Court of Appeal Rejects Challenge to Will
The Court of Appeal has now handed down its judgment in a recent case in which the lower court held that a man’s will was valid because he had testamentary capacity (‘was of sound mind’) when he gave instructions for it to be drawn up, even though he had lost mental capacity by the time he signed it.
The case concerned an elderly man who had created a new will leaving his entire estate to his carer. In an earlier will, he had bequeathed everything to his son, who lodged the legal challenge. The son claimed the new will was executed without his father’s knowledge and approval because he lacked testamentary capacity.
Under English law, it is not necessary to prove the testator’s knowledge and approval of the contents of a will when it is signed if he or she correctly believed that it carried out their instructions. The Court of Appeal ruled that in this case the testator did believe that the will gave effect to his intentions and it was therefore valid.
“It is almost always better to execute a will promptly,” says <<CONTACT DETAILS>>, “especially where the testator is losing mental capacity over time.”
We can advise on all matters relating to wills, the administration of estates and family wealth preservation.
Partner Note
Re Perrins, deceased [2010] EWCA Civ 840.
Failure to Follow Proper Procedure Costs Pension Company
When a person dies and they have a pension policy which will pay benefits to their next of kin, the pension company is required to take appropriate steps to ensure that the payment is made to the proper person(s).
When a man who had a stakeholder pension scheme with insurance giant AEGON died without having filled in the nomination form instructing to whom the death benefits should be paid, the insurers paid the benefits to his cohabitee.
A complaint to the Pensions Ombudsman by his daughter led to an award to her of £150 because the pension company had not followed the proper procedure. It had claimed that she had to show she was financially dependent on her father to be one of those classified as a ‘potential beneficiary under his estate’. It had not obtained the man’s will to check that the cohabitee was a beneficiary.
The insurer’s view was incorrect. A daughter is automatically to be considered as a potential beneficiary under the will of a parent.
The Ombudsman instructed the pension trustees to consider anew the decision to pay the benefits to the cohabitee alone.
If you have a pension policy, make sure you have considered and properly dealt with the issue of any death benefits arising under it. If you think that a pension company has acted incorrectly in the payment of death benefits, contact <<CONTACT DETAILS>> for advice.
Partner Note
Re Blundell. Determination 78553/1.
Full-Time Employees Abroad and UK Tax Residence
Although it is possiblethat working abroad full-time may mean that you are non-UK resident for Income Tax (IT) purposes, the position is still uncertain as to exactly when this will apply.
In a recent case, the Court of Appeal ruled that being in full-time employment abroad for the whole of the tax year was sufficient in itself to prevent UK residence for IT purposes. Prior to this, it was generally thought that some lessening of ties with the UK (such as disposing of property or other assets, or severing social connections) was necessary.
Crucial to the Court’s decision was paragraph 2.2 of IR20, the guidance given by HM Revenue & Customs (HMRC) on this subject that applied at the time. This stated that an individual leaving the UK to work abroad full-time would be treated as neither resident nor ordinarily resident for IT purposes, provided:
· the employment abroad lasts for at least a whole tax year; and
· any visits to the UK during this time total less than 183 days in any one tax year, and average less than 91 days per tax year.
From 6 April 2009, however, HMRC have replaced IR20 with new guidance, entitled HMRC 6. Although the paragraph (8.5) dealing with full-time employment abroad is broadly similar to paragraph 2.2 of IR20, it is not clear whether paragraph 1.5.22 is also relevant in this situation. This states:
‘You should always look at the pattern of your lifestyle when deciding whether you are resident in the UK […] Just because you leave the UK to live or
work abroad does not necessarily prove that you are no longer resident here
if, for example, you keep connections in the UK such as property, economic
interests, available accommodation, and social activities or if you have
children in education here.’
It remains to be seen whether the impact of the updated guidance will be to circumvent the Court’s decision. Tax legislation does provide that ‘living accommodation’ available in the UK will not affect the residence status of those in full-time employment abroad: however, it is unclear if this still applies when the individual’s family continue to live in the accommodation.
Says <<CONTACT DETAILS>>, “Residence is a complicated aspect of tax law, and further difficulties can arise when considering questions of ordinary residence and domicile. If you are considering living or working abroad, contact us for advice.”
