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Private Client Digest

Settlements

In a recent case the issue for the High Court was whether the trustees of a settlement in which the deceased had an interest could offset liabilities outstanding from the deceaseds estate against the value of the settlement in order to reduce the settlements liability to inheritance tax. The deceased had died with virtually no assets. His liabilities were considerable and there was a net deficiency in his estate of £44,671.

The Court dismissed the trustees appeal holding that the liabilities could only be deducted from the assets which were liable to bear them

For advice on settlements contact info@dfalaw.co.uk.

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Right to Set Aside Transaction

The High Court recently held that a husband and wife were entitled to set aside a reversionary lease granted by them to their two daughters as part of an inheritance tax saving scheme. The applicants subsequently came to appreciate that under the scheme they would have no right to stay in their home from June 2017. If the daughters allowed them to stay on free of charge then the tax implications would deprive the scheme of its inheritance tax saving features since the applicants would be receiving a benefit. The application to set aside the lease and, if necessary, the trust deed was not opposed by the trustees or children.

The High Court decided to grant the application on the basis that when they entered into the lease the applicants did not know that the effect of it was to deprive them of their right to occupy the property in 2017. They would not have entered into the transaction if its effect on their rights of residence had been pointed out to them and the trust deed drawn up as part of the scheme was manifestly defective and did not coincide with the applicants intentions. They had made a significant mistake as to the legal effect of the lease and were entitled to have it set aside.

Our experienced private client team will not only draft the necessary documentation to achieve your tax saving aims but also explain its consequences to you. Contact info@dfalaw.co.uk for further details.

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Revocation of Grant of Probate

The Court of Appeal recently allowed an appeal against a decision revoking a grant of probate to the appellant. The deceased had been a successful solicitor and businessman and left a substantial estate. The appellant was the deceaseds second wife and the sole beneficiary and executrix under his will. The will had been drafted by one of the appellants daughters who had no legal experience or training.

The claimants (the children of his first marriage) had sought revocation of the grant of probate on the basis that the will had not been duly executed in accordance with the Wills Act 1837 because:

  • the witnesses did not intend to attest the signature of the deceased
  • the deceased did not know and approve the contents of the will.

The Court held that where a will contained the signatures of the deceased, witnesses and an attestation clause, there was a presumption that it had been duly executed unless there was the strongest evidence that the witness did not intend to attest to that which he saw the deceased sign. The judge had been entitled to decide that there were suspicious circumstances but the judges factual conclusion that the deceased did not know and approve of the contents was wrong in the circumstances of the case.

Such complications can be avoided by having your will professionally drafted. We can help. Contact our private client team on info@dfalaw.co.uk for further information on our comprehensive service.

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Business Property Relief

In a recent case which came before the Special Commissioners the appellant (the executor of the Eighth Marquess of Hertford) appealed against the Inland Revenues assessment of the percentage of the value of Ragley Hall that was eligible for business property relief under the Inheritance Tax Act 1984. Ragley Hall, its land, contents and the business of opening it to the public, had been transferred to the appellant as a gift by his father within seven years of his death, on condition that the living quarters be leased back to him.

The Inland Revenue had assessed only 78% of the value of the property as eligible for business property relief under the Act, this being the proportion of the interior open to the public, with the rest used for accommodation. The appellant contended that the whole value should be eligible for relief as a net asset of the business. He argued that as there was no provision within the Act for apportionment and the property was mainly used for business purposes its entire value should be eligible for relief.

The court held, allowing the appeal, that 100% of the value of the freehold was eligible for relief. The nature of the business and the part played in it by Ragley Hall led to the conclusion that it was a single asset and the section leased to the appellants father was part of that asset. Consequently, the whole building was indispensable to the business being carried on and it followed that the whole value was eligible for relief.

For further information on business property relief contact info@dfalaw.co.uk.

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Assurance by testator on commencement of partnership

In a recent case the appellant had sought an order that land be conveyed to him on the basis of an oral assurance by a testator that he would inherit the land on the testators death. This assurance was on condition that the appellant left his own family farming partnership and joined the testator in the new partnership. Their relationship subsequently deteriorated and they decided to abandon the partnership and to each farm separate areas of the land independently. The testator created a tenancy in favour of the appellant comprising part of the farm land and then made a will under which he left the freehold of the farm to the respondent.

The trial judge had found that the testator had no moral obligation to leave the farm to the appellant. The partnership had not worked out and the testator had treated the appellant fairly by giving him a tenancy of the major part of the land and not insisting upon rent. In dismissing the appeal, the Court of Appeal held that it was likely that each side had entered the partnership on the assumption that it would continue until death and did not expressly consider what would happen if things did not work out. Where there was a relevant unforeseen change of circumstances, it was legitimate for the assurance to be rescinded and replaced by a different arrangement that satisfied the equity that had arisen in favour of the appellant.

This case demonstrates the fragile nature of oral assurances. If you have not yet made a will, it is important that you do so in order to ensure that your wishes are documented. We offer a comprehensive drafting service. Just contact info@dfalaw.co.uk for further details.

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Disputes in Wills and Trusts

In a recent case, a deceased agreed with his sister that she would buy a property as his nominee with the aid of a mortgage as nominee. He took out life insurance to cover the mortgage and assigned it to her. He died, leaving everything by will to his children. The sister contended that the assignment of the policy was absolute and was designed to provide for her in the event of the deceaseds demise. The executor argued that the policy was subject to a trust requiring the sister to redeem the mortgage. The judge held that the assignment was on trust. There was evidence suggesting that the sister had known this to be the position. In any event her contention was unlikely to be right as it would have meant that the will was unnecessary since there would have been no assets. Furthermore the suggestion that the policy was to make provision for her, would have been odd since it only had value during its term.

Clear will drafting is absolutely vital to prevent your relatives disagreeing over interpretation of things that seem clear to you. Contact info@dfalaw.co.uk to ensure your wishes are carried out without dispute.

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Protective Trusts - What are They?

A protective trust is a trust that provides for beneficiaries who are spendthrifts: people to whom you might wish to leave money but you wish to manage the way that they use assets. An example might be a mentally disabled child. But it could as easily be a person who you feel may squander your inheritance. Protective trusts cannot be used to tax efficiently one's own assets: they are of little use in Inheritance Tax planning. Other vehicles are better to minimise legatees' liability for Inheritance or other tax.

info@dfalaw.co.uk will be glad to assist you in setting up a protective trust. Also, ask about tax planning issues relating to your will.

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Deeds of Variation and Inheritance Tax

In a case before the High Court the claimant (M) applied for rectification of a deed of variation of the will of her late husband. By the will, the whole estate passed to M with a gift over to the couples two children. Subsequently, a deed of variation was executed so as to set up a discretionary trust and utilise the testators nil rate band, thus avoiding excess liability to inheritance tax on the aggregated value of the two estates on Ms death. The deed of variation was defective. The deed created a trust fund of £200,000, which was the amount of the nil rate band at the date of execution of the deed of variation. However, the nil rate band at the date of the testators death was £154,000, which left a sum of £46,000 liable to inheritance tax.

The Court granted the application. The question was whether M had intended to save the maximum amount of inheritance tax by reference to the nil rate band in effect as at her husbands death, in which case it was not necessary to specify the exact sum, or whether she had intended to settle £200,000 on trust in the mistaken belief that this was the amount of the nil rate band, in which case rectification could not be justified. On the evidence, Ms intention had been to create a discretionary trust of an amount equal to the nil rate band at the death of her husband.

For tax efficient inheritance provision contact our private client team on info@dfalaw.co.uk.

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Appointments and Discretionary Trusts

In a recent case which came before the High Court the trustees claimed that a 2001 appointment under the trusts of a settlement was not valid. The combined effect of the appointment and an assignment made days later, meant that certain valuable chattels in a historic house and a reversionary lease of its estate were held on the trusts of a settlement made by the defendant.

The trustees argued that:
(1) the 2001 appointment was not effective because the exercise of the appointment was void or voidable if the trustees failed to take into account matters that they should have considered, (and if they had done so they would not have made the appointment);
(2) alternatively, the appointment was ineffective because it was made or consented to under a fundamental misapprehension.

The Court held that the trustees in this case were bound to take the fiscal consequences into account. On the evidence, the appointment by the trustees was vitiated by their failure because of wrong legal advice. If they had had the correct advice they would not have made the 2001 appointment. The effect of the exercise of their discretion was different from that which they intended, they failed to take into account things that they should have considered, and they would not have acted as they did had they known the correct position regarding capital gains tax. The 2001 appointment was set aside and declared to be of no effect.

For advice on settlements and the use of discretionary trusts contact info@dfalaw.co.uk.

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Opening up Probate

The Government's consultation paper Courts and Tribunal Modernisation Programme: Review of Probate Business was published in November 2002. Key areas identified for reform are local access to information on probate including by telephone and through the internet. Compulsory interviews for personal representation (rather than through solicitors) are also being abolished. Online ordering of copies of wills, and better links on Inheritance Tax to the Inland Revenue's extensive online resources, are also both mooted. The proposal means that (resources allowing): basic information will be available through the many offices of registers of births, marriages and deaths; contact centres to handle communications by telephone, post, email and fax will be set up at probate registries; cental resources, such as an enhanced Court Service website and telephone helpline will be set up.

Watch this space! These proposed services will be useful in increasing the flow of information, but the interaction of the law and taxation will remain complex. Consult info@dfalaw.co.uk for planning to make the best of your legacy or to manage an estate.

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The Public Guardianship Office and Mental Incapacity

Anyone who has reflected on the possibility of senility, illness or accident taking away their powers of decision-making will be interested in the possibility of giving a relative or professional Enduring Power of Attorney or control of their affairs in such circumstances. Changes to the Enduring Power of Attorney application process took effect from March 1, 2003 and prompt us to outline what the Public Guardianship Office (PGO) does.

The PGO is an administrative arm of the Court of Protection an office of the Supreme Court of Judicature which appoints Receivers, makes Enduring Powers of Attorney, appointments new trustees, authorises certain gifts and makes statutory wills. The PGO deals with mental health functions such as providing services which promote the financial and social well being of people with mental incapacity in England and Wales (separate arrangements exist for Scotland and Northern Ireland).

The PGO provides financial protection services for clients who are not able to manage their financial affairs because of mental incapacity. The incapacity may be related to an illness suffered by some older people (e.g.dementia), or the result of an accident or negligence (brain injury) or of mental illness (schizophrenia). The PGO supports the families and advisers of the person who is incapable, often after someone has applied to the Court of Protection to manage the incapacitated person's financial affairs.

When the Court has considered the application, it may appoint someone, called a Receiver, to manage and administer the person's affairs whilst they are unable to do so themselves. If you are the Receiver the PGO assists and supports you in completing your duties and works with you to ensure that together the best interests of the person with mental incapacity are promoted. Sometimes the PGO acts as Receiver. This occurs only as a last resort when the Court of Protection can find no one else willing or suitable to become the Receiver.

To find out more about setting up an enduring power of attorney for you or a relative contact info@dfalaw.co.uk.

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Disputed ownership of family home

In a case which came before the Special Commissioners the appellant tax payer appealed against a notice of determination issued by the Inland Revenue regarding the inheritance tax payable following his sisters death. The appellants mother had bequeathed the family home to his sister and the title was transferred to her in 1972. When his sister died in 2002 and the Inland Revenue calculated the inheritance tax payable on her estate, the appellant contended that his sister had not been the owner of the whole of the family home because she had not signed any document accepting title to the property.

The court held, dismissing the appeal, that the appellants sister was the owner of the whole of the family home immediately before her death. Her title to the property was valid and no attempt had ever been made to set it aside. Accordingly, the property in its entirety formed part of her estate for the purposes of inheritance tax.

For advice on inheritance tax issues contact info@dfalaw.co.uk.

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Human Rights

In a case which came before the European Court of Human Rights the applicant complained that the respondent state had discriminated against him as an adopted child in relation to his inheritance rights. The claimants adoptive father had inherited the estate of his mother as tenant for life. Her will had stated that the father should leave the estate to "a son or grandson of a lawful and canonical marriage", failing which the estate would pass to the remaindermen. The father married and he and his wife had adopted the claimant to whom he subsequently willed his mothers estate. Following the fathers death other members of the extended family applied for an order to declare the fathers will void and for his mothers estate to be passed to them as the remaindermen. They contended that as an adopted son, the claimant was not eligible to inherit the estate.

The court of first instance dismissed the action on the grounds that an adopted child had the same rights as a biological child and that the mother had not expressly excluded adopted sons from her will. That decision was overturned on appeal with the appellate court holding that it had to look at the law and custom prevailing at the time when the will was made.

The European Court of Human Rights upheld the complaint that there had been a violation of the claimants human rights. It was for national courts to interpret their own domestic laws, but the court could intervene where a decision of a national court was blatantly inconsistent with the fundamental principles of the Convention. The Court held that the order of the appellate court should be set aside.

For advice on any aspect of inheritance contact our dedicated team on info@dfalaw.co.uk.

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Partnership Property - Protect Your Estate!

Where business partners buy property with partnership funds there is a presumption that:

1) it is bought for the partnership; and
2) the property will be held in trust for the partners as tenants in common.

This means that there will be no right of survivorship if one of the partners dies. Whilst the Court of Appeal has decided that the presumption can be rebutted there has to be clear evidence that the property is held as a joint tenancy.

This has major implications for the partnerships survival and also for the estate of the partner who has died. To ensure that your partnership has clear evidence of joint tenancy, contact info@dfalaw.co.uk now

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Elderly Clients and Property

A Court of Appeal decision suggests that the courts will intervene to prevent an abuse of presumed influence arising from the relationship of trust and confidence between two parties. The presumption of “undue influence” arose when an elderly mother gifted the family home to her daughter. This transaction was later set aside by the son.

Notwithstanding the argument that the daughter’s conduct could not be described as wrongful or dishonest, there was no satisfactory explanation for the gift. If the elderly person had been separately represented and advised as to the implications of the transaction by an independent solicitor the court may have been satisfied of the exercise of her free will and judgement in choosing to make the gift to her daughter.

Caring for the elderly means problems for the elderly and the carers. On any decisions taken by you or your parent you must be protected by good advice. info@dfalaw.co.uk can help.

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Negligent Inheritance Tax Advice

The Court of Appeal dismissed an appeal against a decision that an executors claim in negligence against his deceased mothers solicitor was statute-barred. The solicitor had given his mother estate tax planning advice following which she transferred the house in which she lived to her son by way of gift. Her solicitor had failed to advise her that if she continued to live in the property without paying rent then, upon her death, she would be deemed to have an interest in possession in the house, which would consequently form part of her estate for inheritance tax purposes. Her estate was assessed for inheritance tax purposes on the full value of the house.

The Court of Appeal held that the claimants mother was not capable of suffering any loss as a result of the solicitors alleged negligence because she could never suffer any liability to pay inheritance tax - her estate was exposed to the risk of having to pay the tax. The solicitors negligence frustrated her wish to confer on her son the benefit of a reduction in the inheritance tax liability of her estate, but this was not capable of being assessed in money terms.

A cautionary tale... For advice on effective estate tax planning contact us on info@dfalaw.co.uk.

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Undue Influence

The Court of Appeal recently dismissed an appeal against a decision that the appellant had procured the resignation of his aged aunt from a family trust by undue influence. The family trust concerned a farm that was held on trust by the appellant, his brother and his aunt. The aunt assigned her beneficial interest to her son S who was to act as trustee in her place and a dispute subsequently arose between S and the appellant which led to the appellant demanding that his aunt attend trust meetings. She refused and the appellant visited her and told her that she would have to resign as a trustee if she refused to discuss farm matters with him or he would take her to court. The aunt signed a deed of resignation as she disliked any form of confrontation and was frightened by the prospect of court.

The Court of Appeal held that it was clear that the aunts consent should not be treated as an expression of her free will and, as a court of conscience, it should intervene to protect people from being forced, tricked or misled by others into parting with their property.

For advice on trusts in general contact info@dfalaw.co.uk.

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Trustees Mistaken as to Tax Consequences

In a recent case which came before the High Court the claimant trustees sought to set aside part of a deed of appointment on the basis that they failed to appreciate, consider and take into account the fact that that it generated very considerable inheritance tax liabilities. The deed of appointment gave rise to a chargeable transfer and corresponding charge to inheritance tax because business property relief was not available.

The High Court granted a declaration that the solicitors negligently failed to give full consideration to the tax consequences of the appointment and the trustees did not think that a charge to tax would arise in respect of part of the deed of appointment. The trustees executed the deed of appointment in circumstances in which they were seriously mistaken as to the tax consequences of what they were doing and they would not have executed it had they appreciated those consequences.

For advice on settlements and trusts in general contact info@dfalaw.co.uk.

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Succession to Secure Tenancy

In a case which came before the Court of Appeal the appellant (a minor) appealed against declarations that she had succeeded in equity to her deceased mothers secure tenancy and that the legal estate vested in the mothers sister (H) as executrix and trustee of her mothers estate. The local authority had granted the appellants mother a secure periodic tenancy of the premises and on her mothers death, the appellant was a person qualified to succeed her under the Housing Act 1985. The mother had left a will appointing H as her sole executrix and trustee and the appellants legal guardian and directing that her whole estate should be held on trust for the appellant absolutely. Before the appellant attained her majority, the local authority commenced proceedings, in order to satisfy the Housing Benefit Agency, and obtained declarations that the appellant had succeeded in equity to the secure tenancy and that the legal estate vested in H.

The Court of Appeal in dismissing the appeal held that the legal estate in the tenancy vested in H under the express provisions of the deceaseds will.

For advice on any inheritance issue contact info@dfalaw.co.uk.

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Capital Gains Tax - Effect of Tax Avoidance Scheme

In a recent House of Lords case the Inland Revenue appealed against a decision that monies comprised in the trust funds of a settlement made by the respondent and the income from it, which was payable to the respondent, did not constitute "derived property" within the meaning of the Taxation of Chargeable Gains Act 1992. The effect of the trial judges decision was that the respondent was liable to pay capital gains tax on a disposal of shares at the 25% rate of income tax rather than the 40% rate. The respondent had sought to take part in a tax avoidance scheme with a view to reducing his liability to capital gains tax.

The House of Lords allowed the appeal holding that the wording of the Act included all proceeds derived from the property, irrespective of the nature of the process used to extract value from the property for transfer to another, whether by sale or mortgage or otherwise. "Derived property" did not cease to be derived property merely because it had passed out of the relevant settlement.

For advice on the options available for reducing your liability contact info@dfalaw.co.uk.

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Gifts: Inheritance tax

In a recent case which came before the Special Commissioners, the appellant (an executor) appealed against a notice of determination issued by the Inland Revenue that the whole of a property was included in the value of the estate of the deceased immediately before his death for Inheritance Tax purposes.

The deceaseds niece went to live with him from 1996 to the deceaseds death in 2001 and in 1996, he drafted a will stating that if his niece was still living with him at his death, she could stay there for the remainder of her life. That will was not executed.

In 2000, the deceased had transferred a half interest in the property to his niece as a joint tenant by way of gift and executed a will leaving his share in the property to her for avoidance of doubt. On the deceaseds death, inheritance tax became payable on the gift. The appellant argued that the deceaseds actions in making the draft will and his extension of the property to provide more living space for his niece indicated that he intended to make her a gift of an interest in the property before the actual transfer in 2000.

The court held that there was no gift earlier than 2000. The evidence suggested that if the deceased had made a promise to give his niece an interest in the property in return for her looking after him, he would have made that clear. When he did decide to make such a gift, he effected the 2000 transfer.

For advice on inheritance tax planning contact info@dfalaw.co.uk.

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