View more on these topics

Letter of the law

What inferences can be made from a letter sent by trustees in a disputed case concerning an alleged interest in possession.

Continuing with the Judge case and its consequences for the users of discretionary will trusts to hold property, I would now like to look at the letter written by the trustees to the surviving spouse following the death of the testator. It reads as follows:

“I would confirm that under clause 3 of your late husband’s will, 30 Perrymead Street is the sole asset of a life interest trust and you will enjoy the occupancy of the property during your lifetime … You will be responsible for the actual payment of the premiums (for buildings insurance cover) as well as all the household bills, etc, including council tax …

“Under Clause 4 of the will, the residue of the estate is to be held on a discretionary trust for the benefit of yourself, your nephew and niece and also their children. As trustees, we have the responsibility of exercising our discretionary powers under the terms of the will and also under trust law when considering making payment of capital and income to the discretionary beneficiaries …

“This discretionary trust is slightly different in as much that you, as the surviving spouse, is not nominated as the ‘primary beneficiary’ …”

On the face of it, this would appear to have been tremendously helpful to the Revenue’s cause but not so. Even though the trustees in question actually wrote to the testator’s spouse to tell her that she had an interest in possession in the trust, this letter turned out to be other than the determinant in this case.

On the earlier death of the testator, the trustees (acting consistently with their subsequently expressed interpretation), as executors, applied for probate of his estate on the basis that the spouse exemption applied to the property. The deceased’s other assets were below the nil-rate band, so no inheritance tax was paid. Probate was granted on this basis.

Following the death of Mrs Walden some three years later, her personal representatives applied for a grant of letters of administration to her estate and did not mention the property. Their view was that the deceased had no interest in possession.

Of course, if this was correct, then inheritance tax would have been underpaid on the death of the testator who was the creator of the trust, Mr Walden (deceased). No correspondence existed to indicate what the original testator’s intention was.

The main argument was quite straightforward. The personal representatives of the deceased Mrs Walden maintained that the fact that her occupation had to be “for such period or periods as (the trustees) shall, in their absolute discretion, think fit” clearly indicated that the trustees had discretion and that clause 3 was not a direction to them.

Another supporting argument was that the expression in the will that the conveyance on to trusts was to be “free of tax” was consistent with the fact that a discretionary trust was intended. If it were intended to create an interest in possession for the spouse, this would have been exempt and there would have been no need to use these words.

Lastly, it was argued that if the creation of an interest in possession had been intended, it could have been done much more simply and clearly. The Lloyds, Woodall and Faulkner cases were all distinguished, as in each of these cases there had been an enforceable right to reside given to the surviving spouse, unlike in this case where occupation was dependent on the exercise of the trustees’ discretion.

Mr Twiddy, for the Revenue, argued that it would have been odd if Mr Walden had intended that his wife could be moved out of the house they had occupied together for “quite a long time”. He said no weight should be attached to the “free of tax” phrase as it was often included in wills where there was no strict need for it to be included.

It was also argued that if a discretionary trust had been intended, this would have resulted in inheritance tax being due on his death, which may have resulted in the house having to be sold to pay the tax, which is something Mr Walden would be unlikely to have wished to happen.

Finally, reliance was placed on Lloyds and Woodall in arguing that the true effect of clause 3 meant that there should be no sale of the house so long as Mrs Walden wished to reside there.

This contention is interesting. There was no doubt that the trustees had to seek Mrs Walden’s consent to sell the property. One of the reasons she may wish to withhold consent (probably the overwhelming one) would be to continue in residence.

However, the two terms have to be looked at separately. It would be possible for the trustees to fail to secure consent but they could also exercise their discretion to prevent the withholder of consent (Mrs Walden) from occupying or exclusively occupying the property.

I will conclude my review of this case next week.


Standard in wrap deal with First NZ Capital

Standard Life is to launch its wrap offering in the early part of 2006 after signing a joint deal with First NZ Capital.The provider says it is in the final stages of development with full details to be unveiled as the company rolls out the proposition to advisers from next year.Standard Life UK & Europe […]

Batchelor takes chair at Imla

The Intermediary Mortgage Lenders’ Association has appointed Platform sales and marketing director Guy Batchelor as chairman. He takes over from Mortgage Express managing director Tim Dawson who will remain a director of Imla. Paragon Mortgages managing director John Heron becomes deputy chairman.

Thinc Destini links up in Egypt deal

Thinc Destini has formed a partnership with overseas property and tourism expert Think Egypt to provide fin- ance and advice for UK buyers moving into the Egyptian property market. Think Egypt chairman Ian Marsh says he is working with the Egyptian government on the project that uses Thinc Destini as the exclusive supplier of finance. […]

Lincoln strengthens broker consultant team

Lincoln Financial has made a series of new appointments to strengthen its focus on the IFA market.Mark Hurrell joins as sales manager, Ian Clough as senior broker consultant and Martin Hart as investment sales manager for the north.Hurrell joins from Axa where he was protection account manager, Clough joins from Coleman Clough Partnership where he […]

US equities: opportunities for short sellers expand

Optimism is as American as baseball and apple pie. And since the financial crisis, being optimistic about US equities has paid off: they have outperformed every other major developed market by a comfortable margin. Yet while there remain plenty of good reasons to be optimistic about US equities, Stephen Moore, manager of the Artemis US […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm