Update: trusts, wills and probate

Extent of beneficial interest

In Fowler v Barron [2008] WTLR 819, the Court of Appeal had to consider the extent of an unmarried couple's beneficial interest in their home. Miss Fowler and Mr Barron, who had an unmarried relationship for 23 years, purchased a property jointly as a home for themselves and their children. Although they purchased the house in their joint names they took no legal advice at the time as to the consequences of doing so and had no discussion about their beneficial ownership. The transfer did not contain any declaration of trust although it did state that the survivor could give a good receipt for capital money. Mr Barron paid the deposit on the property, and the couple took out a joint mortgage of £35,000 to cover part of the purchase price and some acquisition costs. Mr Barron met the balance of the purchase price from the proceeds of sale of his flat. The couple did not have a joint bank account and Mr Barron paid the mortgage instalments from his pension, and other costs such as council tax and utilities bills. Mr Barron gave evidence (which was accepted by the judge) to the effect that his agreement to the property being put into joint names was solely to ensure that Miss Fowler would be entitled to the property if he were to predecease her at a time when they were still living together. However this was somewhat inconsistent with the execution of mutual wills by himself and Miss Fowler in which they each left their interests in the property to one another.

At first instance, the judge said that although the property had been purchased jointly, in the absence of any express declaration of trust, he had to concentrate on how the purchase money had been provided. It was therefore held that applying the presumption of resulting trust, the property belonged in its entirety to Mr Barron, Miss Fowler having made no financial contribution. The decision was overturned by the Court of Appeal. The judge at trial had not had the benefit of the decision of the House of Lords in Stack v Dowden [2007] WTLR 1053, which said that the legal technique to be used by a court in ascertaining whether a cohabitee who was a joint owner had a beneficial interest was the common intention constructive test and not a resulting trust. A presumption of joint beneficial ownership arose from the fact that Miss Fowler and Mr Barron were joint legal owners and this could only be rebutted by evidence of the parties' shared intention to the contrary.

There was no direct evidence of the parties' intentions and any secret intention of Mr Barron that Miss Fowler should only benefit in the event of his death during their relationship could not be described as a shared intention. The court therefore held that Miss Fowler was entitled to a half share in the property.

Disclosure of letter of wishes in English court

The decision of Briggs J in Breakspear v Ackland [2008] WTLR 777 is significant for trustees because although the question of trustee's disclosure of letters of wishes has been considered by courts in Australia, New Zealand and the Channel Islands, the specific question has never been addressed in an English court.

The facts were that Mr D set up a trust following his divorce from his second wife, which was discretionary after his death, the beneficiaries including himself, his children and remoter issue. There was a power to add beneficiaries. He later married for a third time, appointed his new wife as trustee, added her and her children and remoter issue as beneficiaries and gave her a reversionary life interest on his death. At the same time he signed a letter of wishes. On Mr D's death, three of his children of his first marriage became aware that there was a letter of wishes and asked to see it.

The trustees declined to do so, on the grounds that it contained confidential information and that disclosure could lead to family discord. The children therefore brought proceedings for disclosure of the letter of wishes and sought to set aside both the deed adding Mr D's third wife as a beneficiary and that appointing her a reversionary life interest.

It was accepted law (per the Privy Council in Schmidt v Rosewood [2003] WTLR 565) that the basis on which trustees and the court should approach a request for disclosure of a letter of wishes was that it was an exercise of discretion and not a matter of proprietary right. The defining character of a letter of wishes in relation to a family discretionary trust was that it contained material that the settlor wanted the trustee to take into account when exercising their discretionary powers, that is, to serve what was an inherently confidential process. Usually therefore trustees need not disclose letters of wishes to beneficiaries merely because they have requested sight of them but only if disclosure would be in the interest of the sound administration of the trust and the discharge of their powers and discretions.

On the particular facts of the case, the contents of the letter of wishes did not justify the view that the trustees' reasons for refusing disclosure were irrational or an improper exercise of their discretion, and the refusal would have been upheld had it not been for their trustee's stated intention to imminently apply to court to obtain sanction to distribute the entirety of the fund.

