spouse and
remainders to grandchildren. The life interest of the surviving spouse would
then have attracted the spouse exemption but that is no longer the case.
Whilst the child enjoys an IPDI any further ongoing trusts will generally fall
under the relevant property regime.
3.2.
Bereaved Minor Trust (BMT) (s71A):
3.2.1.
The basic conditions are the same for s71D(18-25) trusts - the only
difference being in the age of capital vesting. A BMT arises (s71A):
3.2.1.1.
under the Will (or intestacy, or under an instrument of variation or under
IHTA 1984 s144):
(a) of a parent of the bereaved minor
(NB parent for these purposes includes a step-parent);
(b) which provides for capital and income to vest no later than the age
of 18 and in the meanwhile,
provides for income to be paid as of right to the minor (i.e. gives him
an interest in possession); or
(a) For the income to be used for his benefit with any balance being
accumulated for his benefit.
(b) There must be no power in the Will to divert the income to any
other person.
(c) The requirement for absolute entitlement no later than age 18 will be
breached if the trustees are given power to appoint the trust
fund elsewhere.
(d) The Will can give the executors/trustees power of advancement
so that the entire presumptive share of a minor beneficiary can
be used for his advancement or benefit – s32 Trustee Act 1925 as
amended by Inheritance & Trustees’ Power Act 2014
3.2.2.
The IHT treatment of a BMT is provided for in IHTA 1984 s71B. That section
begins by providing that a tax charge will arise whenever property ceases
to be held on a BMT but s71B(2) then dis-applies the charge in the three
main situations where property ceases to be so held, namely:
354
3.2.2.1.
when the minor becomes absolutely entitled to the capital at 18
(or earlier);
3.2.2.2.
on the death of the bereaved minor before he became entitled to
capital; or
3.2.2.3.
if the settled property is paid or applied for the advancement of benefit of
the child.
(That leaves the charge to apply in the relatively uncommon situation
where the trustees reduce the value of the trust fund by entering into a
depreciatory transaction). Example 13.3
Tom’s Will leaves his estate to “such of my children as shall attain the age
of 18 and if more than one in equal shares absolutely and in default for my
brother Bill”. At his death his three children Andrew, Brenda and Colin are
aged 13, 11 and 9 respectively. The IHT position is as follows:
(a) The Will creates a Bereaved Minor Trust (BMT).
(b) In the event of all the children dying under the age of 18 so that the
property passes under default provisions in the Will to Bill,
• the BMT ceases; and
• there is no IHT exit charge
• CGT holdover relief is also available on the ending of the BMT:
see TCGA 1992 s260.
(c) As the children each attain 18, each becomes entitles to his share:
• there is no IHT exit charge; and
• CGT holdover relief is available.
(d) If a child were to die under 18 so that his share accrues to the
others then:
• if they are under 18 the trust continues as a BMT; and • if over 18 then the BMT ceases (with the usual results of no IHT exit
charge and CGT holdover relief).
355
(e) The legislation is drafted on the basis of a single bereaved minor.
HMRC accept, however, that this must include more than one child.
Hence they agree that some flexibility is possible. For instance, the
trustees could, instead of equally, be instructed to divide the fund
(say) 50%; 25%, and 25%.
NB not dissimilar to accumulation and maintenance trusts under
IHTA 1984 s71;
(f)
If the trustees decided that it is desirable to postpone the capital
entitlement of one of the children, they could exercise their power
of advancement (assuming that this has been widened in the Will)
to create ongoing trusts giving the child a right to income but
postponing capital entitlement indefinitely.
• the BMT will then end in respect of that child’s share;
• there will be no IHT exit charge; and
• the share will now be held on relevant property trusts;
(g) If one of the children dies under 18 leaving a child who as a result of
the standard substitutionary clause will take the share of his
deceased parent at 18.
• The BMT in respect of that share has been ended by the
parent’s death.
• The continuing trust for the grandchild of the testator is therefore
a relevant property trust.
• There is no IHT exit charge on the ending of the BMT.
(h) If the trustees decided to accelerate one of the children’s right to
income so that at age of say 16 he enjoys an interest in possession
in the trust.
• The trust continues to be a BMT.
• But if the child were to die shortly afterwards, there would
be no IHT charge (either the BMT will end or the share will accrue
and be held on continuing BMT trusts).
• The CGT death uplift will be available.
356
(Given that the purpose of the death uplift is to afford a measure of
relief when IHT is chargeable on the termination of an interest in
possession, it is difficult to understand why the relief has been made
available in this situation.) Example 13.4 (i) a single child: Tom’s will says:
“I give the sum of [IHT NRB] to my daughter Brenda absolutely
contingently on her attaining the age of 18 and subject thereto to
my sister Susan absolutely”. NB
• If desired Brenda could be given an immediate right to income
(s31 Trustee Act 1925 would need to be excluded) it would still
be a BMT (not an IPDI) and the CGT death uplift would be
available in the event of Brenda dying before the age of 18.
more than one child:
(ii)
Tom’s will says:
“I leave the sum of [IHT NRB] to my trustees upon trust to such of my
children Andrew and Brenda as survive me and attain the age of 18
and if more than one in equal shares”
3.3.
The 18-25 (s71D) Trust
The basic conditions for relief are the same as for the BMT.
However: 3.3.1.
instead of the trust fund (both income and capital) vesting no later than
the age of 18 (see BMT) in this case vesting must occur no later than the
age of 25. 3.3.2.
the introduction of these provisions was something of a compromise
by the Government in the light of criticism in the case of BMTs for requiring
vesting at 18, rather than having that age as 25 (i.e. the age limit for
accumulation and maintenance trusts). 3.3.3.
In response the Government introduced new provisions creating the 18-25
trust which enable will trusts for the testator’s children to be drafted with
the vesting of income and capital postponed beyond the age of 18 but
357
with an IHT charge starting to apply once the relevant beneficiary has
attained the age of 18.
3.3.4.
This charge is calculated by reference to the period from when the
beneficiary becomes 18 to when he becomes entitled to the capital of
the trust fund and it is payable on the ending of the trust.
3.3.5.
The maximum period covered by the charge is set out in IHTA 1984 s71E –
F. The charge is triggered:
3.3.5.1.
when the beneficiary becomes entitled over the age of 18 to the
trust property, 3.3.5.2.
when he dies over that age without having become so entitled to that the
18-25 trust ends; and
3.3.5.3.
when the 18-25 trust ends as a result of the exercise of the trustees’ power
of advancement. NB (1) No charge arises if the trust ends when the beneficiary is under the age of 18.
