Wills and executors: A matter of trust

The Finance (No 2) Act 2015 introduced ?a new residence nil rate band (RNRB), which is due to come into effect on 6 April 2017. The rules have recently been clarified.

By way of a recap, the RNRB applies where:

• On their death, the deceased leaves their interest in a single dwelling-house which, ?at some time, has been their residence; 

• The interest is left to one or more of their close descendants (the children, grandchildren, or further lineal descendants of the deceased, including step-children, foster children, and adopted children, and any spouses or civil partners of the same); and

• The estate is worth less than £2m. When the estate exceeds that sum, the RNRB will be tapered away.

?In addition, the RNRB can be claimed where property is:

• Inherited directly, whether by will, intestacy, or through survivorship; or

• Settled on trust, so long as the beneficiary of that trust 

• Is a child of the deceased and the trust qualifies as an 18-25 trust or a bereaved minors trust;

• Has an immediate post-death interest in the deceased’s will trust; or

• Is the disabled person if the trust is a disabled persons trust.

?HMRC’s technical note dated 18 September 2015 explains how the government intends to protect entitlement to RNRB relief where the deceased downsized to a less valuable residence or ceased to own residential property at all. Under rules due to be introduced in the Finance Bill 2016, the estate will be eligible for the proportion of the RNRB that is foregone as a result of the downsizing. This will have similar characteristics to the RNRB and can be combined with it, unless the total value exceeds the RNRB for that particular year. Although the principles are straightforward, the legislation will inevitably be complex and challenging for practitioners.

Challenges to wills

The ruling in Re Whelen [2015] EWHC 3301 (Ch) late last year reaffirmed the importance of taking care in relation to the execution of wills and of taking a realistic approach to probate claims. 

Dorothy Whelen executed a will in 1982, leaving everything to her husband if alive, and otherwise to four charities in equal shares. Having survived her husband, Whelen died in 2012, with an estate worth approximately £1.8m. 

Upon her death, the original 1982 will could not be found. A second will from 1999 was produced, which left the majority of the estate to Hazel Turner, who had been Whelen’s ‘lifelong trusted friend’ since 1925. The charities challenged the 1999 will on the grounds of lack of due execution and lack of knowledge and approval. At the time of the trial Mrs Turner was 95 and had Alzheimer’s disease, and the claim was therefore defended by her son Alan Turner, who was a minor beneficiary under the 1999 will. 

The heart of the charities’ claim was that the two witnesses to the 1999 will had not been present with Whelen when they signed the document. In addition, the same witnesses signed Mrs Turner’s own will as well as Whelen’s will. Finally, forensic evidence showed that Mrs Turner’s will was directly beneath the 1999 will when it was signed. Both witnesses gave evidence that they ‘had been deceived’ by Mrs Turner, and that they did not know and had never met Whelen. >> >> The court accepted that Whelen had expressed an intention to leave the bulk of her estate to Mrs Turner and had signed the 1999 will, and rejected the argument that she did not know or approve of its contents. However, Judge Behrens found that the 1999 will was not executed in accordance with section 9 of the Wills Act 1837 and therefore could not be valid. In his view the 1982 will had been lost but not, on the balance of probabilities, destroyed, and it should therefore be admitted ?to probate.

Behrens J made a costs order against Mr Turner because he had pursued the case ‘to the bitter end’, despite obvious flaws in his position.

Disputes between executors

In Jones v Longley and others [2015] EWHC 3362 (Ch), Mr Jones was the will draftsman and first executor and Mr Longley was the deceased’s son and second executor. The estate administration became deadlocked because the executors disagreed over a number of matters. 

In such situations, executors can apply to court for directions. Instead, Jones issued a claim (under section 50 of the Administration Justice Act 1985) for the removal of himself and Longley as executors. Longley initially resisted the claim, but later adopted the position that Jones should be removed while he remained in place.

In July 2015, Master Matthews made an order removing Jones as executor (as Longley had wanted). In November the costs judgment was published. The judgment will give some comfort to executors who are considering taking proactive and appropriate steps. 

The starting point is that a personal representative (PR) or trustee is entitled to an indemnity from the estate or trust for costs properly incurred. Whether costs have been properly incurred depends on the circumstances (including whether the PR acted in the estate’s interests or in some way unreasonably).

Normally costs will follow the event in hostile litigation and Jones had seemingly been unsuccessful (as the court had not removed Longley). 

However, in Master Matthews’s judgment, this was a case ‘where the idea underlying the claim’ had been vindicated and Jones had ‘in substance’ been successful. 

Master Matthews agreed with Jones that the two PRs could not ‘be expected to continue to work together, and at least one must go’. ?In bringing the claim, Jones had unlocked the administration; he had ‘done the right thing in ?the interests of the estate and its beneficiaries’. 

Accordingly, Master Matthews ordered that Longley should pay Jones’s costs on the standard basis with the estate meeting any shortfall on the indemnity basis.  

Strained relationship

The Law Society v Elsdon [2015] EWHC 1326 Ch concerned the estate of Kathleen Lilley. Mr Elsdon was an executor with Mrs Lilley’s son, Arthur. ?Mrs Lilley died in 2008 and her property, which comprised the entirety of her estate, was sold in early 2011. Mr Justice Newey said – six years after Mrs Lilley’s death – that what happened in the administration ‘was extraordinary and disturbing’ and it was ‘hard to avoid the conclusion that… things had gone very seriously wrong’.

It appears the two executors had a strained relationship. Mr Lilley was concerned about delays in the administration and associated costs. In early 2011, Elsdon wrote to Mr Lilley asking him to account for a number of withdrawals made from Mrs Lilley’s building society account before her death and alleging that she had been neglected in her final years. Elsdon said that, as executor, he was ‘extremely concerned’ about these matters.

An executor in this position will usually wish ?to proceed with caution: if costs are incurred investigating such matters, there may be a question as to whether they should be paid by the estate, and the basis of the first executor’s actions against his co-executor will need to be given careful thought. Elsdon nonetheless forged ahead, and in November 2011 went as far as contacting the police, but the detective constable involved found there were no grounds to pursue Mr Lilley for theft or neglect. 

Elsdon then came to issue a number of invoices for his work, asking Mr Lilley to indicate ‘by what value he was prepared to reduce his share in the residue as compensation to the other beneficiaries’. Perhaps unsurprisingly, Mr Lilley ?did not approve the bills. The court eventually assessed the bills at a fraction of their original value (and made the accompanying costs order against Elsdon), finding, among other things, that Elsdon’s investigations had not been part of his duties (the beneficiaries could, if they chose, have instructed such investigations and agreed proper charging arrangements). As a result of these issues and others, Newey J found Elsdon could not be trusted with the administration of estates.

The above cases underline the importance of executors taking advice and considering their approach to disputes with co-executors. They ?also reinforce the importance, at the will drafting stage, of testators choosing executors who not only have their trust but are also likely to be able to work together.

Adam Carvalho and Richard McDermott, pictured, are associates at Farrer & Co www.farrer.co.uk