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Private Client Briefing Notes
Why an Independent Solicitor is valuable when faced with a Will challenge
In the case of Greaves v Stolkin, the High Court has upheld that a codicil, by which a dying man left a £12,000 annuity, a car and a life interest in his home to his cohabitant, is valid. Leslie Stolkin had been a moderately wealthy property developer. He married once, and had two children. The marriage ended in divorce in 1989. In September 1997 Pauline Greaves (also divorced) moved in with him as cohabitant and became financially dependent on him. Mr Stolkin left a Will dated 3 December 2001 in which he left his entire estate to his eldest son, Gary, and also named Gary as sole executor and trustee. The Will did not include any provision for Mrs Greaves. However, Mr Stolkin referred to Mrs Greaves in manuscript notes he made about his estate. His notes directed that she was to receive regular payments from his estate after his death and that she could remain in the house as long as she liked. In April 2009 Mr Stolkin became seriously ill with motor neurone disease. He spent his last few months in hospital. Seven weeks before his death, Mr Stolkin executed a codicil, with the assistance of his solicitors, embodying some financial provisions for Mrs Greaves similar to those he had previously set out. Mr Stolkin died on 24 September 2009 aged 75.
The codicil was contested by Mr Stolkin’s son, Gary, on grounds of want of capacity and want of knowledge and approval. Two medical experts gave evidence; one on behalf of Gary Stolkin and one on behalf of Mrs Greaves. On a number of matters both medical experts were in agreement. They agreed that Mr Stolkin had suffered from confusion caused by an infection while in hospital, though not amounting to insane delusions. However, they differed as to whether Mr Stolkin had testamentary capacity when he signed the codicil. The medical expert called by Mrs Greaves considered Mr Stolkin had capacity while the medical expert called by Gary Stolkin thought he “was unable to comprehend the details and effects of the dispositions because of his cognitve impairment, depression, lack of mental energy and inability to concentrate”.
The judge concluded that the courts should be reluctant to allow a mental capacity or want of knowledge challenge to a Will that has been drafted by an experienced independent lawyer and it was held that the disputed codicil was valid and that it should be admitted to probate. This case highlights the importance of instructing an experienced independent solicitor to draft your Will. If you require further information, please do not hesitate to contact either Helen Freely or Rachel Jones, both of Druces LLP’s Private Client team.
Jointly owned assets, second spouses and Wills
Helen Freely, a partner in Druces LLP’s Private Client team, replies to a reader’s query in the Financial Times. The article highlights the problems that can be caused if a home-made Will is done without giving thought to the fact that assets are held jointly and pass outside the Will. It also explains what can be done to rectify the situation where the entire estate passes outside the Will to a second spouse, leaving the descendants with nothing.
Immigration rules: investors and entrepreneurs
Charitable incorporated organisations (CIO): implementing legislation now in force
The Charitable Incorporated Organisations (Insolvency and Dissolution) Regulations 2012 (SI 2012/3013); Charitable Incorporated Organisations (Consequential Amendments) Order 2012 (SI 2012/3014) and Charitable Incorporated Organisations (General) Regulations 2012 (SI 2012/3012) came into force on 2 January 2013.
The Charitable Incorporated Organisation (CIO) is a new incorporated legal structure with separate legal personality and limited liability intended specifically and exclusively for use by charities. CIOs will be registered with, and regulated by, the Charity Commission. The law applicable to CIOs is contained in sections 204 to 250 of the Charities Act 2011 (ChA 2011), but these provisions will not come into force until a commencement order is made. ChA 2011 also gives the Minister for Civil Society power to make regulations with more detailed provisions about the formation, operation and dissolution of CIOs.
The Charity Commission has been accepting applications to register new CIOs in the register of charities since 3 January this year. However, it is likely that there will be delay until later this year or 2014 before the coming into force of provisions which will enable existing charitable CLGs, community interest companies and charitable industrial and provident societies to convert into CIOs.