Partner Note
Davies and JamesvHMRC [2010] EWCA Civ 8.
IR20 can be found at
HMRC 6 can be found at
Have You Made a Will?
Research carried out earlier this year by YouGov, on behalf of the children’s charity Barnardo’s, indicates that 58 per cent of adults in the UK and 74 per cent of those who are cohabiting do not have a will.
According to the poll, whilst most people understand the importance of executing a will, 32 per cent of those who have not yet done so said they had ‘always meant to but never got round to it’. Of the people over age 55 surveyed, 25 per cent said they did not feel the need to make a will because their estate would go to their families in any case.
Those who had already made a will tended to have done so at a relatively early age, with 61 per cent of those surveyed having carried this out before the age of 41. 23 per cent had completed the process as part of general financial planning and 22 per cent saw having children as the main reason for executing a will.
If you die without making a will, your estate and possessions will be divided according to the rules of intestacy. There are no guarantees that the distribution will correspond with your intentions. This is of particular importance to those living with a partner, as a surviving partner does not have the same inheritance rights as a spouse or civil partner. Taking the simple precaution of making your wishes known in a properly drafted will can prevent exposing your loved ones to financial difficulty.
Whatever your situation, the making of a will ensures that your wishes are complied with, but it can also help to minimise the tax burden when you die. In addition, it is normally possible to administer a testate estate more quickly than one that is intestate.
A will does not have to be complicated or expensive. Contact <<CONTACT DETAILS>> if you would like to discuss making or changing a will.
Partner Note
Survey commissioned by Barnardo’s. See press release at
Heritage Property – New Guidance
The term ‘heritage property’ normally refers to works of art or important buildings that are of significant cultural importance. There are special rules for dealing with such property when it comes to capital taxes and, in appropriate circumstances, the rules allow it to be accepted in satisfaction of Inheritance Tax (IHT) and Estate Duty and conditionally exempt from other capital taxes.
For example, a painting of Venice by 18th Century Italian master Guardi was recently accepted in lieu of an IHT liability, and because the painting was worth more than the IHT due, a payment was made to the estate.
The relevant guidance on heritage property is contained in leaflet IR67, which was last updated in 1986. HM Revenue and Customs have announced that this is to be revised and new guidance will be published soon. It is rumoured that this will restrict the available relief on heritage property, which has been abused in some instances.
For advice or more information on IHT planning, contact <<CONTACT DETAILS>>.
Partner Note
See
HMRC Tax Attack on Property Undervaluation Successful
A robust attitude taken by an executor to the valuation of a property came to nothing recently when HM Revenue and Customs (HMRC) were successful in defeating the executor’s claim that a property valued by them at £475,000 for Inheritance Tax (IHT) purposes should be valued at £400,000.
The most surprising aspect of the dispute was HMRC’s agreement to the IHT valuation of £475,000, as the property was sold two years after the death of its owner for £675,000.
Criticising the executor’s evidence as ‘misleading’, the Tax Tribunal accepted that HMRC’s valuation should apply.
HMRC will often reopen IHT returns where assets, especially houses, are included in estate valuations for IHT purposes and are subsequently sold for a much greater sum than their probate valuation. A new penalty regime, which came into force in April 2010, makes undervaluations a significant risk for executors.
We can help you avoid problems with HMRC in dealing with the tax aspects of an estate. Contact <<CONTACT DETAILS>>.
Partner Note
Hatton v Commissioners of HM Revenue and Customs [2010] UKUT 195.
HMRC Tax Attack on Property Undervaluation Successful
A robust attitude taken by an executor to the valuation of a property came to nothing recently when HM Revenue and Customs (HMRC) were successful in defeating the executor’s claim that a property valued by them at £475,000 for Inheritance Tax (IHT) purposes should be valued at £400,000.
The most surprising aspect of the dispute was HMRC’s agreement to the IHT valuation of £475,000, as the property was sold two years after the death of its owner for £675,000.
Criticising the executor’s evidence as ‘misleading’, the Tax Tribunal accepted that HMRC’s valuation should apply.
HMRC will often reopen IHT returns where assets, especially houses, are included in estate valuations for IHT purposes and are subsequently sold for a much greater sum than their probate valuation. A new penalty regime, which came into force in April 2010, makes undervaluations a significant risk for executors.
We can help you avoid problems with HMRC in dealing with the tax aspects of an estate. Contact <<CONTACT DETAILS>>.
Partner Note
Hatton v Commissioners of HM Revenue and Customs [2010] UKUT 195.
IHT Nil Rate Band Transfers
Inheritance Tax (IHT) allowances and reliefs are available individually to each taxpayer. Because transfers of assets between spouses or civil partners normally have no tax consequences for IHT purposes, it is easy to fall into the trap of thinking that there is nothing which needs to be done when making such transfers or when passing over the unused proportion of the IHT ‘tax free’ allowance in the event of one partner’s death. In fact, specific documents are required when the estate of the surviving partner is administered.
HM Revenue and Customs’ guidance on the procedure for claiming the balance of the IHT nil rate band on the death of the second spouse or civil partner shows that the retention of these documents is important.
The personal representatives of the deceased will be required to supply the claim accompanied by the following documents relating to his or her late spouse or civil partner:
- the death certificate;
- the marriage or civil partnership certificate;
- a copy of the grant of representation (confirmation, where the deceased died in Scotland);
- the will (if any); and
- any deed of variation.
It is widely thought that the ‘excess’ of unused transfers (i.e. the difference between the transfers made and the nil rate band at the date of death) simply passes across to a surviving spouse or civil partner, but this is not the case. The way the transfer works is more complex.
It is recommended that the required documents are assembled and stored in a safe place, together with your will.
“IHT planning has many facets and, whilst usually straightforward, needs to be carefully thought out,” says <<CONTACT DETAILS>>. “It is also important to start thinking about IHT issues as soon as significant wealth is acquired as, in general, the earlier IHT planning is started the more effectively its impact can be mitigated.”
In Brief
Mistakes in Probate Applications
The Court Service has revised its guidance on making an application for probate, in order to take into account the most common errors made.
The guidance has been published by HM Revenue and Customs on page 6 of the June 2010 Inheritance Tax and Trusts Newsletter. See
If you want to ensure an estate of which you are the executor is dealt with efficiently, our experienced probate team will be pleased to assist you.
Joint Account Does Not Mean Joint Ownership
Having money in an account held in two or more names does not mean that the account is held jointly by all those named and that entitlement to the total balance automatically passes to the last survivor.
A recent case dealt with a bank account that was held in two names. A mother, aged 78, opened the account and the funds were held in her name and in the name of one of her sons. She paid in all the money.
The woman died shortly thereafter and her executors called on her son to account to his late mother’s estate for the sums he had withdrawn from the account and the balance on the account when she died.
He argued that he had inherited the balance by survivorship and was entitled to retain the sums he had withdrawn.
The court ruled that the balance in the account when she died was an estate asset. The son was entitled to retain any withdrawals he had made under her authority, but any other withdrawals had to be refunded to the estate.
Partner Note
Northall v Northall [2010] EWCH 1448 (Ch).
Mental Capacity – What it is and What it Means
Mental capacity has always been something of a problematic area of the law.
The Mental Capacity Act 2005 was enacted to put mental capacity law on a firmer footing and is based on the concepts of ‘best interests’ and ‘capacity’. Under the Act, capacity is stated to be absent when the person is unable ‘at the material time…to make a decision for himself in relation to the matter because of an impairment of, or disturbance in the functioning of, the mind or brain’. Interestingly, the lack of capacity need not be absolute or permanent – it can be limited in both time and to the matter which is under consideration. A person may lack capacity at one time and not another and may lack capacity with regard to some sorts of decisions and not others.
Capacity is considered to be lacking in a person if he or she:
- cannot understand the information relevant to the decision, including the consequences which flow from making or failing to make it;
- cannot retain the information long enough to make the decision;
- cannot use the information as part of their decision-making process; or
- cannot communicate their decision by any means.
Once it is decided that a person lacks the mental capacity to make a decision, those responsible for making decisions on their behalf are required to do so in whatever way is in that person’s best interests.
A person is assumed to have capacity unless it can be established that he or she does not. Before that is decided to be the case, all practical steps must have been attempted, without success, to facilitate their making a decision.
The fact that a person lacks capacity does not mean that their wishes should be ignored. An attorney appointed to make decisions on their behalf should consider their current and past wishes, the views of relevant others (such as family members) and any beliefs or values that the person who lacks capacity might hold which would affect a decision.
