Vucicevic & Anor v Aleksic & Ors [2017] EWHC 2335 (Ch) (20 September 2017)

A home made will that reads like an examination paper on testamentary wishes and the difficulties about expressing them correctly, without the benefit of technical advice.  Including

  • misnaming a charity (and the process to follow if the charity cannot be ascertained)
  • amending a will after the will has been executed (and dependent revocation)
  • executing the will without a date
  • use of the term “money” and ascertaining residue
  • domicile and the conflict of laws and renvoi in relation to overseas property
  • establishment of a trust
  • establishment of beneficial entitlement or charitable trust
  • role of a trustee

 

All this and more – in one case…

 

Source: Vucicevic & Anor v Aleksic & Ors [2017] EWHC 2335 (Ch) (20 September 2017)

 

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SUCCESSION PLANNING: UK citizens not discussing inheritance with their families | STEP

Source: SUCCESSION PLANNING: UK citizens not discussing inheritance with their families | STEP

 

There’s a shortage of Round Tuits.

There’s never enough time

Don’t leave it to the last minute

How much of a mess do you leave behind?

Mutual, joint or mirror wills?  Be careful what you wish for.

Legg & Anor v Burton & Ors [2017] EWHC 2088 (Ch) (11 August 2017)

Source: Legg & Anor v Burton & Ors [2017] EWHC 2088 (Ch) (11 August 2017)

Most lawyers specialising in wills or probate would tell you that mutual wills are to be avoided at all costs – the professional bodies that supervise or advise us put out technical notes emphasising this point.

However, as the Judge in this case remarked – “each testator sees only his or her case”.

It is perhaps because we see the cases that go wrong – the arguments about what the deceased would have wanted, that we make the recommendations that we do – it is not that we have the benefit of hindsight (which is very specific to each case) but that we have sufficient experience to know that things do go wrong, even when least expected – the best laid schemes gang aft agley .

In this case, the executors of the last made will of the deceased, had they been personally unaware of the will making history, would have had no indication that the testatrix had been a party to a mutual will – there was no textual evidence of any agreement that had been formed between the testatrix and her late husband – nor was there any confirmation of mutuality in the wills that were first made by the couple.  Having examined the evidence of the witnesses and associates of the couple, the judge in this instance concluded that the will of the husband had been made on the basis of an agreement with the wife that she would not change the will that she was making, after he himself had died- in fact he asked his solicitor to comment on the subject at the time and was reassured by his wife at the time that she would not change it  “My Mother actually heard this comment, and she shouted through from the kitchen ‘No I bloody won’t change it either’…”– a reassurance that he relied upon when executing his will.

The effect of this decision is to reinforce the earlier decision of Re Cleaver deceased [1981] 1 WLR 939 where the fact that two wills had been made in essentially similar, mirror terms did not create mutuality, but mutuality could be found where there was extrinsic evidence

 ‘It is therefore clear that there must be a definite agreement between the makers of the two wills; that that must be established by evidence; that the fact that there are mutual wills to the same effect is a relevant circumstance to be taken into account, although not enough of itself; and that the whole of the evidence must be looked at.

The effect of a mutual will is to bind together the will of one person with another – in the same way that a contract entered into by a person before their death needs to be seen as a prior commitment to the testamentary disposition.

Effectively, this would mean (in this case) that whatever the wife inherited from the husband could not be freely disposed of by her will – that she could not change her wishes.  Had she inherited or earned money subsequent to that will, then that money might have been disposed of, free of the condition of the mutual will.

Having seen a widow who wanted to make changes to her will for taxation purposes, being bound by an earlier mutual will, I know that it is a significant hindrance to the freedom of testamentary expression to limit a couple in this way – it takes no account of how circumstances change – and as change is a constant in itself, it means a kind of testamentary prison.   She professed to have no idea that this was the effect of the will – and indicated her late husband would not have wanted her to be so bound.

I doubt that there will be many who read this – just as as there are correspondingly large numbers of people who happily ask to make a joint will for a couple, without knowing what they ask for.  But if there is a person who has made a joint will (and the other joint testator is still alive and capable of making a will), it would be worthwhile to check with both of them that they realise the significant impact of any agreement – especially one that is written into the body of the will, or in a written form alongside the will, and what its effect is, looking to the future.

