Wills and probate update
Catherine McAleavey reviews the latest cases on probate by LLPs, lost wills, testamentory capacity, and HMRC guidance
Important cases have been decided since the previous Wills & probate update (2006) SJ 56, 20.01.06, the most important of which is arguably that brought by the estate of Edith Lilian Rogers over the probate of a will by a firm that had changed its status to an LLP.
In the Estate of Edith Lilian Rogers dec'd [2006] WTLR 691
This is the test case in which Lightman J considered whether the appointment of partners in a firm or its successor practice as executors of a will included a limited liability partnership.
Mrs Rogers' will contained the following Re Horgan appointment:
'I appoint the partners at the date of my death in the firm of Lawrence Tucketts'¦ or the firm which at that date has succeeded to and carries on its practice to be the executors and trustees of this my will (and I express the wish that two and only two of them shall prove my will and at initially in its trusts)'¦'
In 2000, Lawrence Tucketts merged with another firm to form TLT which, in 2004, formed a limited liability partnership, TLT LLP. At their 2003 conference, the probate registrars had decided that where the standard form of Re Horgan appointment had been made, they would not recognise members of LLPs as 'partners' in a firm. As the rate of conversion to LLP status gathered momentum, the Law Society searched for a test case, which was eventually heard in March 2006.
Common sense would seem to dictate that the answer to the question before the court was obvious. The question of construction was not, however, that simple. An LLP is not a partnership in any legal or technical sense, but a corporate entity in its own right. It has members rather than partners, the individual status of whom can vary widely '“ from full profit-sharing partners to those whose rights are limited to signing documents and filing of accounts. The question before the court was whether, as a matter of construction and bearing in mind Mrs Rogers' intention as gleaned from the evidence, a non-technical meaning could be attributed to the expression 'partners'.
Christopher Tidmarsh QC, acting for TLT LLP (supported by the Law Society) argued for a straightforward purposive approach '“ pointing out that the primary purpose of the appointment was to appoint Mrs Rogers' solicitors as her executors and that the court should give effect to rather than defeat that purpose. William Henderson, acting for the Advocate General on behalf of the court, stressed the difficulties arising from the widely varying status of members of an
LLP which, if taken to a logical conclusion, could mean that those whose rights and responsibilities are far removed from those of partners in any technical sense could be appointed as executors.
In a decision which has been hailed as a victory for common sense, Lightman J said that Mrs Rogers' intention to appoint her solicitors should not be frustrated by those solicitors choosing to alter the legal character of their practice. 'The court can and should take a practical and common sense view in considering and giving effect to the intention manifested (by Mrs Rogers).' On that basis, Lightman J went on to find that the expression 'partners' as used in Mrs Rogers' will allowed members of a successor LLP to take out a grant of probate. However, in the same way as only full profit-sharing (equity) partners were entitled to take out a grant under a Re Horgan appointment, only full profit-sharing members of the LLP would be entitled to do so.
This limitation, while it deals with the problem of members whose role does not embrace full partnership in any commonly accepted sense, has caused some concern. There must be many firms up and down the country who, for years, have been applying for grants to be made to salaried partners and many thousands of grants that have been issued accordingly. While it's unlikely that anyone would seek to challenge the validity of those grants, it seems clear that, following Lightman J's decision, only full equity partners should apply pursuant to a Re Horgan appointment. The solution as far as new wills are concerned, and one recommended by Lightman J, is that all future wills should make express provision for any member of an LLP (and salaried partners) to prove a will. It is understood that, unless the appointment is worded in this way, in future only full equity partners or profit-sharing members of an LLP should apply for grants, but that the probate registry do not require a statement as to the applicant's status to be included in oaths.
A noticeable feature of many probate cases is the way in which, following the decision on the substantive issues, there is a full hearing on costs in which conduct is often a factor.
Corbett v Bond Pearce (A Firm) [2006] EWHC 909 (Ch)
The main action involved a challenge by Mr Corbett as administrator and joint residuary beneficiary under a February 1989 will to a subsequent will drawn up by Bond Pearce six months later. Reversing the decision at first instance, the Court of Appeal held that, in drawing up the will, Bond Pearce had been negligent and in breach of contract. The matter was returned to the High Court for full assessment of damages, with the costs of all parties to be paid from the estate.
