State of play: case summaries

 Heather Viljoen and Karen Bayley review recent case law concerning trusts, probate and vulnerable clients

Re A and B

A Jersey trustee's decision to exclude the settlor's son and grandchildren from the class of beneficiaries of a discretionary trust formed the bases of this case.

The trust was settled in 1993 and the class of beneficiaries included the settlor, the settlor's wife (the widow), the settlor's only son (the husband) and remoter issue. The husband married in 2001 and had two children (the grandchildren). The first grandchild was born shortly after the settlor executed his final letter of wishes in 2004, and died later that year. His letter of wishes set out that the trust was primarily for the widow's benefit during her lifetime, and that after her death, the trust fund be divided into two shares for the benefit of the husband and the grandchildren. The value of the trust fund at the time of the proceedings was in the region of £4.8m.

In 2007 the marriage between the husband and his wife broke down and they began divorce proceedings. At this time the wife, who was not included in the class of beneficiaries, took the grandchildren to live with her parents in Peru (where she was originally from) while the husband remained in England. The widow lived in Greece and was estranged from the wife and grandchildren.

The husband was ordered in the English divorce proceedings to pay a lump sum of £295,000 and regular maintenance of £30,000 per year to
the wife, on behalf of the grandchildren. Both the husband and wife were employed but had very limited financial resources of their own. The order envisaged that the trustee would assist the husband in meeting these obligations, as he could not have done so otherwise. The lump sum was paid by way of a loan from the trust to the husband, but the widow was resistant to the trust providing any further assistance.

It was in this context that the trustee decided to irrevocably exclude the husband and grandchildren as beneficiaries during the widow's lifetime. The grandchildren's guardian ad litem challenged this. The trustee argued that all requests for assistance had been considered to come to a reasonable decision which took into account the settlor's wishes that his widow should be the principal beneficiary.

The Royal Court of Jersey held that the decision was not one a reasonable trustee could have reached and set the decision aside. The court found that a power of exclusion should be exercised sparingly and in exceptional circumstances. The trustee had been unduly influenced by the widow and her views, including seeing the wife as
a hostile party and posing a threat to the trust established for her benefit.

In doing so, the trustee had not independently considered the needs of the grandchildren (who were innocent parties in the litigation) who were at a crucial stage in their lives, and were in need. The court further found that the settlor's letter of wishes had not intended the widow to benefit to the exclusion of other beneficiaries and, despite some conflicting witness evidence on the point, would have wished the grandchildren to be supported by the trust in the circumstances.

The case highlights that trustees should consider the needs of all potential beneficiaries while taking the settlor's wishes into account, but without being swayed by the views of any particular beneficiary.

Goodman v Goodman

This case concerned the application of section 50 of the Administration of Justice Act 1985, and clarified whether or not the court has the power to replace or remove executors before the grant of probate.

The deceased passed away in 2011 and left his estate to his widow. The widow and the deceased’s daughter (the first and second defendants) and two sons (the claimants) were appointed as executors. Relations between the widow and the daughter on one hand, and the sons on the other were poor. The widow applied for the appointment of an independent professional to administer the estate under section 50, which was opposed by the sons. They argued that where a person named as an executor had not yet obtained a grant, an application to replace or remove must be made pursuant to section 116 of the Senior Courts’ Act 1981.

Section 50 confers on the court discretion to appoint a person to act as a personal representative of the deceased in place of the existing personal representative, or to terminate the appointment of one or more, but not all, of the personal representatives. Section 116 provides a similar discretion in any special circumstances which appear to the court to make it necessary to appoint as administrator, someone other than the person who would otherwise administer the estate. Master Bragge in the High Court initially found in favour of the widow, and the sons appealed.

Mr Justice Newey dismissed the appeal. He found that the term “personal representative” in section 50 encompasses both an executor and an administrator. While an administrator derives title to administer the estate from the grant of letters of administration (and so cannot be replaced or removed before the grant) an executor is appointed by the will and derives title from it. An executor can take many steps in the administration well before the grant.

Indeed, estates are administered without a grant of probate. Section 50 is not restricted to replacement or removal of executors who had been granted probate. Mr Justice Newey accepted that this interpretation of section 50 meant there was considerable overlap with section 116, but found no reason why parliament would not have intended such an overlap, nor that parliament would have intended the “special circumstances” of section 116 to apply to executors who had not obtained probate, but not executors who had. There appeared to him no reason why parliament would have wanted it to be easier to replace or remove an executor who had obtained probate.

A further point that Mr Justice Newey considered was the case of Perotti v Watson [2001] EWCA Civ 116, in which Mr Justice Rimer suggested that the court does not have jurisdiction under section 50 to remove a non-proving executor. The claimants’ argument that this was binding authority was rejected on the grounds that statements to that effect in Perotti were obiter dictum. The scope of section 50 could be considered afresh.

Mr Justice Newey added that the claimants’ objection to the application of section 50 could only serve to generate expense and delay given that, even had it succeeded, the widow would most likely have re-applied successfully under section 116. He suggested that the point was symptomatic of the breakdown in relations between the two parties.

Re VH

This case concerned the revocation and cancellation of a lasting power of attorney for property and financial affairs (LPA).

V was a widow in her late eighties and lived at her home in Dewsbury.  She had two close relatives, her son D, and grandson K, who was the son of her late daughter. V’s LPA for property and financial affairs was registered on 1 November 2010, and appointed her son D as sole attorney.