I am aware that the imposition of mutuality may seem attractive at first blush – particularly amongst those who have a culture or history of marital obedience.  But it is short-sighted of a legal professional to reach for a mutual will precedent without ensuring there are very clear attendance notes and explanatory letters explaining the effect and restrictions of mutuality.  This is what professionals are for – to give perspective and experience to the task of framing a person’s wishes.  Other solutions, aside from mutual wills, are potentially preferable to this, for all concerned.

Molatof!  More information on the Trusts Register

HMRC are now introducing an online registration process, in order both to streamline its function, as well as to comply with new anti-money-laundering legislation – called the Money Laundering Terrorist Financing and Transfer of Funds Regulations 2017 (Molatof, anyone?)

Trustees have an obligation to keep good records and accounts, not only for beneficiaries, but also for the Inland Revenue (HMRC).

Until recently, trustees did not have to supply details to the Inland Revenue of who was going to receive money from a trust – but this has changed.

Trustees have always been under an obligation to report income and gains, as well as reporting on the 10 year anniversary Inheritance Tax charge – if you are a trustee and you think you may not have failed to keep up to date, then your solicitor or accountant can help you keep on track, with a “trusts checkup”.

HMRC are now introducing an online registration process, in order both to streamline its function, as well as to comply with new anti-money-laundering legislation – called the Money Laundering Terrorist Financing and Transfer of Funds Regulations 2017 (Molatof, anyone?).  HMRC issued a newsletter about the upcoming changes in April – and suggested that the system would be online this month.  The Molatof regulations were published today, and it seems that it will be a few more weeks whilst HMRC tests the system to see whether it is working correctly.

The Molatof regulations mean that not only do trustees have to supply their details, but also they have to supply the names of beneficiaries and how they benefit – and in addition to their names, will also ask for National Insurance Numbers – and if a National Insurance Number is not available, addresses and passport details may be required.

HMRC have set themselves a deadline of the system going live by 5th October 2017 – for all trusts which have a tax consequence, information on the existence of the trust must be provided on or before 31 January 2018

Ilott –v- Mitson: Back to Square One

it was not enough to demonstrate a close family connection only, but that must be ‘some sort of moral claim…beyond a blood relationship, some reason why it can be said in the circumstances, it is unreasonable why no or no greater provision was in fact made

it was not enough to demonstrate a close family connection only, but that must be ‘some sort of moral claim…beyond a blood relationship, some reason why it can be said in the circumstances, it is unreasonable why no or no greater provision was in fact made [Re Coventry].

The Supreme Court has ruled, unanimously, that the original judgement made in this case  should stand: that Mrs Ilott’s long estrangement from her mother and her financial independence mean that an award should be made, and that £50,000 (from an estate worth approximately £450,000)  had been an appropriate sum to provide funds for Mrs Ilott’s maintenance. Some of this money could be used for the provision of new household items that were in poor repair and the capital awarded might not therefore affect the family’s benefits entitlement.

Judgment was this week handed down in the Supreme Court on the Ilott v Mitson case; heard in December 2016, some 12 years after the date of Mrs Jackson, the testator at the centre of the story. Ilott v Blue Cross

Essentially, the Supreme Court overturned the order made in the Court of Appeal, stating that the original judgement had been correctly decided; on the basis of the information given to DJ Million, he had not erred in either a legal judgement or a factual one. It was therefore not correct for the Court of Appeal to amend the award at all and the award made by them was not on the basis it should have been.   Of the seven Lord Justices hearing this final appeal by the charities against the decision, all seven were in agreement with the judgment that the Court of Appeal had calculated the award made to Mrs Ilott incorrectly.

In the 48 paragraph judgment, Lord Hale quoted the criteria for the 1975 Act for the provision for family and dependants, setting out the differences in the discretion of the Court on cases of a partner or spouse and the ‘maintenance’ order that was the only compensation that could be made for a child.

The judgment also focuses on the potential misunderstanding in connection with the phrase ‘reasonable financial provision’;

“Reasonable financial provision is….what is reasonable for [the Claimant] to receive. These are words of objective standard of financial provisions, to be determined by the court. The Act does not say that the court may make an order when it judges that the deceased acted unreasonably”

This echoes an earlier judgment in Re Coventry [1980] which also stated that on this basis it was not enough to demonstrate a close family connection only, but that must be ‘some sort of moral claim…beyond a blood relationship, some reason why it can be said in the circumstances, it is unreasonable why no or no greater provision was in fact made’

“Circumstances of the relationship between the deceased and the claimant may affect what is the just order to make…the provision which it is reasonable to make will, because of the distance of the relationship, or perhaps of the conduct of one or other of the parties, be to meet only part of the needs of the claimant.” (para 22)

The principle was repeated in para 35 of the judgment, reiterating that the original judgment made no error when considering the nature of the relationship between mother and daughter: emphasising how some adult children may have contributed to the wealth of their parents, or to their health or wellbeing contrasted with the case in hand, when mother and daughter had been estranged for several decades.