The Act provides for the creation of Lasting Powers of Attorney (LPAs), which may allow the appointed attorney to make decisions relating to the person’s property and financial affairs, personal welfare, healthcare and medical treatment. LPAs cannot be used, however, unless they are registered with the Office of the Public Guardian.
It is normally straightforward to make arrangements for your affairs to be managed by a trusted person in the event that you can no longer do so yourself. The execution of a power of attorney ‘just in case’ can give you and your family the assurance that your affairs will be managed smoothly in the event of a loss of mental capacity. Contact <<CONTACT DETAILS>> for further information.
Partner Note
Mistakes, Mistakes
Trustees who make mistakes that have unintended tax consequences can normally obtain relief from the court.
Recently, a tax-avoidance exercise by which trustees of offshore trusts passed the absolute beneficial interest in the assets of trusts to the settlor in one instance and an absolute right to make advancement to the settlor’s children in the other was opposed by HM Revenue and Customs (HMRC). The aim of the scheme was to realise the gains inherent in the trust assets and set them off against unrealised losses by the individuals, thus achieving a saving of Capital Gains Tax (CGT).
However, due to a technical error in the way the scheme was set up, it was ineffective for tax purposes, which meant that HMRC sought to tax the gains without the set-off of the CGT losses.
The trustees applied to the court to have the transactions made void – and were successful, despite HMRC’s opposition.
In another case, trustees made a deed of appointment in favour of a wider class of beneficiaries, failing to realise that to do so meant that land held in the trust (and which had increased considerably in value) would no longer be eligible for hold-over relief and there might have been a deemed disposal of the trust assets for CGT purposes.
Again, the trustees were able to persuade the court to nullify the transaction.
Says <<CONTACT DETAILS>>, “HMRC will normally oppose such applications, presumably in the hope that the taxpayer, who will have to pay the costs of bringing the case to cancel the arrangement, will simply pay the tax. It is clearly better to make sure that the situation does not occur in the first place. Contact us for expert advice on all trust and wealth-preservation matters.”
Partner Note
Futter v Futter [2010] EWHC 449 Ch.
Jiggens v Low [2010] EWCH 1556 Ch.
Undue Influence Claim Fails
Disagreements often arise because the assets of an estate are not divided as potential beneficiaries think they should be, and legal challenges are relatively common when there is a second family involved.
In a recent case, Jean Gorjat, a multi-millionaire electronics engineer, died only months after transferring £1.8 million into accounts held jointly with his second wife, Lucretia de Barelli Gorjat.
Her step-children alleged the transfers were made as a result of her exercising undue influence over the 77-year-old and that he lacked mental capacity. He died intestate and the balances on the accounts were transferred to accounts held in his widow’s name.
The court rejected the claims of Mr Gorjat’s children, finding that their father was in full possession of his faculties and there was no undue influence. Evidence was given that Mr Gorjat disapproved of the lifestyles led by his children.
Says <<CONTACT DETAILS>>, “In this case, the estate still has to be wound up under the intestacy rules, which is highly undesirable with an estate of this size. If you have not yet made a will, you should do so. The intestacy rules dictate how the estate of a person who dies without making a will is to be distributed, which may not accord with the wishes of the deceased or the family’s expectations. It is far better to make a will, so that your estate can be administered at minimum cost and distributed as you wish.”
Partner Note
Reported in the Daily Mail, 25 July 2010. See
Variation of Wills After Death
A will is made to give effect to a person’s wishes as to how their property should be distributed after death. Sometimes, however, this does not produce the desired effect, for example where the family circumstances have changed since the will was made. There are a number of remedies which can be used in such cases.
To rectify a will, a court can declare it invalid, or it can add or omit words to give effect to the testator’s true intentions. A will can be declared invalid if the testator was not mentally capable or created it under undue influence from another person. Under the Inheritance (Provision for Family and Dependants) Act 1975, it is possible for anyone who can prove they were dependent on the testator to a material extent during their lifetime to claim a share of the estate if they have been excluded from the will. For example, a long-term cohabitee is normally entitled to claim a share. A claim under the Act must be made within six months of the testator’s death. A valid claim can be resolved either by a settlement between the claimant and the beneficiaries or by an order of the court.