(2)
The actual calculation of the charge is as follows: (i) tax is charged on the value of the settled property at the time
when it ceases to be held on 18-25 trusts (this is the “chargeable
amount”): - See s71(c)(4)
(ii) that chargeable amount is then multiplied by the “relevant
fraction” and by the “settlement rate”.
• The “relevant fraction” is 3/10ths multiplied by so many fortieths as there
are complete successive quarters in the period from the day when the
beneficiary became 18. s71(F)(5).
• If the beneficiary becomes entitled at 25 there will be 28 complete
quarters so that the fraction becomes 28 over 40.
• The “settlement rate” see s81 (F)(3) is then calculated in the usual
way as for the charge on relevant property settlements generally i.e.
bringing into account all the other factors.
• The rate depends upon a hypothetical chargeable transfer made at
the time when the 18-25 trust ends by a transferor who has a cumulative
total equal to that of the testator in the seven years before his death
and who transfers property to a value equal to that of the property
358
comprised in the 18-25 trust at the time when it was set up (i.e. on the
testator’s death).
• The tax rates are those in force at the time when the trust ends and
are “lifetime” rates: e.g. for 2015-16 after the £325,000 nil rate band tax
is at 20% on the excess. For a testator who has used up his nil rate
band, so that none is available to the trustees, the top rate of charge
(i.e. the worst case scenario) is tax at a rate of 4.2% (i.e. a settlement
rate of 20% multiplied by 3/10 and 28/40).
NB (1) As with BMT it is possible to give the trustees a power of
advancement; but not an overriding power of appointment
and
(2)
HMRC accept that limited flexibility is permitted (i.e. it is not
necessary to fix the shares of the beneficiaries at the outset but
once vested these must not be capable of variation).
Example 13.5
Tom in his will leaves his estate (income and capital) to his two children
Andrew and Brenda on attaining 25 (equally if more than one). There is a
default trust in favour of Tom’s sister, Susan. The Will excludes s31 Trustee
Act 1925 but includes s32 power of advancement.
(1)
If, on Tom’s death, Andrew is aged 10 and Brenda is eight then he
has set up an 18-25 trust;
(2)
Assuming that the children eventually take equal shares at age 25,
there will be an IHT exit charge (i.e. separate charges when each
child becomes 25) calculated on the basis of the period from when
that child became 18 NB (1) if either or both Andrew or Brenda had already been 18 at the
time of Tom’s death then their respective charges run from the
date of his death to when they become 25.
NB (2) CGT holdover relief is available on the ending of the trust – see s260(2)(a) TCGA 1992.
(3)
If Andrew were to die under the age of 25 then the position is
as follows:
(a) If he dies under the age of 18 then there is no charge
NB the charge only applies from the age of 18; 359
(b) If he dies over the age of 18 then if his share accrues to Brenda
who is still under the age of 25 the trust remains an 18-25 trust
(and so there is no exit charge).
(c) If, however, Brenda dies and Andrew has already become 25
then the 18-25 trust ends with the death and so the normal
exit charge will apply NB CGT hold-over relief will be available;
(d) If Andrew dies under the age of 18 at a time when he enjoys a
right to income from his share then: • there is no IHT charge but
(4)
•
the CGT death uplift applies (just as for BMT).
If before Andrew becomes 25 the trustees make an advance in his
favour whereby he becomes entitled to income but capital vesting is
postponed indefinitely then:
(a) the 18-25 trust ends and the normal exit charge applies;
(b) the continuing trust created by the advance will be taxed
under the relevant property regime; and
(c) CGT holdover relief is available (but only if the settled advance
(5)
creates a new settlement, normally it should not);
Instead of providing for equality between Andrew and Brenda, Tom could have chosen to give the trustees a power to vary the shares
(e.g. 70:30).
(6)
Provided that the trustees have the necessary wide power of
advancement they can always convert the 18-25 trust into a BMT
whilst the beneficiaries are under 18.
Example 13.6 Tom’s will says:
“I give [NRB] sum to my Trustees upon trust for such of my children
Andrew and Brenda as shall survive me and attain the age of 25 and
if more than one in equal shares absolutely”.
The fact that this is a legacy and not residue makes no real
difference. In this example s31 Trustee Act 1925 applies together with
power of advancement.
360
NB
(1)
The power of advancement could be used:
(a) to accelerate vesting so that Andrew could become absolutely
entitled at 18 and thereby avoid an IHT charge; or
(b) to postpone vesting beyond 25 (i.e. on continuing trusts).
(2)
If the Will gives the children immediate interests in possession (i.e.
Andrew is aged 19 at Tom’s death) the trust for Andrew (but not
Brenda) will be an IPDI and not fall within the s71D regime. (NB
excluding s31 prevents IPDIs arising) – remember priority.
If the trustees exercise their power of advancement to give a minor
(3)
child an immediate right to income this will not prevent s71D from
continuing to apply.
(4)
If Brenda dies under the age of 18, there is no IHT charge and, if she had enjoyed an interest in possession, a CGT uplift. Her share will
pass in trust for Andrew.
(5)
If Andrew dies under the age of 25 and his share accrues to Brenda,
the IHT position is that:
• if Brenda is under the age of 25 so that her share is held on 18-25
trusts there is no IHT charge on Andrew’s death.
• if Andrew is over 18, the normal s71D exit charge will apply to
his share. 3.4. Bare Trusts
Bare trusts are not settlements for IHT – the FA 2006 changes do not affect
their operation. It is important to ensure that the provisions create a
bare trust.
Example 13.7 – Absolute gift with no age contingency
Tom’s Will says: “In trust for such of my children Andrew and Brenda living at my death [at
the end of the Specified Period] if more than one in equal shares
absolutely”
The position here is:
361
• absolute gifts to children with no age specified are vested gifts
but will be subject to s31 Trustee Act 1925 until the child is aged
18 (income must be accumulated to the extent not used at the
discretion of the trustees for his maintenance, education or benefit)
unless this section is specifically excluded;
• the accumulated income belongs to the child and he will be entitled
to receive this at age 18;
• if s31 is excluded then the income belongs to the child as it arises
without accumulation;
• if he dies before achieving the age of 18 the capital and accumulated
income will belong to his estate;
• in either case the capital of the fund belongs to the child. This means
that it will count as a bare trust;
• no charge to IHT while the child is under 18 unless the child dies (as the
• no charge to IHT on the child receiving the capital at 18 or under;
• the beneficiary is treated at all times as the taxpayer and not
capital and income belong personally to the child);
the trustees. Example 13.8 – Absolute gift with no age contingency for remoter issue
If instead of as in example 4.5 above the gift is to “remoter issue” of the
deceased i.e. not just a child but a grandchild and beyond, then the
position here is:
• as there is no age contingency it will be a bare trust again and not a
• the capital belongs to the child as does the income as it arises and
settlement for IHT purposes;
so there will be no periodic or exit charges for IHT.
