Update: wills and probate

This update looks at recent changes to procedures for wills and probate practitioners, and some of the latest decisions demonstrating the problems that can flow from inadequate professional housekeeping. The facts in each case are mundane enough, but together they suggest signs of an underlying culture change which is placing greater demands on solicitors, whether in transparency over fees, meticulousness over procedures or the provision of comprehensive and accurate advice.

Fee changes

The Probate Registry has increased its fees in line with inflation, taking effect from 4 April. The standard fee for an application for probate by a solicitor is now £45, up from £40, although the charge for additional official copies is unchanged at £1. The registry's fees for settling the terms of probate affidavits has gone up to £12, and the charge for a caveat is now £20. The 'swearing' fee payable for the executors' oath has been raised from £5 to £6, though the charge for each exhibit remains unchanged at £2. Details of all the fee changes can be found in the Non-Contentious Probate Fees (Amendment) Order 2011 (SI 2011/588).

Excepted estates

The parameters for IHT 'excepted estates' for which the short form of IHT return can be used were updated on 1 March to include estates of a widow/er dying on or after 6 April, where the first spouse's transferred nil rate band is available in full, and the survivor's chargeable estate is below the tax threshold. A nil rate band transfer claim must be submitted to HMRC within two years of the widow's death. Lifetime gifts claimed as 'normal expenditure out of income' must be included as chargeable gifts when determining whether the estate qualifies as excepted.

Tax avoidance

Regulations came into force on 6 April which require the disclosure of inheritance tax arrangements that seek to avoid IHT charges associated with transfers of property into trust. The revenue has issued guidance notes (including a flow chart) enabling practitioners to decide whether or not the revenue is likely to require planning to be disclosed. Schemes implemented or known to be available before 6 April 2011 do not have to be disclosed, nor does planning where tax mitigation is not a 'main benefit'. The consensus among practitioners is that if in doubt whether the rules apply, disclosure is the safest option.

Professional executors

On 17 March the Law Society issued a practice note containing professional guidelines when advising clients about appointing as executor a solicitor, a law firm, or a linked organisation providing executor services, such as a bank or trust company.

This practice note was clearly inspired by the Solicitors Regulation Authority's published responses to 'questions of ethics' in May 2010. Both the Law Society and the SRA emphasise the duty of solicitors to act in the best interests of the client and to ensure that the client is fully informed before making any decision.

The practice note confirms a solicitor may promote the executorship services of his firm or the bank, but he should inform clients, before making any appointment, that they can choose to appoint either a professional executor or a lay executor (who may instruct a professional to assist with the probate and administration). Solicitors should not recommend appointing a professional if this is unlikely to be in the client's best interests, for example, because the estate is small and straightforward.

The note also makes clear the client's right to transparency over the costs of appointing a solicitor executor, before he makes a final decision. The solicitor is required to provide full information about probate costs if he or his firm is appointed, distinguishing between the amounts charged for:

• the duties and responsibility of being an executor;
• the administration of the estate; and
• the costs arising from any continuing trusteeship.

An explanation of how the charges will be calculated (whether based on time, or on the value of the estate, or a combination of the two) and a reminder that fees may change in the future, must also be provided.

The practice note also includes guidance on what solicitors should consider if asked to renounce probate. It is not compulsory for a solicitor executor to renounce probate if the beneficiaries ask him to do so, but he must consider the circumstances which prompted the testator to select him as executor and whether things have subsequently changed (and he must look at the executorship separately from any trusteeship).

Solicitors will have to cope somehow with the practical difficulty of providing costs information without detailed knowledge of what is in the estate or whether any succession disputes may arise. The client will probably have to be content with generic rather than specific information about how fees are calculated and charged; it is questionable whether this is any practical use, particularly to clients under 50.

In this practice note, and in its campaign for regulation of will writing, the Law Society is putting down a marker in the current debate (for an interesting summary, see Chris Handford's article in Solicitors Journal Private Client Focus, 22 March 2011).

Clearly the Law Society wants to draw the obvious contrast between solicitors, required by professional regulation to subordinate their commercial interests to the client's best interests, and to provide as much transparency as possible over costs, and the 'cowboy' will-writing organisations targeted in the campaign.

