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Thy will be done

The Judge case highlights the problems encountered when a will is written ambiguously

One of the most interesting aspects of the Judge case was the letter written by the trustees informing the widow of the testator that she had an interest in possession under the trust. I touched on this last week.

On the face of it, this looked like pretty powerful stuff for the Revenue. It sought to rely on this extrinsic evidence in its interpretation of the will, referring to section 21 of the Administration of Justice Act 1982. This provides that”21(1) This section applies to a will : (a) in so far as any part of it is meaningless; (b) in so far as the language used in any part of it is ambiguous on the face of it; (c) in so far as evidence, other than evidence of the testator’s intention, shows that the language used in any part of it is ambiguous in the light of surrounding circumstances.”(2) In so far as this section applies to a will, extrinsic evidence of the testator’s intentions may be admitted to assist in its interpretation.”

The Special Commissioner stated that she would give effect to the intention of the testator as expressed in the terms of the whole of the will.

There was considerable discussion over the exact meaning of clause 3 of the will, which contained the main dispositive provisions in respect of the private residence. Here, the Special Commissioner emphasised the importance of considering “the four corners of the dispositive clause” and not just the one.

In her consideration, the Special Commissioner had noted the importance of giving the trustees the discretion, but not the duty, to permit the testator’s spouse to occupy the property. Crucially, it was stated that these words were of themselves unambiguous and that effect must be given to them. The Special Commissioner concluded that the testator’s spouse, based on this interpretation of the will, did not have the right to occupy the property in question.

It was, however, accepted that as the wording of the main dispositive clause in the will was defective, it would have to be accepted that it was, as a result, ambiguous. Under the provisions of the Administration of Justice Act 1982, this would permit reference to extrinsic evidence, including evidence of the testator’s intention to assist in its interpretation.

The evidence that the Revenue sought to rely on was the letter from the Commercial Union trustees. However, the papers leading to the preparation of the will had been lost and, in light of this, the Special Commissioner did not find that the interpretation of the will by the trustees, as evidenced by the letter from them to the testator’s spouse, was sufficient “extrinsic evidence of the testator’s intention”.

Imaginatively, the contention of the Capital Taxes Office (in light of the trustees’ letter) was that the dispositive provision in the will, that provided that the trustees should have power to permit the testator’s spouse to occupy the property “for such period or periods as they shall in their absolute discretion think fit”, should be rewritten for the purposes of interpretation to read “for such period or periods as she shall in her absolute discretion think fit”.

There was some relatively technical discussion over the laws of interpretation in the case of ambiguity but the upshot was that the Special Commissioner concluded that it was not possible to rewrite the will in the way that the Capital Taxes Office had contended and that the clause should be interpreted based on the words used.

I have to say that I would have found it quite staggering if any other conclusion had been reached in the absence of any hard extrinsic evidence of a clear contrary intent. In this case, if such evidence had once existed – and there is no indication in the report of the case that it had – this would represent one of the few occasions where an individual benefited from administrative inefficiency.

The conclusion reached by the Special Commissioner was that, based on the accepted definition of interest in possession (the current right to current occupation), the testator’s spouse did not have such a right on her death because the trustees had absolute discretion as to whether or not they would permit her to exercise that right.

This decision will give some heart to the users of discretionary trusts. However, it must be borne in mind that this is a Special Commissioner’s decision. Although it is understood that there is to be no appeal, given different facts, it may be that an argument that an interest in possession in fact exists under a trust that appears to be discretionary may be successful.

The conclusion must therefore be to proceed with caution. If a trust is to be taxed as a discretionary trust, then it must be clearly and unambiguously discretionary on its face and there should be no admissible evidence that it is other than that.


Vantage point

Ben Yearsley Investment manager, Hargreaves Lansdown, Bristol

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