Example 13.9 – gift to children who survive – gift over
Tom’s will says: “I give my residuary estate to my trustees upon trust for such of my
children Andrew, Brenda and Colin as are living at my death and if more
than one in equal shares absolutely provided always that if any of my said
children shall die in my lifetime leaving a child or children who shall
362
be living at my death such child or children shall take by substitution
and if more than one in equal shares absolutely the share of my residuary
estate which such deceased child of mine would have taken if he or she
had survived to attain a vested interest.”
NB (1) It may not be a bare trust for the substitute issue if the
substitution arises under s33 Wills Act 1837 or the substitute issue have
to take at a specified age such as 21 for example because the
original gift to the children of the testator was subject to an age
contingency. This would be a relevant property settlement.
(2) If it is not a bare trust the fund will be subject to the “relevant
property” regime i.e. periodic charge every 10 years, exit charge
on capital distributions out of the trust and no aggregation of the
trust fund with any beneficiary’s estate.
Example 13.10 – Contingent gift on attaining 18
“I give my residuary estate to my trustees upon trust for such of my
children Andrew and Brenda [living at my death] [survivorship clause]
as attain the age of 18 years and if more than one in equal shares
absolutely.”
The position here is:
• this is not a bare trust
• if Andrew has to attain a specified age to benefit and that age is 18
then provided Andrew is the deceased’s child, step-child or someone
for whom the deceased had parental responsibility then this will be a
BMT. S71A trust.
• No charge to IHT while Andrew is under 18 nor on the death of Andrew
under 18 (as the capital and income are contingent on attaining 18
and do not belong personally to Andrew) and no charge to IHT on
Andrew receiving the capital at 18 or under.
Example 13.11 – Contingent gift on attaining 25 with substitutions
Tom’s will says: “I leave my residuary estate upon trust for such of my children Andrew
and Brenda [survivorship provision] as attain the age of 25 years and if
more than one in equal shares absolutely provided always that if any child
of mine shall die or has already died in my lifetime or shall die after my
363
death under the age of 25 years leaving a child or children living at my
death or born thereafter who attains or attain the age of 18 years then
the share that such child of mine would have taken had such child
survived me and obtained a vested interest in such share shall be held in
trust for such child or children as aforesaid of such child of mine and if
more than one in equal shares absolutely”.
The position here is: • This is not a bare trust.
• since the age at which entitlement to capital is not greater than 25 and
Andrew and Brenda are the deceased’s children, this will qualify
potentially as an 18-25 trust (71D trust) depending on the ages of Andrew and Brenda. • if Andrew is over 18 at the date of the testator’s death and s31 Trustee
Act 1925 is not excluded then Andrew’s share will be subject to the IPDI
regime instead with no IHT being due on the share vesting at the age of 25.
• it is not possible to vary the trusts by Deed of Variation – the class of
beneficiaries cannot be ascertained until the last child reaches 25 even
though the shares allocated are known as soon as the first one
reaches 25.
• If the substitution for grandchildren applies the share of the estate
provided for them under the grandparent’s will cannot be within
either s71A or s71D (not children). Instead, because the substitution is
on a specified contingent age of 18 that share will be a relevant
property settlement (not a bare trust).
3.5.
Children and IPDI
Example 13.12 – Immediate post death interest (IPDI)
Tom’s will says inter alia
“(a) The trustees shall hold the residuary estate upon trust, subject to the
following provisions of my will, for such of my children Andrew,
Brenda and Colin as shall survive me and, if more than one, in
equal shares.
(b) The provisions of sub-clauses (c) and (d) shall apply to the share
of the residuary estate held upon trust for a child of mine under sub-
clause (a). In those provisions, such share is called the “Share” and 364
that one of the children who is primarily interested in the Share is
called the “Life Tenant”.
(c) The income of the Share shall be paid to the Life Tenant during his
lifetime. [If and so long as the Life Tenant is under the age of 18, the
trustees may pay or apply any income of the Share to him or for his
maintenance or education or otherwise for his benefit as they shall in
their discretion think fit. Any balance of the income shall be retained
by the trustees upon trust for the Life Tenant absolutely. Any such
retained income may, at any time, be paid or applied as if it were
income arising in the then current year. Section 31 of the Trustee Act
1925 shall not apply to the Share so long as the Life Tenant is under
the age of 18.
(d) The trustees may, at any time during the trust period, pay or apply
the whole or any part of the Share in which the Life Tenant is then
entitled to an interest in possession to him or for his advancement or
otherwise for his benefit in such manner as the trustees shall in their
discretion think fit.
(e) Subject as above, the trustees shall hold the capital and income of
the residuary estate upon trust for my sister Susan absolutely.”
The position here is:
• An initial IPDI arises for a class of beneficiaries, i.e. the testator’s children,
with each beneficiary entitled to a parallel interest.
• The residuary estate is held upon absolute trusts.
• Following the initial IPDIs the residuary estate will be subject to IHT on the
life tenant’s death under s49(1) IHTA 1984 because the remainder
interest is absolute.
• This clause may suit adult children however if it is likely that a minor child
might be included in the gift then the words in brackets in clause (c)
are needed to avoid income being accumulated so that the relevant
property regime would apply instead of it being an IPDI.
• If the trustees had the power to override the initial interests and/or to
appoint different remainders, the initial interest will still be an IPDI but
the relevant property regime would apply following the IPDI for so long
as the trustees retained their ability to exercise the overriding power of
appointment or in the event that any remainders appointed are not
absolute. 365
3.6. Other Trusts 3.6.1.
In all other cases a testamentary gift in trust for children (or all gifts in trust
for grandchildren) will be in the relevant property regime irrespective of
the nature of the trusts created.
3.6.2.
If the relevant property rules are to apply from the date of death there is
clearly an argument for drafting a full discretionary trust with
complete flexibility.
3.6.3.
With a full discretionary trust a letter of wishes should be as important as
the Will itself.
4. Family Wills - Gifts to spouse and the children 4.1
In simple cases the outright gift of the residuary estate by Tom to his spouse
Wendy is the choice. In such cases there will only be trusts arising in favour
of the testator’s children if Wendy has predeceased and the children’s
trust arises by way of substitution.