“A judge ought in such circumstances to attach importance to the closeness of the relationship in aiming at his assessment of what reasonable financial provision requires. The judge considered each of the factors…  The long estrangement was the reason the testator made the will she did. It meant that Mrs Ilott was not only a non-dependant adult child but made her life entirely separately from her mother and lacked any expectation of benefit from her estate…the judge was perfectly entitled to reach the conclusion which he did, namely that there was a failure of reasonable financial provisions, but that what reasonable financial provision would be was coloured by the relationship between mother and daughter”.

The point was emphasised further in paragraphs 46 and 47: the nature of the relationship between mother and daughter being fundamental clearly making this as a deciding factor

Lady Hale made a further contribution to the judgement, not to dissent but to clarify the perspective offered to the judges by current public consultations including the most recent Law Commission Report in 2011, which might have been offered more satisfactory guidance on the factors taken into account. Given the changing social climate since the 1975 Act was passed it might have been helpful for their Lordships to have more guidance on deciding whether an adult child was deserving or undeserving of reasonable maintenance, in the absence of dependency or disability.

What does this mean for people making wills?

The Supreme Court considers testamentary freedom to be paramount: that the law as it stands (however ill-suited some might feel it is to today’s social structures, it has not been amended by the most recent Law Commission consultation) was correctly applied in the initial case: the fact that Mrs Ilott was a family member and the charities benefitted from the estate was not a reason to depart from the original judgement. The estrangement had been originally referred to in a side letter to a will made by Mrs Jackson in 1984 as well as  the later will of 2002, and this side letter also made it clear that Mrs Jackson had considered the moral obligation she had and stated that she felt no moral or financial obligation towards her daughter, given their strained relationship.

What do clients need to do to ensure their wills are followed?

It is clear that no one is above the court’s authority to adjust the estate for beneficiaries who should have received some benefit. However, for those who have adult children who are financially independent and to whom no promises have been given or assurance of expectation made, the testator is free to choose what they want to do: if the testator has been receiving monies from a child, then the testator may ‘owe’ a moral duty to that child, to be represented by a financial gift.  In case there is doubt as to whether the testator has considered the claims to which they should give effect, it is wise to record that they have been considered. The closeness of relationship between the child and the testator be a factor relevant in any claim against the estate and a testator may wish to record details of the relationship and the reasons for their dismissal of familial bonds and why they have left their estate to others, so that executors have material to show the testator’s perception of the relationship to set against those of a claimant.

What does this mean for adult children excluded from benefit under a will?

If there is little to show the closeness of relationship between child and parent, no promises of future entitlements or great expectations, no financial dependency and the child is not disabled, or in need, their prospects of a successful claim against a parent’s estate will be diminished by this ruling, particularly if they are financially self-supporting.

How long does it take to get a grant of probate, again?

Just for solicitors:  a grant ad coll is not a “fast track”…

Probate Service
Target Times for issuing a Grant of Representation:

7 working days from the date of receipt of your application

Example: application received 14/3/2016 would issue on 22/3/2016 provided there are no impediments.

If your application is stopped for any reason, the Grant will be issued 7 working days from the date of receipt of the correspondence clearing the stop

AD COLLIGENDA BONA GRANTS

Please note that an Ad Colligenda Bona application is not a fast track Grant but is a Grant limited for the preservation of the estate

An Order is required from the Registrar before an application can be made.

 

Probate fees – a tax by any other name

 

The Ministry of Justice announced the consultation on probate fees last week.

 

https://consult.justice.gov.uk/digital-communications/fee-proposals-for-grants-of-probate/supporting_documents/probateconsultation.pdf

 

 

It is thought that new fee increases could be made effective from as soon as April 1 2016 – and there are many practitioners across the country who believe that this set of fee increases on probate fees is unjust, disproportionate and unfair.