The Government has assumed that the target market for CIOs is charities with annual incomes of between £10,000 and £500,000. There are believed to be around 70,000 registered charities within this income bracket in the UK. It also assumed (based on experience of take-up of the Scottish CIO) that 20% of existing charities will adopt the CIO structure. Government estimates suggest that the average cost of incorporating a CIO will be broadly equivalent to the cost of incorporating a CLG. However, one advantage of the CIO is that it is estimated that the average costs of the annual accounts and reports preparation for a CIO will be significantly lower than for CLGs.
People interested in Inheritance Tax planning, providing for grandchildren or disabled beneficiaries
Pilot Trusts can often be used for people who wish to undertake Inheritance Tax (IHT) planning. They are lifetime trusts set up with a nominal amount and which are ready to receive further funds and/or property at a later date or upon the death of the donor by way of a legacy in their Will. Until such time that the trust receives further funds, it can lie dormant.
What is a Pilot Trust?
Pilot trusts are normally drafted as discretionary trusts and are created with an initial trust fund of as little as £10. The Trustees could be the client and their spouse or whomever the client believes to be suitable for the role. Settling a nominal sum ensures that the trust has legal presence at the date of the trust deed but it is not until it receives more assets that it becomes an active trust. Transfers of nominal sums into trust often fall within the Settlor’s annual exemption. There will be no IHT charge on the creation of the pilot trust and the £10 transferred into it will not form part of the Settlor’s cumulative total of chargeable transfers. Pilot trusts can have assets added to it immediately or after a period of time and can be used for numerous purposes, for example:
• A property could be transferred into a trust and registered in the Trustees’ names
• A pilot trust could be formed to receive pension death benefits
• Pilot trusts can be used in conjunction with a Will where the trust is set up during the Settlor’s lifetime with nominal funds but further funds may be added only after the Settlor’s death via a specific legacy in the Will
• A series of pilot trusts could be created to take advantage of several nil rate bands which then enhances the IHT planning effect.
Pilot Trusts and Inheritance Tax Planning
Pilot trusts are primarily used for tax planning purposes, and the principal advantage is that each pilot trust is entitled to its own nil rate band. For this to take effect, the Settlor must have his full nil rate band available to him, in other words there must not have been any chargeable transfers made over the seven year period before setting up the trust. Currently each individual has a maximum nil rate band amount of £325,000 available to them (increasing to £329,000 as from 6th April 2013). Setting up a series of pilot trusts on consecutive days and transferring the funds into the trusts on the same day could enable you to minimise future IHT exposure on the trust assets in particular in relation to the on ten-year anniversaries (“periodic charges”) and when assets leave the trust (“the exit charges”).
For example, you wish to put £300,000 in a discretionary trust for your three grandchildren. In the past seven years you have not made any chargeable transfers and therefore you have the full nil rate band available. A single trust of this amount would not exceed the £325,000 nil rate band, and the excess (once over the nil rate band level within the trust) would be liable to IHT on ten year anniversaries (at the rate of 6%) and on “exit charges” (i.e. distribution of capital).
However to be more tax efficient, you could consider creating three separate trusts of £100,000. Each will still be within the nil rate band. The best solution therefore is to create three pilot trusts; these are usually made on separate days (due to the fact that we do not wish them to be “related” settlements) with nominal sums (£10). Subsequently, at a later date you can add £100,000 to each pilot trust. For IHT purposes each trust would have its charges calculated by reference to its own nil rate band, thereby allowing the assets to grow and in effect having 3 nil rate bands to utilise with the trusts themselves.
Pilot Trusts and Will Planning
Just as you can add to a pilot trust in your lifetime, you can also do so on death through your Will. A word of caution, however. Each transfer to a discretionary trust is a lifetime chargeable transfer for IHT purposes. So, it is best to make the transfers to the pilot trusts on the same day and then none for another 7 years.
Pilot Trusts in Practice
Pilot trusts are useful as they enable you to benefit different members of the family, future generations and/or children from previous marriage. The trusts may also offer security to your assets from creditors, divorce claims, future care costs etc. They can also be use as efficient tax planning vehicles for lump sums which are payable either under a pension scheme or under a company’s death in service shceme.