She owned a bungalow worth around £178,000, had less than £1,000 in savings and had an annual income of around £20,000. Her son D owned two properties jointly with his long-term partner G; the house in which they lived and a further property. G also owned a property in Wakefield. 

D decided that his mother, who was becoming increasingly frail and forgetful, would move in with him and G. In October 2011, D took out a loan of £72,000 on V’s bungalow in Dewsbury, so it could be renovated and let out to generate an income. 

The plan for V to live with D and G never materialised – D and G separated at the beginning of 2012. V decided she wanted to remain in Dewsbury.  It transpired that D had spent almost the entire loan from his mother’s house on renovating G’s property. 

The Office of the Public Guardian (OPG) was contacted by V’s grandson K, who was concerned about the mortgage and how the money had been used. D replied to the OPG, haphazardly indicating that the money was a loan.

The OPG arranged for both a general visitor and a special visitor (who was medically qualified) to visit V. Both indicated that V may lack the capacity to manage her own affairs and to revoke or suspend the LPA.

In September 2013 the public guardian applied to cancel the registered LPA made by V in favour of her fragile state, and stated that D had breached his fiduciary duty by depleting V’s capital.

The court considered section 22
of the Mental Capacity Act 2005,
noting that the donor lacks capacity to revoke the LPA, and the attorney has behaved in a way that is not in the donor’s best interests. 

It was felt that D had changed his story regarding the money raised on his mother’s house, initially indicating that a loan had been made to him by his mother, and later suggesting that the money could have been a loan or a gift. In March 2014 and at the hearing on
2 July, D categorically stated that it was a gift.

The court, proceeding on this basis, said that V would need the same capacity as making a will in order to have made the gift herself, citing Re Beaney Deceased [1978] 2 All ER 595.  V needed to know that she was giving away £72,000 and entering into a mortgage with an obligation to pay instalments, and that the purpose the loan was originally raised for was quite different from how it was actually used. 

The judge noted the “utter fecklessness” of D’s actions, as he had made no effort to claim the money back from his former partner. Even if D was in financial difficulties and his mother offered to bail him out, spending all the money renovating a property belonging to his soon-to-be ex was astonishing.  The LPA was revoked and D was deemed to have contravened his very limited authority to make gifts under section 12 of the Mental Capacity
Act 2005.

Re EU

This case concerned the appointment of a deputy for property and financial affairs for EU, a man in his late eighties living in Suffolk.  EU was divorced and had three sons; TU, who lived in London, RU, who also lived in Suffolk and died in December 2013 and JU, who lived in Derbyshire.

EU lived in his own home until it became uninhabitable. He eventually moved to a residential care home in Suffolk in August 2012.  He owned a property and had some savings but owed money for the payment of the care fees.  In February 2014, Suffolk County Council applied to the Court of Protection to be appointed EU’s deputy.

EU’s son, JU, felt the deputyship was unnecessary and formally objected to the application by the council, arguing that he should act as deputy and that his father should move nearer to him in Derbyshire. The court made an order on 2 April inviting the parties to mediate and set a hearing date for 12 June.

The council submitted a statement that it was best placed to act in EU’s best interests regarding his finances, pointing out that JU lived far away and had had very little contact with his father for a long time. Despite multiple requests, JU did not meet with Suffolk County Council or his father during this time, delaying the hearing until
15 July.

An independent mental capacity advocate (IMCA) noted that EU had settled in at the Suffolk residential care home, and that JU appeared to have little understanding of his father’s issues or what being a deputy involved. JU withdrew from the hearing on 15 July for personal reasons and without further explanation.

On 14 July, EU’s eldest son TU, who hadn’t previously intervened, requested that an independent party should be appointed instead of the council. At the hearing on 15 July, EU participated by telephone with the IMCA present. District Judge Lush pointed out that there has never been a public duty for family members to act as a deputy. Equally, family members have never had an automatic right to be appointed.

The European Convention on Human Rights indicates that families should be preferred to strangers due to their links to the patient, and the fact they do not usually charge fees. District Judge Lush said that, in this case, the reasons for appointing a family member rather than the local authority as deputy were “far from cogent”, given the geographical and emotional distance.

Judge Lush said that Suffolk County Council had experience of dealing with property and financial affairs deputyships, rigorous checks and balances against financial misconduct, membership of the Association of Public Authority Deputies, and a greater awareness of  The Mental Capacity Act and the Code of Practice.

District Judge Lush considered that, given TU’s late intervention, the appointment of a panel deputy would be inappropriate as they would charge more for their services, and would not have had the experience in this particular case. 

The judge concluded: “The factor of magnetic importance in this case is EU’s own wishes and preference. The IMCA’s report makes it abundantly clear that he wishes to remain in the residential care home in Suffolk, rather than be moved to Derbyshire and that he would like Suffolk County Council Adult Care Services to manage his property and financial affairs. He reiterated these wishes over the telephone at the hearing on 15 July 2014, and I can see no reason why they should not be implemented.” 

Suffolk County Council was appointed deputy to EU.

 

Karen Bayley is a solicitor at Barlow Robbins

She writes regular case updates for Private Client Adviser

 

Heather Viljoen is a solicitor at Michelmores

She writes regular case updates for Private Client Adviser