Since this would necessitate the disclosure of the letter of wishes in any event, an immediate order for disclosure was made. The deeds adding the third wife as a beneficiary and giving her a reversionary life interest were allowed to stand, since although they were executed after her appointment as trustee and were prima facie in breach of the self-dealing rule, a power in the settlement itself permitting self-dealing disapplied the usual rule.

Increase in statutory legacies

Intestate estates have taken the spotlight during recent weeks. On 28 August, the Ministry of Justice announced an increase (the first since 1993) in the statutory legacies due to a surviving spouse or civil partner of an intestate. The changes take effect on 1 February 2009. Where the intestate leaves a spouse and children, the spouse's legacy will be £250,000 (up from £125,000). Where there are no children, but the intestate is survived by parents or siblings, the spouse's legacy will be £450,000 instead of £250,000.

These increases have been welcomed, as there were wide concerns that the previous legacies were set at a level that left the surviving spouse or civil partner inadequately provided for. Even so, many will be surprised that the statutory legacies do not increase annually, like the inheritance tax nil-rate threshold. Others may be surprised that in the 21st century, the survivor of a childless married couple does not automatically inherit the whole of the other spouse's estate, but must share it with the in-laws.

The right to make arrangements

In the case of Hartshorne v Gardner (Chancery division, Birmingham) the court was asked to rule on the fraught question of whose is the right to arrange the funeral. The deceased died in an accident aged 44, never having made a will. The court found that, like many people, he had not given any serious thought to future funeral arrangements. His parents, long since divorced, were jointly entitled to administer his estate, and disagreed about where he should be buried. His father contended that he should be buried in the town where he had made his home for several years, and where his fiancee, his brother and friends lived. His mother wanted her son to be buried nearer her own home. As the mother, by her own admission, had had only limited contact with him in recent years, the court decided that the wishes of his father and other family members and friends should prevail.

Reasonable provision

In Baynes v Hedger [2008] EWHC 1587 Lewison J made a careful examination of the 'family provision' rules as they applied to the estate of the sculptor Mary Spencer Watson, who died in March 2006. Miss Spencer Watson had a close relationship for 50 years with Margot Baynes and with Margot's daughter Hetty. In 1972 Miss Spencer Watson had established a trust fund for Margot and also paid for her house purchase. Over the years, she made many gifts and loans to Hetty. Miss Spencer Watson's will left her house and estate at Dunshay Manor to the Landmark Trust. Residue was left to Margot for life and on her death to Margot's children excluding Hetty, 'because she has already benefited'. Hetty received £2,500.

Both Margot and Hetty claimed pursuant to the Inheritance (Provision for Family & Dependants) Act 1975 that the will failed to make reasonable financial provision for them. Margot claimed as a member of the deceased's household, as her civil partner during the two years immediately before her death, and on the basis that she was maintained by the deceased immediately before her death. As there had been no formal civil partnership, and they were not a publicly acknowledged couple, and as Margot had her own home, her first claim failed. Because the gifts to Margot had taken place many years earlier, the court decided that Margot was not being maintained by the deceased immediately prior to her death.

Hetty's claim also failed. The court found that the deceased during her lifetime was 'exceptionally generous' to Hetty. . . 'she exploited Mary's generosity'. Hetty had incurred debts without any encouragement from the deceased or any reasonable expectation that the deceased would pay them. The court decided that the payment of existing debts was not 'maintenance', and that the provision for Hetty in the will was not unreasonable.

IHT developments

Inheritance tax developments continue, notwithstanding the credit crunch. The Revenue's August 2008 IHT & Trusts Newsletter announced that IHT relief for disposals of quoted securities at a loss will be available for estates holding Northern Rock shares on 22 February 2008, when the company was taken into public ownership, as long as the deceased died within the 12 months prior to that date. Loss relief should now apply to Bradford & Bingley, and to any other quoted companies which may fall victim to the financial crisis.

Some clients fondly (but mistakenly) hope that joint assets passing to the survivor avoid IHT liability. In Taylor v Revenue & Customs Commissioners SpC00704 (2008), the Special Commissioner considered the IHT position of accounts that the deceased had transferred into the joint names of herself and her brother-in-law, who later distributed the funds without declaring them or paying inheritance tax. The Special Commissioner upheld the Revenue's entitlement to IHT. As the deceased had had the power to dispose of the balances under her sole signature, for inheritance tax purposes she was regarded as owning to the whole amount on her death.