4.2
Other more sophisticated or complex options are open:
Example 13.13 Tom gives the residuary estate upon trust:
• for the Trustees with wide overriding powers;
• in default and subject thereto as income for Wendy for life;
• thereunder one for Andrew, Brenda and Colin at a specified age.
The position here is:
• Wendy’s interest is an IPDI it still qualifies even though it is subject to an
overriding power of appointment.
• If this power is exercised so as to defeat Wendy’s interest in any assets,
it is essential (following the changes to the reservation of benefit
regime in s102ZA FA 1986) that Wendy is excluded from future benefit in
the assets concerned.
• If the Will (which is an IPDI for Wendy) has power to pay or apply
capital and remainder trusts in favour of the children contingent on
them attaining a specified age, then they could be either:
(i) trusts which qualify as BMT– s71A – i.e. the child is entitled to a vested
interest income and capital at 18; or
366
(ii) If the age contingency of 25 is chosen, the trusts will qualify as an 18-
to-25 trusts – s71D.
• If a s71A trust arises on the termination of the IPDI during Wendy’s
lifetime then this will in fact be treated as a PET by her by virtue of the
amendments to s3A – s3A(1A)(c)(iii) IHTA 1984.
• If other continuing trusts arise (apart from a disabled person’s interest
• It is possible for either BMT s71A and 18-25 trusts s71D to arise following
DPI) Wendy would be making a lifetime chargeable transfer for IHT.
an IPDI if they are for the children of Tom.
• Tom did not want the remainder interests to vest absolutely in his
children but wanted a form of Accumulation and Maintenance
Trust e.g. when he could have directed that the gift only vested in
income at the specified age, so that it would become an interest in
possession trust at that point) it is not possible to replicate this by having
serial IPDI trusts over the same fund. If the gift to Wendy was an IPDI the
remainder interests for the children cannot be on IPDI terms.
• The 18-25 Trusts enable beneficiaries to receive the income during the
continuance of the trust or for the receipt to be postponed until they
reach 25. Tom can therefore provide for the children either to take the
income at 18 pursuant to s31 Trustee Act 1925 or to defer entitlement to
it until 25.
5. Wills using Lifetime Pilot Trusts 5.1. Historic Position 5.1.1.
The rate of IHT on a relevant property trust is calculated by the addition
of (amongst other things) the value of property in a related settlement.
A related settlement is one created on the same day as the trust. For
example, all trusts created by a testator in a Will would be related
settlements. The value added being the value of the related settlement
on the date it was set up.
5.1.2.
Practice had grown up of settlors on creating a number of settlements
each on different days (pilot trusts) which were not related to each other
with initial nominal amounts (e.g. £10). The settlor then added significant
value to each settlement on the same day either in lifetime or through his
will on death.
367
5.1.3.
Each of the pilot trusts would not be related and would effectively have
a full or virtually full nil rate band for calculation of IHT on the funds held.
The saving was a maximum of 6% of the nil rate band on chargeable
events in each settlement. 5.1.4.
It was essential that the lifetime trusts were set up before the Will
was executed. Example 13.14
Tom dies leaving by will a legacy free of tax of £975,000 upon trust for his
three grandchildren at 25. The position here is:
• IHT will be payable on Tom’s death (out of residue).
• IHT within the trust will be calculated on the full value of the trust and
the usual relevant property trust rules.
• The IHT position is not much more favourable if Tom had established
separate trusts for each grandchild because each trust would have
been related.
• If Tom had set up two pilot trusts and divided his gift between one will
trust and the two pilot trusts these are not related settlements. IHT will
be calculated separately for each trust and each will have a virtually
potential full nil rate band. 5.2. Revised Position 5.2.1.
Finance Act 2015 introduces a new 62A IHTA 1984. The effect of this
provision is to nullify the previous advantages of pilot trusts and multiple nil
rate bands. 5.2.2.
The new section provides that where property is subsequently added to
two or more non-related settlements on the same day the value of those
additions is to be brought into account for calculating the rate of IHT
applicable for such settlement for:
(a) 10 yearly charges;
(b) exit charges; and
(c) the charge on 18/25 trusts.
5.2.3.
The new rule about additions does not apply to a will executed before 10
December 2014. However, that exception only applies to deaths before 6
April 2016. This was to permit testators who might be affected to change
their will. 368
6. Cohabitees – Partner and Children 6.1.
Richard usually wants to provide for his cohabitee Connie while making
sure that some funds are available to his (but not necessarily her) children.
Richard also wants to minimise IHT.
There is no ‘spouse’ exemption under s18 IHTA 1984 for cohabitees and so
IHT (potential double charge) is a potentially significant issue.
6.2.
Possible options for Richard are:
Example 13.15
Richard leaves his estate by will to Connie for life (IPDI) with an overriding
power, remainder to the children.
The position here is:
• Control rests with the Trustees to decide if or when children benefit
whilst Connie is alive.
• Connie has use of all deceased’s property during her lifetime less IHT
paid on Richard’s death.
• Richard’s trust fund is aggregated with Connie’s own property
producing an increased IHT burden on Connie’s death. IHT will be
apportioned between the IPDI trust and the cohabitee’s free estate.
• Children may have to wait for Connie to die to benefit from
Tom’s estate.
• Trustees are a in a potentially difficult position in balancing the interests
of cohabitee and children and IHT.
Example 13.16
Richard leaves a NRB legacy to a discretionary trust (NRBDT) for Connie
and children, residue to Connie absolutely.
The position here is:
• No aggregation of NRBDT trust property with Connie’s estate for IHT on
her death.
• No IHT charges on trust available to children before Connie’s death but
can be used for Connie in case of need.
369
• Only an amount equal to NRB guaranteed to children on Connie’s
death. There is no control over the ultimate destination of the residuary
gift once it is in Connie’s hands.
• If residue is left to Connie for life (IPDI), the two settlements will be
related settlements and IHT will be chargeable on the NRBDT.
Example 13.17
Richard set up a pilot trust during his lifetime and leaves the nil rate sum to
the pilot trust (NRBDT) residue by his will to Connie for life
(remainder to the children). The position here is:
• Control of residue lies with the Will trustees.
• The related settlement rules apply only where trusts are created on the
same day but only if Richard died before 6 April 2016.
• No aggregation of property held on IPDI trust (value at Richard’s death)
with NRBDT legacy held by pilot trust for calculating the rate of IHT but
only if Richard died before 6 April 2016.
