Update: wills and probate

'Such a lovely fella... a very worthy friend.' When the court considers removing an executor, how much weight should be given to the fact that he or she was the testator's choice? The court has discretion under section 50 of the Administration of Justice Act 1985 to terminate the appointment of a personal representative and/or to appoint a substitute to act in the administration of the estate. Two recently decided cases demonstrate different approaches to such applications.

The principles which the court applies are derived from Letterstedt v Broers (1884) 9 App Cas 371, and were recently restated by Lewison J in Thomas & Agnes Carvel Foundation v Carvel [2007] EWHC 1314 (Ch). In Letterstedt, the court was concerned with the removal of a trustee, but recent case law has made it clear that the same principles apply to executors: 'In cases of positive misconduct, courts of equity have no difficulty in interposing to remove trustees who have abused their trust; it is not indeed every mistake or neglect of duty, or inaccuracy of conduct on the part of trustees, which will induce courts of equity to adopt such a course. But the acts or omissions must be such as to endanger the trust property or to shew a want of honesty or want of proper capacity to execute the duties, or a want of reasonable fidelity.'

In Kershaw v Micklethwaite and others [2010] EWCH 506 (Ch) the deceased appointed her two daughters and her accountant as executors, and gave her estate to be divided between the daughters and their brother. The will directed that various freehold properties should be appropriated to the daughters' shares of residue while the son should receive only cash. The son complained that the executors had undervalued the properties when allocating them to his sisters, who consequently received more than their fair share of the estate. He also alleged the executors had failed to keep him informed of the progress of the administration.

The High Court declined to exercise its discretion to remove or replace any of the executors. In his judgment, Newey J accepted that a testator's choice of executors is important because he or she will have knowledge of the characters, attitudes and relationships involved. Friction or hostility between an executor and a beneficiary is not a sufficient reason for removing the executor. Although the daughters had a conflict of interest as both executors and beneficiaries, the court saw no problem with this commonplace scenario.

Animosity between executors

The case of Angus v Emmott; the estate of Anthony Steel (deceased) [2010] EWCH 154 is another High Court decision but with a different outcome. The facts were unusual. The deceased was the victim of a miscarriage of justice and served 19 years in prison for murder until his conviction was quashed. As a result, he became entitled to a substantial sum of compensation, but died before the claim was finalised.

A dispute arose between Mr Steel's three executors about the compensation claim. Two of the executors objected strongly to the terms of the claim, and refused to sanction the submission of the document as originally drafted. The other executor asked the High Court to approve the claim as drafted, and to remove the two executors who objected to it.

The court found that there was no misconduct on the part of the executors, but 'even without misconduct, a situation has been reached in which there is such a degree of animosity and distrust between the executors that the due administration of Mr Steel's estate is unlikely to be achieved expeditiously in the interests of the beneficiaries unless some change is made'. The court decided to remove all three executors and appoint an experienced lawyer as a substitute.

At first sight this seems to suggest an inconsistent, even capricious approach to applications for the removal of executors. However, there are key differences between the two cases. In Steel the internal dispute between the executors themselves had to be resolved before the estate administration could progress; as agreement between them was impossible, there was no alternative to a change of executors. In Kershaw, the executors were in agreement, the estate administration was proceeding normally, and the court was not willing to intervene at the behest of a beneficiary whom the deceased had deliberately chosen not to appoint as an executor.

Testamentary capacity

The 'lovely fella' whom we met at the start of this article figured in another pair of contrasting cases, this time concerning testamentary capacity. In Hinton & Hayes v Leigh & Reeve [2009] EWCH 2658, the High Court was asked to adjudicate on the capacity of Victor Reeve, then aged 85 and suffering from terminal cancer, to revoke a will made six months earlier. In that will, Mr Reeve had appointed his 'worthy friend' as executor and had left most of his estate to his nieces, excluding his adopted children from benefit. The evidence showed that until his last illness Mr Reeve had a close and affectionate relationship with the individuals named in his will, and was on poor terms with his adopted children.