Pilot trusts can be set up easily and quickly, and can be formed at the same time as having your Will prepared. Until the trust starts receiving income or making chargeable gains there is no need to register with HMRC and there is no need for trust accounts. As a result, there are unlikely to be on-going administrative costs until property is transferred to the trust. The pilot trust documents can be stored together with your Will until such a time that it is required.
This note does not constitute legal advice but is intended as general guidance only. It is based on the law in force in December 2012.
Charitable Incorporated Organisations
On 30th October 2012 Nick Hurd the Minister for Civil Society laid the draft secondary legislation before Parliament which is needed to give effect to the Charitable Incorporated Organisation (CIO). Subject to Parliament’s approval the charity sector could have a new corporate and legal structure designed specifically for them, with the possibility of the Charity Commission receiving the first applications to set up CIOs by the end of this year.
Currently the Charities Act 2011 sets out the basic legal framework for CIOs. Secondary legislation will, however, govern the operation of CIOs as well as setting out the model constitution.
One of the main benefits of CIO is that it will enable charities to have their own legal personalities with reduced personal liability for their members and trustees. At present charities suffer a dual regulatory burden from both the Charity Commission and Companies House. The regulatory burden on CIOs will be simplified. The key characteristics of a CIO are as follows:
• They only need to register with the Charity Commission and are regulated by charity law and not company law;
• All CIOs are registered charities and as soon as an organisation is accepted by the Charity Commission its details will be entered in the register for charities;
• CIOs will have a separate legal personality which will enable them to contract and hold property in their own name, which will limit liability of the trustees and members;
• The reporting process and accounting requirements will be less onerous as the CIO will be governed by Charities Act alone rather than the Companies Act. Furthermore, due to the fact that the CIO will be governed by the Charity Commission only it will need to prepare one set of annual returns and send them to the Commission and not to Companies House;
• Setting up a CIO will also be a simpler and cheaper process. The Commission has produced two forms of model constitution which should be used by the CIO, and the registration and filing of information is currently free of charge. The Commission aims to decide on an application within 40 days of receiving the application documentation.
Implementation will be phased in, and a proposed timeline has been put forward by the Minister for Civil Society in his recent Written Ministerial Statement for the receipt by the Charity Commission of applications for the CIO structure:
- From brand new charities with anticipated annual income of over £5,000, as soon as the Secondary Legislation is approve by Parliament
- From existing unincorporated charities with annual income over £250,000, March 2013
- From existing unincorporated charities with annual income between £100,000 and £250,000, May 2013
- From existing unincorporated charities with annual income between £25,000 and £100,000, July 2013
- From existing unincorporated charities with annual income between £5,000 and £25,000, October 2013
- From all unincorporated charities, January 2014
The current proposal being considered by Parliament does not make provision for the conversion of charitable companies limited by guarantee, community interest companies, or charitable industrial and provident societies. These entities will considered separately by other secondary legislation in due course.
As mentioned before we believe that the CIO structure will be most appealing for small to medium sized organisations which employ staff and / or enter into contracts. However, the CIO structure might be less suitable for larger charities or charities which seek to raise funds through issuing debentures or routinely borrow money against the security of their property.
This note does not constitute legal advice but is intended as general guidance only. It is based on the law in force in November 2012. If you would like further information, please contact Richard Monkcom, Head of Druces’ Private Client team.
Bradbury -v- Taylor: Nephew wins appeal to keep late uncle’s farmhouse
The Court of Appeal has upheld the decision of Judge Jeremy Griggs in the case of Bradbury -v- Taylor to allow Roger Taylor to keep his late uncle’s £800,000 farmhouse, despite this going against the wishes of the deceased.
After an incident at the property William Taylor invited his nephew, Roger Taylor together with his partner and their two children to move from Sheffield and into his house. Roger Taylor and his family lived in the east wing of the property, while William Taylor stayed in the west wing. When the couple discovered that William Taylor’s latest will left most of the property to charity a bitter legal battle pursued. Roger Taylor claimed that William Taylor had promised to leave them the house. William Taylor “vehemently denied” this. Furthermore, shortly before William Taylor’s death he left a witness statement stating that “Roger would be the last person that I would leave the house to. There was never any intention of leaving my house to him, or anyone else.”