So, although the practice note guidance is not mandatory, it carries a strong endorsement as the Law Society's view of good practice. Solicitors who fail to follow it will have great difficulty in defending complaints from clients and beneficiaries over probate costs.

Intestacy and polygamy

Clients deterred from making a will by costs concerns, or by the competing claims of a large family, should consider the practical difficulties of intestacy highlighted by the case of Official Solicitor to the Senior Courts v Yemoh & others [2010] EWHC 3727 (Ch).

The deceased was a Ghanaian who died intestate owning real property in England and Wales. The Official Solicitor was tasked with administering the estate. The deceased had seven wives (to whom he was legally married under Ghanaian law) and upwards of 70 children. Each wife claimed the widow's statutory legacy (£40,000) at the date of his death.

The court held that section 46 of the Administration of Estates Act 1925 provided for a single statutory legacy equally divisible between all the widows. The court also had to decide how to deal with the widows' life interest in half the residue. This would be held in trust to divide the income equally between the widows then living. When one widow died, the remaining wives would receive a larger share of the income. Only on the death of the last surviving wife would the trust fund pass to the children of the deceased.

Some of the children contended that their siblings should bring lifetime gifts made by the deceased in Ghana into account; the court rejected this, holding that the hotchpotch rules only apply to gifts of English property.

A trust or a will?

In the US, it is fairly common for individuals to set up trust structures in their lifetime which effectively bypass probate. These can be very dangerous for UK domiciliaries, for, even if the settlor remains the sole beneficiary of the structure in his lifetime, assets within the UK IHT net are likely to be subject to an immediate 20 per cent inheritance tax charge as a result of the Finance Act 2006.

A further problem within the jurisdiction of the English Court, and in countries with similar succession laws, is that what appears to be a lifetime trust may in fact be testamentary in nature and therefore subject to the Wills Act 1837. This was the conclusion of the Supreme Court of Bermuda in The AQ Revocable Trusts [2010] Bermuda 40 Civ (16 April 2010).

The court was asked in 2009 to consider the validity or otherwise of two trust instruments executed in 1976 purporting to declare trusts over Bermudan private company shares for the benefit of the settlor's sons and grandchildren. The documents were drawn up by a US law firm, apparently modelled on US precedents, with the intention of enabling family members to manage the settlor's companies when he died.

This may explain why they contained the following declarations: 'The donor hereby declares this agreement to be fully revocable by the donor and subject to amendment by him in whole or in part at any time and from time to time'¦ during the donor's lifetime the entire net income of the trust and so much of the principal as the trustee shall determine'¦ shall be paid to the donor'¦ upon the death of the donor this agreement shall become irrevocable.'

The Bermudan Court, assisted by several eminent English silks, including Francis Barlow QC as amicus curiae, determined that these purported trusts were testamentary in nature. As such, their validity was subject to the same criteria as for a will.

Although the documents were executed and witnessed in compliance with the Wills Act 1837, they had been automatically revoked by the settlor's remarriage in 1978. The sons' last-ditch argument was that the settlor's appointment of new trustees in 1982 had effectively republished the testamentary trusts; this might have succeeded but for the fact that there was only one witness to his signature on the appointment.

Signing the wrong will

Finally, the case of Marley v Rawlings [2011] EWHC 161 (Ch) arose from a very basic failure in wills 'housekeeping'.

Mr and Mrs Rawlings signed their wills on 17 May 1999 in the presence of their solicitor and his secretary. By mistake, Mr Rawlings signed his wife's will and she signed his. None of them noticed, either then or when Mrs Rawlings died four years later.

Following the death of Mr Rawlings in 2006, the court was asked to rectify the will in order to carry out the testator's intentions. Mr and Mrs Rawlings had intended that on the death of the survivor a share of their estate would pass to an informally adopted son, Terry Marley, but he would not benefit under the intestacy rules.

The court held that Mr Rawlings' will could not be rectified because Mr Rawlings had not intended to give effect to the document he signed. This was not a case of a clerical error that the statute would correct '“ it was fundamental. As the court noted, Mr Marley would have a remedy against the solicitor responsible for the error.

The message is clear: advising on wills, and taking the client through the will-making process, requires care, expertise, and robust practice management procedures to achieve the client's objectives and to protect his interests.