Shortly before his death, however, he executed a revocation of his will stating that he wished his estate to devolve under intestacy laws (and hence to the adopted children). Letters written by Mr Reeve showed that, like many seriously ill patients, he was in a confused and anxious state and was 'remembering' attacks and robberies which had never taken place. The court confirmed that the requisite testamentary capacity for the revocation of a will is exactly the same as for making the will. The testator's change of mind about his executor and nieces was based on delusions caused by a mental disease poisoning his affections. The revocation was invalid for lack of capacity.

The decision in Key v Key [2010] EWCH 408 has attracted much publicity and some criticism. By Mr Key's earlier wills, his sons had been the principal beneficiaries and his daughters received only a small share. Six days after the death of his wife of 65 years, he instructed his lawyer to prepare a will which increased his daughters' share of the estate. There was evidence that he had done this at the urging of his daughters to be fair to all four children; the court accepted that at the time he made the new will he was devastated by his wife's death.

The 2006 will was held to be invalid because Mr Key lacked the requisite mental capacity. It is clear from Briggs J's judgment that this case must be viewed as a modern extension of the familiar test of capacity set out in Bankes v Goodfellow (1870) LR 5QB 549. The testator must: (1) understand that he is making a will which disposes of his property after death; (2) know what property he has to leave; and (3) comprehend and appreciate the claims which he ought to consider when disposing of his property by will. A mental disorder such as to 'poison his affections, pervert his sense of right or prevent the exercise of his natural faculties' prevents his having the requisite capacity.

Is bereavement capable of producing a mental disorder which deprives the sufferer of testamentary capacity? The court decided that it is. Depression, which may result from bereavement, can affect the power to make decisions. In Bankes terms, it can prevent the exercise of natural faculties. The court noted that this impairment is different from the majority of cases on capacity in which old age and/or dementia affect the testator's ability to understand or comprehend. In this case, the evidence showed that Mr Key had understood he was making a will disposing of his property on his death, what that property was and whom he might be expected to leave it to '“ indeed, the later will was objectively fairer to the deceased's children overall than the earlier wills favouring the sons. But the judge decided that 'taking the evidence as a whole, Mr Key was unable during the week following his wife's death to exercise the decision-making powers required of a testator'.

This decision poses practical difficulties for practitioners. When instructed to draft a will, should you investigate whether your client has recently suffered a bereavement or undergone a stressful event? Is it safe to draft a will for a client who has been made redundant, or whose child has just started school for the first time? Many couples have estate planning arrangements which envisage the survivor making significant lifetime gifts after the death of the first spouse. Given that the requisite mental capacity for the gift of a substantial asset is similar to testamentary capacity (see re Beaney [1978] 2 All E R 595) how long a delay should there be before the planning is implemented?

Inheritance tax

The taxpayer scored a success in Chadwick and another (personal representatives of Raymond Hobart deceased) v HMRC [2010] UKUT 82. This concerned the probate valuation of the deceased's house, which he had bought in 2002 for £268,450. When he died in December 2005, two valuers instructed independently by the executors both advised that the open market value was £250,000. HMRC first proposed a valuation of £350,000 but later came down to £275,000. Neither side would budge further.

The executors won the day. HMRC was wrong to treat the 2002 price as a starting point, as this price was not achieved on the open market; the deceased had been desperate to move near his daughter and had done a private deal with a neighbour of hers. Hence, the 2002 price was completely irrelevant and the probate valuation, on the evidence, was £250,000.

Although this decision clearly turns on its own facts, it will nevertheless be welcome to executors, trustees and their advisers, as a counterweight, albeit small, to HMRC's new tough line on property valuation (see the previous wills and probate update, Solicitors Journal 154/3, 26 January 2010) and the 'inaccuracy penalties' covering IHT disclosure which took effect from 1 April 2010 (schedule 24 of the Finance Act 2007, as amended by schedule 40 of the Finance Act 2008).