Where the will is not disputed, variation can occur if a beneficiary disclaims a gift or if all the beneficiaries agree to vary the clauses. The latter option is called a Deed of Variation and it will give the new clauses the same effect as if they had been in the original will.
A Deed of Variation must be a written instrument and must have the written agreement of all beneficiaries. It must be made within two years of the testator’s death. Minors cannot give consent. If any of the beneficiaries are minors, an application must be made to the court to obtain consent on their behalf.
A variation is normally sought where the will does not provide the outcome desired by the testator’s family. Examples of this are when a beneficiary does not want to inherit an asset, where a person was excluded from the will when they were led to believe otherwise or where no provision was made for some of the testator’s dependants. A variation may also be made to clarify or improve ambiguous drafting.
A particularly common reason for a beneficiary to refuse property is in order to reduce the Inheritance Tax (IHT) burden on the estate. For example, a Deed of Variation can be used to pass property to the testator’s children, rather than to his or her spouse, in order to avoid IHT payable on the spouse’s estate when he or she dies. The spouse might therefore refuse the gift and request that it be passed directly to the children. If the IHT bill is affected, HM Revenue and Customs must be informed within six months.
Deeds of Variation are best suited to families who can agree on a desirable outcome – indeed, they are sometimes referred to as Deeds of Family Arrangement. They are not normally suitable where the will is disputed. Their most useful function is probably as an IHT planning device where the testator has not considered this.
Contact <<CONTACT DETAILS>> if you would like advice on will or estate planning.
Will Challenged Despite Clear Intention
It is unusual for an appearance in court to sort out a dispute over a will to be necessary when, in the words of the judge, ‘It is common ground that, at the time she made the will, [the testator] was of sound mind, that she knew and approved of the contents of the will, that it was not procured by impropriety or undue influence, and indeed that it was made on her own initiative.’
However, when an 83-year-old woman died in 1999, leaving a ‘kit’ will in place, the court became involved when the question of whether it was ‘duly executed’ was raised. At issue was whether the testator’s signature was properly witnessed.
The Wills Act 1837 says that ‘No will shall be valid unless –
(a) it is in writing, and signed by the testator, or by some other person in his presence and by his direction; and
(b) it appears that the testator intended by his signature to give effect to the 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
(d) each witness either –
(i) attests and signs the will; or
(ii) acknowledges his signature, in the presence of the testator …’.
The claimant alleged that the will did not comply with these requirements and one of the witnesses to the will gave evidence that she was alone with the woman when it was signed.
The other witness to the testator’s signature claimed that both witnesses to the will were present at the time it was signed.
The judge declined to conclude that the testator, whom he described as being ‘careful’, would have failed to comply with the rules and he therefore found that the will was valid.
Says <<CONTACT DETAILS>>, “Problems abound when ‘do-it yourself’ wills are used. Solicitors take care to make sure that allegations of procedural irregularities such as this are not able to be sustained. We can help you make sure that your estate is not subject to an unexpected challenge on procedural grounds.”
Partner Note
Kentfeld v Wright [2010] EWHC 1607 (Ch).
‘Willmakers of Distinction’ Directors Jailed
The directors of the Midlands will-writing firm Willmakers of Distinction have been jailed for the theft of more than £400,000 from the estates of clients.
Nicholas Butcher was jailed for three and a half years and banned from acting as a director for seven years, after admitting five charges of theft and two of fraudulent trading. David Nash, the founder of the firm, was also given a prison sentence of three and a half years, after admitting six charges of theft and three charges of fraudulent trading.
The directors’ available assets were confiscated but fall far short of the sum needed to fully compensate the victims of the fraud. It remains to be seen if their clients will be fully recompensed for the losses they have suffered.
The case was featured in a report on the private will-writing industry on the BBC’s Panorama programme in August. The investigation uncovered numerous cases where the fee for producing a will far exceeded the initial estimate and instances of beneficiaries being charged substantial unagreed amounts for estate administration.
Using a solicitor to prepare and administer your will not only means you can be confident of the professional standards of the preparer, but also means that you are backed by comprehensive insurance arrangements in the unlikely event that anything does go wrong.
Partner Note
Reported variously, 19 July 2010.