After William Taylor’s death the dispute continued between his executors and Roger Taylor. Last year His Honour Judge Jeremy Griggs, sitting as a deputy Circuit Judge in the Plymouth County Court, accepted that a deal had been struck between the uncle and nephew and that Roger Taylor and wife had acted in reliance on that to their detriment in moving in with William Tayor. On that basis he held that a proprietary estoppel had arisen, and that William Taylor thereafter held the property on trust for Roger Taylor and his wife. The effect of that was to render William Taylor’s attempt to leave the property elsewhere ineffective. Accordingly the property was left to Roger Taylor and his wife subject to inheritance tax.
This decision was challenged in the Court of Appeal, the grounds of appeal being, in summary, that His Honour Judge Griggs was not justified in finding that a proprietary estoppel had arisen on the basis of the facts of the case. However the Court of Appeal dismissed the appeal, holding that the Judge’s decision took into account all the relevant factual considerations and that he had been entitled to come to the conclusion that he came to on the basis of those facts.
This note does not constitute legal advice but is intended as general guidance only. It is based on the law in force in October 2012.
Charitable Incorporated Organisations
A Charitable Incorporated Organisation (CIO) is a new legal form of charity. It is an incorporated form of charity which is not a company. It only needs to be registered with the Charity Commission and not Companies House and is only created once it is registered by the Charity Commission. It can enter into contracts in its own right and its trustees will normally not be liable for the debts of the CIO.
It is proposed to be implemented at some point during 2012.
The CIO was created in response to requests from charities for a new structure which could provide some of the benefits of being a company, but without some of the burdens.
They will not have the added complexity of being governed as a company under the Companies Acts, but will be governed solely as a Charity.
The CIO structure has several benefits in that:
- the members and trustees are usually personally safeguarded from liabilities that the charity incurs
- the charity has a legal personality of its own, enabling it to conduct its affairs in its own right rather than in the name of the trustees.
- The charity will be governed as a charity only, so that there is only one set of annual accounts to prepare
- They will be easier, cheaper and quicker to set up.
We think that the CIO will be most suitable for small to medium sized organisations which employ staff and / or enter into contracts. But it will not be appropriate if your charity is likely to want to issue debentures.
This note does not constitute legal advice but is intended as general guidance only. It is based on the law in force in July 2012. If you would like further information, please contact Richard Monkcom, Head of Druces’ Private Client team on +44 (0)20 7216 5531 / firstname.lastname@example.org or Helen Freely on +44 (0)20 7216 5521 / email@example.com or email us at firstname.lastname@example.org.
Spousal by-pass trusts
Spousal by-pass trusts are established to allow the lump sum death benefit of a pension to be paid by the scheme trustees to someone other than the deceased’s spouse or civil partner, while still giving them access to those funds. They offer certain inheritance tax benefits and are becoming increasingly popular. However changes in legislation relating to perpetuity periods (laws relating to how long it is permissible to tie up assets in a trust) have created a pitfall which in certain circumstances can invalidate the trust potentially resulting in an additional inheritance tax burden for spouses. Care needs to be taken to avoid this pitfall and Richard Monkcom, head of Druces LLP’s Private Client team explains how.
Wharton v Bancroft, death-bed Wills and Legal Costs
Summary: The recent court case of Wharton v Bancroft  EWHC 3250 (Ch) emphasises the need to be wary when challenging a Will. Although contentious probate claims will often be emotionally charged, this case illustrates that it is important for both clients and solicitors to put aside personal issues which might impact on their decision-making and to approach such cases dispassionately and proportionately. A failure to approach such cases appropriately can, as happened in this case, lead to significant cost liabilities for unsuccessful parties.
The case also serves as a reminder to practitioners who are involved in making a death-bed Will as to the requirements for ensuring the testator has the requisite mental capacity to make a Will, one of the so called “Golden Rules”.
Relevant to: Individuals who are seeking to challenge the terms of a Will and Legal Practitioners