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Will may not be the way

A recent Court of Appeal ruling illustrates why a will does not always guarantee your clients’ wishes will be followed. Find out how a trust can offer certainty and confidentiality for their estate planning.

In English law, a testator generally has testamentary freedom to leave their estate to whoever they choose through their will. Most people agree with this concept, feeling that their money is their own to distribute as they wish after they have paid outstanding taxes and debts, and provided for those who they have a legal obligation towards, such as dependent minor children.

However, whilst the law of England and Wales accepts eccentric decisions, the recent judgement in Ilot V Mitson (EWCA Civ 797. 28 JUL 2015) makes it legitimate to ask certain questions regarding what could be categorised as spiteful when considering provisions for adult children.

Here, Heather Ilott’s mother Melita Jackson, through her will, left her entire estate of almost £500,000 to various animal charities upon her death in 2004. Mrs Ilott subsequently challenged the will under the Inheritance (Provision for Family and Dependents) Act 1975.

Mrs Ilott, now 54, had left home with a boyfriend when 17.  Mrs Jackson had apparently never forgiven her daughter thereby excluding her daughter from her will making it clear, through side letters, she did not want her daughter to benefit upon her death.

In July 2015 the Court of Appeal ruled that Mrs Ilott, who has five children, did not receive appropriate provision from her late mother’s estate for her future maintenance given she was on benefits and without pension rights. Furthermore, the Court found that Mrs Jackson had 'no connection' during her lifetime with the charities she had chosen to benefit though her will.

Mrs Ilott was awarded £143,000 to purchase her housing association property and a further £20,000 in cash as 'additional income', representing an increase from the £50,000 a previous judge in the High Court had said she should receive.

Although this ruling does not mean people cannot necessarily choose to disinherit their children, they might have to have a good reason to do so, and be able to demonstrate what connects them to others that have been named in their wills instead. This confirms that adult children who have not been looked after may find it easier to challenge what would otherwise appear to be a valid will.

An alternative way to distribute wealth upon death, and even control its distribution in the future, is to use a trust as the Inheritance (Provision for Family and Dependents) Act 1975 does not apply to trusts. Whilst some commentators, anecdotally including HMRC, seem to consider trusts as merely mechanisms to alleviate tax, their longest standing use is to ensure the right people benefit by the right amount, at the right time.

Another useful feature which  helps provide certainty is that trusts are confidential; unlike wills, which become public knowledge once probate has been obtained and are therefore available for anyone to scrutinise through the Probate Registry. With no such registry or provision existing for trusts in locations such as England and Wales, Jersey, Guernsey and the Isle of Man (IOM), a settlor choosing appropriate trustees can have confidence their wishes will be followed. 

Indeed, IOM law is particularly clear, through an ‘exclusion of foreign law clause’ (Section 5 Trusts Act 1995) which states that where a foreign law renders a trust unenforceable or set aside, then Manx law will not recognise that part of the foreign law.

With testamentary freedom further eroded by the above case, no doubt more people, absolutely sure of their intentions of who should benefit from their wealth, will want to consider a trust, with appropriately located trustees, as a valuable complementary tool for estate planning.

For financial advisers only. Not to be relied on by consumers.

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth or Old Mutual International's interpretation of the relevant law and is correct at the date shown on the title page. While we believe this interpretation to be correct, we cannot guarantee it. We cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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