• Some funds available to children before Connie’s death.
Example 13.1
• As for Example 13.16 except that only one trust is created by Richard in
his will with two funds.
• The position here is the same as in Example 13.16 except that under
the Finance Act 2015 the IPDI fund will not be relevant property and
therefore not aggregable with the NRBDT for IHT.
7. Disabled Person 7.1. There is a specific provision dealing with trusts for disabled persons – s89
IHTA 1984. Effectively a discretionary trust which has a disabled person as
a “principal beneficiary” is not treated as a relevant property trust.
7.2.
The disabled person is treated as if he or she has an interest in possession
i.e. as if he or she had an IPDI.
370
7.3. There are restrictions on s89 relief:
(a) There is a strict definition of disability; and
(b) there are limits on distributions to non-disabled beneficiaries.
7.4. The rules on payments to non-disabled beneficiaries out of these trusts
used to be quite wide but, with the bringing into line of vulnerable
beneficiary status for income tax, capital gains tax and inheritance tax,
the powers of trustees to make distributions to people other than the
disabled person have been greatly restricted for qualification under s89.
7.5. In the case of a discretionary trust, the position used to be that, as long as
one half of the capital that was paid out was for the benefit of the
disabled person, the trust could continue to qualify. Under the new rules
for new trusts, from 17 July 2013, only 3 per cent of the trust fund or
ÂŁ3,000 in any given year, whichever is the lower, may be paid out for the
benefit of somebody else.
7.6. On the positive side, the law has now been changed to allow
discretionary-type s89 trusts to the benefit from the capital gains tax free uplifts on death in the same way as IPDI.
7.7. For trusts in place before 8 April 2013, the old rules will apply. Trusts arising
under wills that were executed before that date but that are replicated in
a later will or republished by a codicil can also continue to benefit from
the old rules. 7.8. The restrictions under s89 lead executors often to choose one of the other options:
(a) IPDI; (b) full discretionary trust, or possibly
(c) bare trust.
371
Chapter 14 Further Practical Tax Issues
1. Burden and Incidence 1.1.
The burden of IHT payable on death is set out in s211 IHTA 1984. Subject to
any contrary intention which the Testator may express in the Will, IHT
attributable to value of property in the UK which:
(a) vests in the deceased’s personal representative; and (b) was not immediately before the death composed in a settlement
is treated as a general testamentary and administration expense
borne by the personal representatives. 1.2.
IHT on the following property (which is potentially subject to tax) is not the
primary liability of the personal representatives from the estate unless the
Testator imposes the liability through the Will:
(a) property situated outside the UK;
(b) joint property passing by survivorship; and
(c) personalty over which the Testator had a general power of
appointment. 1.3.
In each of these cases in 1.2 the liability falls on the recipient beneficiary of
the property since title will be vested in him not the personal
representatives. 1.4.
It is a separate question of who as between the beneficiaries should
ultimately bear the IHT. For example, should IHT be paid by personal
representatives be deducted from the residuary estate, e.g. a legacy
‘free of tax’ or borne by the specific legatee, e.g. ‘subject to tax’?
1.5.
The basic rule of allocation is simple. Such part of the value transferred
corresponds to value of a gift attributable to it.
1.6.
Where the Testator’s Will includes some exempt gifts the complicated
rules in ss36-41 (see s2 below) apply to allocate the value transferred to
specific and residuary gifts.
372
2. Exempt and Non-Exempt Gifts 2.1.
Single transfer on death
(a) S4 charges IHT on death as if immediately before death, the
deceased had made a transfer of value of the estate. This is a
single transfer. However, the Will may leave part of the estate
to an exempt beneficiary, e.g. spouse, charity and other part(s) to
chargeable beneficiaries, e.g. children.
(b) This has two consequences which Testators need to understand:
(a) if the estate is significant enough for IHT to be payable the overall tax
payable can be increase because of the need to ‘gross-up’ tax free
legacies;
Example 14.1
Tom leaves his estate worth £550,000 by a tax free legacy of £375,000 to
his son Ben and the residue of £175,000 to his widow Wendy:
IHT calculation £ Chargeable gift less NRB (325,000)
50,000
Grossed up by 100/40
83,333
Tax payable to leave legacy to Ben
33,333
Tax paid from residue (Wendy) leaving
131,667
NB IHT is not simply 40% of £50,000, e.g. £20,000 which it would be if the
legacy to Ben bore its own tax,
(b) if the estate has property which qualified for relief, e.g. APR or BPR,
unless the Will gives this property to chargeable beneficiaries,
e.g. children the ‘benefit’ of the relief is shared by all the
beneficiaries proportionately in value. Thus the element of the relief
allocated to an exempt beneficiary, e.g. charity is wasted.
2.2. Double Grossing
(a) Testators also need to be aware of the application of the rules where
the Will leaves:
(a) taxable legacies free of tax;
(b) half of the residue to exempt beneficiaries; and
373
(c) half of the residue to chargeable beneficiaries.
(b) The details of the IHT calculations are beyond the scope of this book.
The general principles require:
(a) the taxable legacy has to be grossed up as above;
(b) the IHT resulting is born by both elements of the
(c) the chargeable residuary beneficiaries bear the tax paid to
(d) the exempt residuary beneficiaries do not bear any of the tax
residuary estate;
leave them with amount they receive; and
on that half of the residuary gift (but do bear their share of the
tax on the legacies).
(c) It follows that exempt residuary beneficiaries such as charities should
receive a greater proportionate share of the residue than by simply
paying tax and then dividing the balance.
This is what s41(b) provides.
(d) The normal provision dividing executors to pay the taxes and divide
the not will not be sufficient to oust the general rule. It is however possible for Testators to specify expressly that they do not want the
general rule to apply.
(e) This is the result from two well-known cases which the courts
considered the impact of the complex rules – Re Ratcliffe [1999] STC
262 and Re Benham’s Will Trust [1995] STC 210.
3. Additional Charitable Giving Relief 3.1.
The Finance Act 2012 set out a new clause and schedule providing for
a lower rate of inheritance tax (IHT) of 36 per cent to be charged on a
deceased person’s estate where 10 per cent or more of the estate has
been left to a charity or a registered community amateur sports club.
3.2.
The change was effective for deaths on or after 6 April 2012.
3.3. Calculation procedure
(a) The value of an estate for IHT purposes can include:
(a) the assets that the deceased owned immediately before death
(which for this purpose also includes assets given away but from
374
which the deceased continued to benefit) and is free to dispose
of by will (general component);
(b) other assets and property such as interests in jointly owned assets
which pass automatically by survivorship on death (survivorship
component); and
(c) interests in certain trusts (settled property component).