 

Not only might these fees be unfair and disproportionate (the actual task of getting the grant of probate is already covered by the cost of the existing court fee) but the potential to charge quite high values of fees is seen by some as being similar to a tax.  Except the power to increase a tax is something that is given far higher scrutiny, both in the budget and in reactions to the budget – there is opportunity for more careful examination of the impact that increases in the tax burden will have on the behaviour of the populace – indeed, sometimes the reason for increasing taxes is so that the behaviour of the public is modified – towards the purchase of cars that consume less fuel, towards the purchase of particular types of alcohol – it is the primary example of applying a “nudge” philosophy – or behaviourist psychology techniques – encourage certain types of behaviour by reward, discourage certain behaviour by withholding reward (or rather, by making the retained money in your wallet significantly less).

 

Value of estate (before inheritance tax)             Existing fee       Proposed fee

Below £50,000 or exempt                                            £215                £0

Exceeds £50,000 but does not exceed £300,000    £215                £300

Exceeds £300,000 but does not exceed £500,000   £215                £1,000

Exceeds £500,000 but does not exceed £1m               £215                £4,000

Exceeds £1m but does not exceed 1.6m                       £215                £8,000

Exceeds £1.6m but does not exceed £2m                     £215                £12,000

Above £2m                                                                          £215                £20,000

 

Why would these increases be unfair?  Everything has to be paid for?

 

The probate court fees are already appropriate – the costs that are already being charged cover the cost of obtaining a one off service – this is a finite transaction – there are no ongoing case management issues – once the grant has issued, the court has no need for further supervision and intervention.  As a fee for a service, the fee is suitable.  To increase the fee so that it substantially exceeds the cost is unjust and unfair.

 

Obtaining a grant of probate is the rite of passage in most estates where there are assets that exceed £25,000 or thereabouts, since banks and building societies are frequently willing to release that sort of money without the need for any formalities.  In addition, there are many people who own assets jointly with a spouse or partner – and in those cases where assets are owned jointly, there is no need for a grant of probate in order for the asset to belong to the survivor.

 

So that’s alright then – all we have to do is to put assets in joint names and we’re golden?

 

Well, yes and no – just because assets are in joint names doesn’t mean that this is the best thing for an individual.  Putting assets in joint names whilst you are alive means that the other person can spend your money as if it was their own – potentially wiping out your savings and leaving you in a difficult situation.  If you were a vulnerable elderly person, you might be taken advantage of.

 

Putting assets in joint names can also have the effect that you are treated for some purposes as if you had made a gift of what you own – if the relationship you have with the other joint owner should become difficult, or they should themselves be in financial difficulties, your own money might be lost.

 

Just because someone receives money by survivorship after death does not mean that Inheritance Tax should not be paid on the estate.  Although the application for the grant of probate normally triggers the requirement to pay Inheritance Tax, the obligation to account for Inheritance Tax still applies, whether or not a grant of probate is required.  This is something that the public might easily not be aware of.  Failure to account to the Inland Revenue for tax that is due causes penalties in itself.  Failure to pay the tax that is due can cause penalties, and is likely to result in charges for underpaid tax and the interest on that tax.  Potentially, this means that problems can be stored up for the future, all because there was a desire not to pay this probate fee.    Trying to untangle what taxes should have been paid, the penalties and interest will be very stressful for families later on.

 

What do I do if I’m single? 

 

Good point  – you are going to need a grant of probate.  No matter who you leave your money to – even if you leave all that you have to charity, this bill will still have to be paid.  There is no Inheritance Tax to pay when you leave all your assets to charity, but still the probate fee will apply.

 

I thought it was free to leave everything to my wife?  Now you say she will have to pay?

 

Your executors will have to pay the probate fee, even if all that you have passes outright to your wife.  If you have made arrangements to give your wife everything for life, and then to go to your children (perhaps because you have been married before) then even though there is no Inheritance Tax to pay, there will be a probate fee.

 

How will my executors pay those massive fees?

 

Yes, that’s a problem.  When it is Inheritance Tax, you can pay a portion of your tax bill in instalments if your money is tied up in your house.   Usually your bank will only allow payments to be made for Inheritance Tax and for your funeral bill.  Perhaps the banks will start to allow payments to be made for probate fees.  It might take them a little while to get structures in place though.  Until then, it will be for your executors to produce the money out of their own pocket.  If they don’t have the money, they will have to borrow it.

 

This really sounds like a bad idea – who thought it up?

 

Yes it does.  And I can’t actually point to the Chancellor of the Exchequer and blame him for making the rules.  Still – it is “open for consultation” so feel free to comment directly.