I have a client, whose husband died recently. In his Will, he gave his wife a life interest in his half share of the property, with his three children as remaindermen, with their children (at the age of 18) to benefit if any of them die before the end of the life interest.
The wife states that it was not the wish of her, or her late husband, that a life interest clause should be included in their Wills, and that the company who made the Wills, the Will Writing Company, did not explain the implications of such an interest.
The desired outcome is that the property should be owned solely by the wife. She accepts that, in the event her circumstances change, for example, if she needs residential care, the proceeds of sale of the entire property may be used to fund this.
The grandchildren are all over 18 - I am unsure as to the best way to draft to remove the life interest and ensure that the property reverts to the wife. Is it correct that she needs to disclaim/accelerate her life interest and the remaindermen (including the grandchildren) need to do a Deed of Variation passing the husband’s share of the house to her?
The post implies that the desired outcome is that of the wife solely and that the children are not her children. From a litigators perspective the starting point is to look at the validity of the Will, contrast H’s Will and also ascertain if there was a previous Will to see if that made the provision the widow seeks. There could be a number of reasons to suggest the Will is invalid not limited to lack of knowledge and approval. Other possibilities include trust arguments and a claim under the 75 Act.
The care costs issue may be of concern to the children and the grandchildren. Without their approval it is difficult to see how any arrangement is possible in the absence of agreement. Does disclaiming/accelerating her interest give rise to any tax implications?
The final point is really for my non-contentious colleagues!
If the evidence is clear that the wills do not reflect the instructions given then it is worth considering the possibility of a court application for rectification. It’s probably not very attractive for the client but it might be the best solution. There is the possibility of recovering the costs of the application from the will drafter but this is beset with problems.
Whether the problem can be cured by other means depends on the wording of the will, and specifically whether the reversionary interests vested a) on the testator’s death or b) if they will not vest until the termination of the life interest.
If the former then with the agreement of the reversionary beneficiary they can assign or disclaim their interests and no specific form of words is required.
The latter (from your description I think this is more likely) is more difficult. The adult reversionary beneficiaries have a contingent unvested interest, which they can disclaim or assign to the life tenant- but they cannot disclaim or assign those interests which would pass to their respective children if one of them died before the life tenant.
It is possible for a contingent reversionary beneficiary to assign his interest and couple it with an indemnity against claims by any of his children; but this might cause considerable problems. A claim by a child (perhaps instigated by an ex-spouse) is possible. I would see it as a solution only in a small case where the reversionary beneficiaries are financially stable, or if it is possible to insure the lives of the reversionary beneficiaries.
You don’t say whether the will trust contains power for the trustees to advance capital to the life tenant. That wouldn’t necessarily enable a cure of the kind you are seeking but might be used to make it more tolerable if all else fails.
Assuming there is no power of advancement/appointment in favour of the widow, there does not appear to be any perfect solution here without resorting to the Courts.
It appears that almost all of the beneficiaries - the spouse, the children and the living grandchildren - are of age and so could jointly execute a deed of variation agreeing to vary the will so that the assets vest in the widow absolutely. It could be implemented as a simple amendment of the will terms rather than worrying about assigning specific interests.
The catch is the possibility of both (a) a further grandchild being born and (b) the parent of the new grandchild predeceasing the widow . In this situation it is quite likely (but depends on the words of the will) that this new minor grandchild would be entitled to a share of the estate and so there is a lacuna. This would rule out any “perfect” solution.
If the executors are family members and the family all consider the chance of a further grandchild to be theoretical rather than merely unlikely, they might agree an informal solution - perhaps overlooking this interest and transferring the assets to the widow. In the event a child was both fruitful and died unexpectedly, their young child (a grandchild of the deceased) would have a claim against the executors and possibly the widow for their share, which would be a maximum of 1/3 and would be less if they have older siblings who signed up to a variation. This might be partly addressed by the widow indemnifying the executors.
It also complicates the tax position somewhat as the true position is that the settlement has not been effectively terminated and cannot be while there is the possibility of further grandchildren being born. There is no real solution but the family might seek agreement with HMRC that the distribution to the widow was akin to a termination (I may be being optimistic there).
There is no way one can actually know what was said when the will was drafted.
However in my experience the most common circumstance for setting up a simple life interest trust is when there is a second marriage with children by a previous marriage. That way the second spouse is provided for but ultimately the assets go to the deceased’s own children.
Essentially the thinking is “ I want my money to go to my kids and not somebody else’s kids.”
Clearly if that was not the intention in this case, rectification should be sought, but I would have thought that you would need some evidence to justify that and or the agreement of the remaindermen.
Andrew Goodman has hit the nail on the head - the Rule in Saunders v.
Vautier cannot be applied in hindsight. If the class of grandchildren
who take following the death of their parent remains open until the
window’s death, those currently in existence cannot between them be
absolutely entitled to the entire trust fund.
Even if no further grandchildren are born during the widow’s lifetime,
such a position can only be speculative at this point in time,
regardless of the age or current family intentions of the children.
There is no reason why the currently known beneficiaries could not enter
into a deed of variation in the hope that HMRC will accept it will
effectively terminate the trust. However, as the validity of the deed
cannot be contingent upon acceptance by HMRC that the provisions of
s.142 IHTA and/or s.62(6) TCGA apply to the variation, if not accepted
the trustees will be liable to any eventual beneficiaries not party to
the deed. Whilst tempting to include an indemnity from the widow to the
executors and/or trustees in case such situation arises, might this
trigger s.142(3) IHTA, even if within the variation itself?
I do not think that one can rely too much on the statement that a life interest was never intended. In the days when nil rate band discretionary trusts were very fashionable I encountered several instances of a surviving spouse saying they hadn’t known it was in the wills and had not intended such an arrangement to be put in place. These were clients who would have sat in front of the solicitor advising them, been advised to proceed that way, received drafts to read, confirmed they wished to proceed and no doubt had them explained in detail before signing them. Had they simply forgotten or where they just not listening at the time? If they genuinely didn’t know then the will must be invalid for want of knowledge and approval of the contents. The will file would be an interesting starting point to establish what advice was given. If the firm who drafted the wills made an error then the cost of a rectification might be laid at their door. Otherwise, as others have said, there does not appear to be an easy solution.