The various categories of assets are combined to form an aggregate
estate that is subject to IHT.
(b) The total amount left to charity is compared to the 10 per cent
threshold or ‘baseline’ amount for that component to see if this
qualifies for the lower IHT rate. For the purposes of this ’10 per cent
test’ the baseline is the value of the component charged to IHT
after deducting all available reliefs, exemptions and nil-rate band
but excluding the charitable legacy itself.
(c) If the component qualifies, the lower rate will apply automatically
but the personal representatives or other persons responsible for the
IHT will be able to elect for the lower rate not to apply in respect of
a component.
(d) The 10 per cent test is applied to each component separately and
the lower rate will apply to those components that pass the test
unless an election is made to opt out.
(e) Where a charitable legacy from one or more components of the
estate exceeds the 10 per cent minimum it is possible, by election, to
combine components and apply the 10 per cent test to
the aggregate.
(f)
Where the aggregate components meet the test, the lower rate
applies to the merged components. This enables the benefit from
charitable legacies of more than 10 per cent to be spread to other
parts of the estate. 3.4.
Gifts with reservation (GWR)
(a) It is possible to obtain the benefit of the 36% rate on a GWR. Assets
compared in such gifts are effectively deemed to be part of the
deceased’s estate for IHT, although the gift has in practice been
made during his lifetime.
375
(b) The GWR “component” must effectively be merged with one
or more eligible components. The value of the GWR increases the
value of this component for calculating the baseline amount.
3.5.
The calculation is clearly potentially complex. In very simple terms it would
appear that testators who are already prepared to give at least 4% of this
net estate to charity are likely to be most interested. The share given to
charity by these could be increased to 10% without any family
beneficiaries losing out.
4. Discretionary Will Trusts –s144 IHTA 1984 4.1.
S144(1) deals with:
(a) property comprised in a person’s estate immediately before his
death which is settled by his will (this excludes the case where
property is given by will for immediate absolute distribution at the
discretion of executors or others); and
(b) within two years of that person’s death; and
(c) before any interest in possession has subsisted in the property; and
(d) an event occurs which would normally lead to an IHT charge (e.g.
property is appointed onto new trusts outside the relevant property
regime or passes to a beneficiary outright).
4.2.
In these circumstances, provided that the further conditions (see below)
are met:
(a) there is no charge on the ending of the discretionary trust; and (b) IHT is applied as if the will had provided that on the testator’s death
4.3.
the property should be held as it is, in fact, held after the event.
Any IHT exemption appropriate to the beneficiary who receives the
property is available e.g. If the trustees distribute property within the
prescribed period to the testator’s surviving spouse, that property benefits
from the spouse exemption. 4.4.
S144 deals with different scenarios:
4.4.1
S144(1) and (2) deal with the straightforward case of a testator leaving
assets on discretionary trusts and absolute appointments being made
to spouse or other beneficiaries (or the settlement automatically ending
within two years).
376
Example 14.2
Tom died in 2007 and leaves all his property on discretionary trusts for his
spouse Wendy, children and remoter issue. The executors pay inheritance
tax on the entire estate. A year after his death, the trustees appoint the
house to Wendy outright.
• That is read back to Tom’s death i.e. it is treated as a gift by Tom
to his spouse and will quality for the spouse exemption. A tax
repayment can and should be claimed.
NB there used to be a trap in (Frankland v IRC) which made it necessary
to avoid making any outright appointments within three months of death
if reading back was desired. That trap has been removed for deaths after
10 December 2014. 4.4.2 Appointments on continuing IPDI or s71A or 71D trusts:
S144(3) and (4) deal with the position where the testator dies on or after
22 March 2006 and the trustees wish to appoint the property on continuing
interest in possession trusts for the deceased’s spouse or other beneficiaries
(i.e. an IPDI trust) or on bereaved minor trusts (BMT) or 18-25 s71D trusts.
Example 14.3
Tom died in February 2014 leaving his estate on discretionary trusts. The
Trustees appointed his widow Wendy a life interest in December 2014
within two years of Tom’s death.
• This is an IPDI and s144 operates so that spouse exemption is obtained
even if the appointment is made within three months of death.
NB this section does not expressly make it possible to appoint a disabled
person’s interest and obtain reading back, but this is effectively
treated as an IPDI which enables it to be read back.
4.5. Capital Gains Tax and Discretionary Will Trusts 4.5.1
Capital gains tax complications may arise. TCGA 1992, s62, which can
apply to variations within two years of death under s142 IHTA 1984, does
not apply to discretionary wills.
4.5.2
An absolute appointment made under the trust is treated as a disposal
under TCGA 1992, s71. Hold-over relief under TCGA 1992, s260 will not be
available because any disposition of the trust assets within the two-year
377
period will not be an occasion of charge to inheritance tax as IHTA 1984,
i.e. s144 prevents a charge arising.
4.5.3
Hold-over relief under TCGA 1992, s165 may be available if the assets are
business property. If relief is not available, whether or not a chargeable
gain will depend on whether there has been any increase in value of the
property appointed sine the date of death.
4.5.4
If the appointment is not absolute but on continuing trusts it will be
necessary to consider whether a new settlement has thereby been
created or whether the trusts are a continuation of those established by
the will. If a new settlement is created a disposal to the new trustees
will have taken place. If the trusts are merely a continuation there will be
no such disposal. 4.5.5
Where a number of different trusts are established under an exercise of
the power in that each of the trusts established will be treated for capital
gains tax purposes as one fund with the result that only one annual
exemption, apportioned between the separate funds, will be available.
4.5.6
A further complication will arise where an absolute appointment is made
before the estate is fully administered, unless the assets which are the
subject of the appointment have first been appropriated by the
deceased’s personal representatives to the trustees.
4.5.7
There is an argument that the subject matter of the appointment will be a
chose in action in accordance with Marshall v Kerr STC 638, [1994] 2 All ER
106 (HL), which will have a nil base cost and therefore a significant
chargeable gain could arise. 4.5.8
HMRC takes the view that where the trustees exercise their powers of
appointment before the assets have vested in them, the assets are still
held by the personal representatives at that time. When the assets vest,
they will be treated as passing directly to the appointee.
4.5.9
There is a disposal of the assets in question by the personal representatives
to the person who benefits under the appointment. HMRC view that the
exercise of the power of appointment is, however, read back into the
original will. Thus, the beneficiary takes the asset as legatee and acquires
the assets at probate value.
4.5.10
The result of this is that the capital gains tax implications of an
appointment prior to an assent or ascertainment of residue will
378
be completely different from that of an appointment made after assent or
ascertainment of the residue of the estate.
NB (a) where an asset has increased in value since the date of death,
appointment of that asset following assent or ascertainment
will result in a capital gains tax charge arising to the trustees
on the appointment. Hold-over relief will only be available if
the assets are business assets.
(b) if that asset were to be appointed to the beneficiary before
assent or ascertainment, no chargeable gain will arise as the
Revenue will treat the beneficiary as if he received the asset
at probate value under the terms of the will. No chargeable
gain will arise until the subsequent disposal of the asset by
the beneficiary.
(c) Trustees wishing to appoint assets to beneficiaries should
consider this as it may be important for capital gains tax
purposes exercise the power of appointment prior to assent or
ascertainment of the residue if an unwanted tax charge is to
be avoided.
(d) It is sensible for every will incorporating a will trust to confer
power on the executors as such to exercise during the period of
administration powers given to the trustees under the will trust.
4.6. Income Tax
For income tax purposes the income arising under the discretionary trusts
during the period from death to the exercise of the power will be taxed at
the trust rate.
5. Survivorship Clause - Commorientes 5.1.
Any survivorship clause should modified to take advantage of an anomaly
in the legislation caused by the combination of the law relating to
survivorship and commorientes and a fiction created to deal with IHT.
5.2.
Commorientes describes the situation where two people die in
circumstances in which it is either impossible to be certain who died first or
if there is evidence that they did in fact die simultaneously.
379
5.3.
There are incompatible presumptions which can act so as to exempt the
whole estate of an elder spouse (or civil partner) for IHT purposes
regardless of value:
• Law of Property Act 1925 s184
• Younger person is deemed to have survived the elder.
• Administration of Estates Act 1925 s46(3)
• If the elder spouse is intestate he or she is presumed to have survived
the younger or
• If the elder has left a Will in favour of the younger (who dies intestate)
failing whom a third-party takes – the elder is again presumed to have
survived the younger for the purposes of that gift only, so that the third-
party takes.
• IHTA 1984 s4(2) - For the purposes of Inheritance Tax only the above
succession presumption are displaced:
“Where it cannot be known which of two or more persons survive the
other or others they shall be assumed to have died in the same
instance. This prevents a double tax charge”.
Example 14.4
Tom and Wendy (a married couple) die in a common accident and there
is no evidence as to the order of death. Tom’s estate is worth £3million
and Wendy’s estate is worth £325,000. Both have left their total estates
to each other with no survivorship period. Andrew is the ultimate
beneficiary under both Wills.
The Law of Property Act 1925 s184 passes Tom’s estate (the elder spouse)
to Wendy with the benefit of the spouse exemption (since s18 IHTA 84 still
applies because of s4(1)). Wendy’s estate then passes to Andrew. The
estate at this point is actually worth £3,325,000 but is only taxed to
Inheritance Tax on £325,000 which was Wendy’s original share.
Wendy’s estate is ascertained for Inheritance Tax purposes immediately
before her death at which time she has not inherited from Tom.
NB
380
(1)
This Inheritance Tax advantage would have been lost if Tom’s Will
had included the standard survivorship clause as Wendy did not
survive 30 days. Under these circumstances Tom’s estate would have
passed directly to Andrew but with only £325,000 of it passing
Inheritance Tax free as there would have been no spouse
exemption available.
(2)
Consider amending the standard survivorship clause so that it does not apply in commorientes circumstances as follows:
“I give my residuary estate to my husband/wife if he/she actually survives
me by 30 days or is deemed to survive me under s184 of the Law of
Property Act 1925 or any modification or re-enactment of it”.
(3)
Possibly also include a provision in the younger spouse’s Will to make
position clear.
6. Survivorship Clauses – Spouses 6.1.
Under s92 IHTA 1984 where property is given to a beneficiary on the condition
that he survives the Testator for a period of not more than 6 months then IHT
applies:
(a) If the beneficiary survives as if he had simply survived the Testator; or
(b) If the beneficiary dies in the period as if he had predeceased
the Testator. 6.2.
What is the advantage of the survivorship clause? Easier administration
where two persons die close together is generally the main reason.
6.3.
As between Tom and Wendy should the will simply provide for the survivor to
take everything without the need for a survivorship period to guarantee
maximum use of both nil rate bands on the survivor’s subsequent death
shortly after? The question of equalisation of estates is important.
Example 14.5
Tom has an estate worth £2 million and Wendy’s estate is only £50k. Tom
dies first survived by Wendy for only 14 days. If Tom’s will has a 28 day
survivorship provision and his estate passes to Andrew, Tom’s nil rate band
is used. Wendy however can only use £50k for her full nil rate band. In the
absence of a survivorship clause Wendy would pass all the estate (both
Tom’s and hers) to Andrew utilising both her nil rate band and Tom’s.
381
Chapter 15 Further Practical Tax Issues
1. Introduction 1.1.
It is not the purpose of this book to explain the details of the taxation of
income and capital post death either to the administration period or
within trusts created by the Testator in the Will. These are lengthy topics
in their own rights and for the details reference should be made to other
works covering this in more depth.
1.2.
However, anybody drafting a Will and advising a Testator needs to have
knowledge of the subject in order to have a sensible discussion and
give practical advice, particularly how the taxes impact on the ongoing
costs of administering trusts. 1.3.
Chapters 13 and 14 looked at the IHT consequences of different
testamentary gifts into trusts. This chapter is designed to provide a brief
outline of provisions for income tax and capital gains tax.
2. Income Tax – Administration Period 2.1.
The rules for dealing with income tax arising during the administration of
estates are contained in Income Tax (Trading and Other Income) Act 2005
(ITTOIA). 2.2.
Executors are liable to tax at the basic rate on all income arising during
the administration period. On dividends the accompanying tax credit
satisfies this liability.
2.3.
Executors have no personal allowance. Essentially they are a conduit for
the net income through to the beneficiaries (including trustees of ongoing
trusts) who ultimately have the responsibility of dealing with estate income
as with any other taxable income.
2.4.
Executors have a responsibility to complete tax returns for each tax year
of the administration, and to supply the beneficiaries with all information
about the net income and tax deducted to enable them to complete
their own respective tax affairs (usually Form R185).