Rimer J agreed that the measure of damages should be decided on ordinary principles, ie, for the claim in contract to damage of a nature that was recently foreseeable as likely to result from the breach and, for the claim in tort, to the type of damage reasonably foreseeable as a consequence. On this basis, costs incurred by Corbett in bringing the will action and the appeal could be taken into account in the assessment of damages but the following would not:
- costs ordered to be paid by Corbett to Bond Pearce in the course of the negligence claim which the court said should be recovered as part of the assessment of costs and should not be recouped under the guise of damages;
- costs paid by Corbett to his solicitors; and
- (unsurprisingly) costs incurred in administering the estate by a layman that were not covered by the professional charging clause.
In the main action, Mark Herbert QC sitting as a deputy district judge held that the deceased's will had been lost or accidentally destroyed without an intention to revoke it '“ simply because he was disorganised in the manner of its custody and not, as had been alleged, because it had been frequently suppressed or destroyed. The effect of this was that the 'winner' was the executor and beneficiary of the accidentally destroyed will. In the normal course of events (and despite the fact that he had made unsubstantiated allegations of fraud) he would have expected costs to follow the event. It was, however, held that the rule established in Mitchell v Gard (1863) 3 Sw &Tr 275 332 that if litigation is caused by the state in which the deceased left his papers, the costs of both parties will be ordered to be paid out
of the estate,would prevail, not having been overruled by the Civil Procedure Rules. All costs would, therefore, be paid out of the estate even though this meant that they would be borne, in part, by the successful party.
Ghafoor v Cliff [2006] EWHC 825 (Ch)
The deceased, who had significant assets in the UK, Jersey and Pakistan, appointed his four children as executors of his will. A dispute arose. One of the four made a successful application for a grant ad colligenda bona to be issued to her solicitors. The application was made without notice to the other three children and was supported by an affidavit alleging (inter alia) dishonesty and misappropriation of assets by her siblings. The grant was later revoked by consent.
On the issue of costs, Richards J said that the urgency of the application was not such as to obviate the usual need for notice, especially in the light of the seriousness of the allegations made by the daughter. There was no suggestion of bad faith on the part of the solicitors. They had, however, made errors of judgment (having allowed the application to be used for an improper purpose, namely to obtain for their client an advantage in proceedings in Pakistan, rather than the protection of the UK estate assets) and had lacked the independence appropriate for such an application, particularly in such a contentious case. The judge therefore ordered costs to be paid by the daughter and the solicitors rather than from the estate.
Finally, two cases on testamentary capacity in which the court, on the basis of the medical evidence, refused to uphold wills made towards the end of the deceased's life.
Abbott v Richardson (4 May 2006)
Miss Abbott, then aged 97, changed her will so that the bulk of her estate went to her carer/companion, Miss Richardson. The beneficiaries under an earlier will (who included charities) complained. The court held that Miss Abbott was capable of understanding the nature of the act of making a will and had knowledge and approval of its contents. However, without help, she was unable to understand or focus on every person that she might reasonably wish to benefit and arrive at a rational decision about which of them she wished to benefit and in what way. The will was, therefore, void for lack of capacity.
Sharp v Adam [2006] EWCA Civ 449
This was the appeal against the decision of the High Court '“ (2006) SJ 60, 20.01.06 '“ that the will of the racehorse trainer Neil Adams in favour of his stud manager and groom was void for lack of capacity.
The appeal judges held that the case turned on its facts. They could reverse the decision at first instance only if there was insufficient factual evidence to support it '“ in other words, no reasonable jury, having heard the evidence could have reached the judge's conclusion. Thus the appeal was dismissed.
From the Revenue
In its latest Newsletter (April 2006) HMRC Capital Taxes has reminded practitioners of the importance of ensuring that IHT 200 is complete. In view of an increasing number of cases where all pages mentioned on page 2 or information in the guidance notes are not supplied at the outset, it has reverted to its previous practice of retaining the D18 until a complete account is delivered rather than released D18 before insisting that the omissions are corrected.
The Newsletter also contains further guidance on the form of information that should be supplied in relation to chattels and highlights some of the particular areas of difficulty including:
- household goods for which a nil valuation is returned without a D10 or explanation of the value;
- no statement (as required by the guidance notes) of the basis of valuation (which should be open market);
- lack of information on cars; and
- omission of chattels in a holiday home or otherwise outside the main residence.
The IHT threshold has been increased to £285,000 for chargeable events on or after
6 April 2006. For the purposes of the Excepted Estates Regulations, the threshold remains at £275,000 for deaths after 6 April 2006 where the application for a grant is made before 6 August 2006.
Catherine McAleavey is a partner in Farrer & Co's heritage team