382
3. Income Tax – Ongoing Trusts 3.1.
The main provisions dealing with income for trustees are contained in
Income Tax Act 2007 (ITA).
3.2.
The IHT treatment of ongoing trusts have no relevance for income tax. The
important question is whether or not a beneficiary or a class of
beneficiaries have an entitlement to or right to demand income arising
within a trust. 3.3.
If there is such a right then trustees are only liable to income tax at the
basic rate (satisfied by the dividend tax credit). The trustees have no
personal allowance. Effectively the trustees are a conduit for the net
income to the beneficiaries who have the responsibility of dealing with the
trust income as with any other taxable income.
3.4.
Trustees have a responsibility to complete a tax return for each year of the
trust, and to supply the beneficiaries with the information about the net
income and tax dividend to enable them to deal with their respective tax
affairs (usually Form R185). 3.5.
If the trustees have any discretion or flexibility about either distributing
income or how much income any beneficiary may in any year reserve,
then the trust income is subject to income tax at ‘the trust rate’ in that
year. From April 2012 this has been 45% (37.5% for dividends) on the gross
figure. However, the first £1,000 of income each year is taxed only at basic
rate. The £1,000 allowance has to be shared equally between all trusts
created by the same settlor.
3.6.
The tax paid by trustees (excluding any ‘notional’ dividend tax credit)
goes into the ‘tax pool’. When trustees make a distribution of net income
to a beneficiary the payment is after tax at 45%, e.g. a beneficiary who
receives a net payment of £550 effectively receives a gross figure of
£1,000 from which £450 tax has been deducted.
3.7.
Trustees as well as completing a tax return last year must supply who have
received income from the trust in that tax year beneficiaries with
information about the net income and tax deducted to enable the
beneficiary to deal with his tax affairs (usually Form R185).
3.8.
There are therefore likely to be higher costs involved in administering a
trust which is subject to income tax at the trust rate.
383
4. Capital Gains Tax – Administration Period (Taxation of Chargeable Gains Act 1992) 4.1.
Executors are liable to CGT on gains made on disposals during the
administration period. In line with the general principle that a transfer
(here death) should only be subject to IHT or CGT there is no CGT on
death but the assets are revalued giving the executors an uplifted
base cost. 4.2.
Executors are entitled to an annual exemption (equal to that of an
individual) in the tax year of death and the following two tax years.
Thereafter, executors have no CGT annual exemption.
4.3.
Calculation of gains and losses are made in accordance with general
principles. Losses can only be carried forward. Executors cannot use the
deceased’s losses from periods before death.
4.4.
Tax on gains is charged at 28%.
5. Capital Gains Tax – Trusts (Taxation of Chargeable Gains Act 1992) 5.1.
Gains (and losses) by trustees are charged to CGT in the usual manner. Tax
on gains is charged at 28%.
5.2.
Trustees have an annual exemption equal to one-half of that of an
individual. The exemption has to be shared equally by all trusts set up by
the same settlor (death and lifetime) subject to a minimum of 1/5th of the
trust’s exemption. 5.3.
Provided the trust is outside the relevant property regime for IHT (e.g. IPDI)
the death of a life tenant is a disposal by the trustees but it usually gives
rise to a tax free uplift for CGT in the value of all the assets.
5.4.
When a beneficiary becomes absolutely entitled to an asset there is a
disposal by the trustees and usually a charge to CGT will arise on any gain.
384
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• Tel: 0300 003 0577 (calls charged at local rate) • 16a Crane Grove, London N7 8NN Fax: 020 7700 0252 • Tel: 0300 003 0577 (calls charged at local• rate) • Email: legacy@buav.org • Fax: 020 7700 0252 • Website: www.buav.org • Email: legacy@buav.org • Registered in England as The Campaign to End All Animal Experiments • Website: www.buav.org • A Company Limited by Guarantee. Number 04115167 • Registered in England as The Campaign to End All Animal Experiments Established • A Company Limited by Guarantee. Number 04115167 in 1898, the BUAV works to create a world where nobody wants or
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Established totocreate aa world where wants or undercover political lobbying, the promotion of cruelty Establishedin in 1898, 1898,the theBUAV BUAVworks worksThrough create worldinvestigations, where nobody nobody wants or believes we need to free believes we need to experiment on animals. products, legal and scientific expertise and media activities, the BUAV campaigns
experiment on animals.
tirelessly and peacefully to end animal testing.free Through undercover investigations, political lobbying, the promotion of cruelty Through legal undercover investigations, lobbying, promotion of cruelty legal and The Ltd worksthe alongside its charitable arm,free the products, BUAV Charitable Trust products, and scientific expertisepolitical andBUAV media activities, the BUAV campaigns (registered charitycampaigns number 1081183). The BUAV Charitable Trust exists to: educate scientificand expertise andtomedia activities, the BUAV tirelessly and peacefully to end tirelessly peacefully end animal testing.
people about animal testing, research alternatives to animal testing, and to ensure
animal testing. The BUAV Ltd works alongside its charitable arm, theanimal BUAVtests Charitable Trust that laws controlling are properly enforced, in the UK and the EU. (registered number 1081183). Charitable Trust exists to: educate TheBUAV BUAVarm, receives government or lottery and relies solely on the The BUAVcharity Ltd works alongside its The charitable the no BUAV Charitable Trustfunding (registered charity people about animal testing, research alternatives to animal testing, and to ensure generosity of supporters to continue its work. Legacy gifts are especially vital, number 1081183). The BUAV Charitable Trust exists to: educate people about animal testing, research that laws controlling animal tests are properly enforced, the UK EU. total income. Our dedicated and constituting aroundin 50% of and the the BUAV’s
alternatives to animal testing, and to experienced ensure that lawsOfficer controlling tests are properly enforced,service in Legacy providesanimal a professional, sensitive and supportive
The BUAV receives no government orto lottery funding and relies solely on the Executors, extracting solicitors and bereaved family and friends. the UK and the EU. generosity of supporters to continue its work. Legacy gifts are especially vital, constituting around no 50% of the BUAV’s total income. andgenerosity of supporters to The BUAV receives government or lottery funding and Our reliesdedicated solely on the experienced professional, sensitive and supportive service continue itsLegacy work. Officer Legacyprovides gifts areaespecially vital, constituting around 50% of the BUAV’s total income. to Executors, extracting solicitors and bereaved family and friends.
Our dedicated and experienced Legacy Officer provides a professional, sensitive and supportive service to Executors, extracting solicitors and bereaved family and friends. B.U.A.V._T/E.indd 1
01332 226 572 385
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