I do not dissent in principle from Paul’s suggestion of involving one of the Learned Ones. The Bucks here are not that Big and the law reports are replete with cases of families litigating their long-standing internecine disagreements at disproportionate cost. Rivalled only in this by ex-spouses still at daggers drawn.
The Executor of the deceased is potentially at risk from those who will ultimately inherit the 65% and has a conflict as the Executor of the now deceased sole beneficiary. This will raise the costs stake (Kerching!) as the latter’s Will beneficiaries may surely need separate representation.
I see the issues as follows:
1 Is there a valid subsisting enforceable contract between the Executor of the deceased and/or of the sole beneficiary, in that person’s separate capacities, and the 35% parvenu? Who were the parties to it?
2 If so, is this a bad bargain such that the Executor may have a cause of action against any person who advised it be entered into?
3 If so, is executing a DOV a term of the contract and does it matter if it is not?
The putative contract
A PR has authority to settle potential litigation in circumstances such as this. A sole residuary beneficiary does too one the AP is ended. I am not sure of which of these were party to the contract. So is this an enforceable compromise agreement? It looks very much like it to me. There was surely an intent to create legal relations, capacity of both parties, offer and acceptance neatly evidenced, and consideration (refraining from taking action with possible costs against the estate). There seem to be no vitiating factors like illegality, fraud, duress or undue influence.
The terms might be a bit vague but it seems likely the essentials will be express. Can it be argued that the contract was conditional on execution of a DOV? If it was specific as to this exact point, was the contract really conditional or did the parties agree definitively but envisaged the DOV as a completion formality which either party can insist on the other’s executing it; in the latter case can there be any prevarication on what form the document should take? It is not a standard form document like a TR1 but not so diverse that a judge might not be able to agree that a proffered draft was functionally a propos . We are not told what discussion there was before it was sent to the other side in draft form. I conjecture that without it the document might have proved controversial, sed quaere. Was that perhaps why apparently, the relevant party did not just sign it first in final form before it was sent to the other side?
There must be a risk that the contract is enforceable but that any DOV, let alone its precise form, is not an express term of it and cannot be judicially implied at the behest of the officious bystander on the famous Sarf Lunnon omnibus (so not J D Vance)
DOV and taxes
Does it matter? Without a DOV there will be no read back facility for tax purposes. It will take effect as of the date of contract or later of the DOV, if execution of that satisfied a condition precedent. If it was a non-gratuitous compromise there will be no TOV by the original sole beneficiary, if only as a non-party under s91 IHTA, as s10 IHTA is likely to be fulfilled. It seems likely that the original Will, and the desired alteration by the DOV even if read back, would not affect IHT on the estate of the deceased, even if over the NRBs; but it could affect that of the sole beneficiary if there was indeed a TOV by him and thus a PET, given no read back into the Will.
CGT seems unlikely to be an issue, given no read back, as long as the estate is able to pay the 35% from cash in hand. It might be if assets have to be sold or appropriated to the 35% share. The latter seems to me to stand at least a chance of being acquired as legatee per ss62(4) and 64(1) and (2) TCGA. The angels on a pinhead argument is that the 35% person gives consideration for becoming a legatee and not for the asset disposed of to him, along Passant v Jackson lines. When is a legatee not a legatee? Is he also a substituted legatee or only the assignee of a legatee?
As I recall in PvJ it was the original legatee who paid the PRs in cash to secure a particular asset but acquired it at its lower MV on death. It may be that a substitute can only take as legatee if there is reading back. I know of no case on the point but HMRC’s view in CG31110 about the remainderman of a will trust is not promising. Nevertheless the substitute is not a purchaser/donee; he stands in the shoes of the original legatee and takes his entitlement under the Will, whether he gives consideration or by virtue of a gift. In the absence of an assignment with notice the PR is entitled to transfer the original legacy to the original legatee and, if it is already trammelled by a previous contract or gift, arguably he himself then makes a disposal of it to the other party, for actual consideration or MV if a gift. A fortiori if notice is given and the transfer made direct. The worst view is that, if no CGT reading back, only the original legatee qualifies to avoid a gain on the transfer of the asset. A disposal of the asset later is clearly a separate disposal and a pre-disposal of the full equitable interest in it either disqualifies him from acquiring as legatee or even if he does he makes a concurrent disposal of it with the same outcome.
Was there a bad bargain?
What price can reasonably be placed on the securing the compromise and avoiding the jeopardy of litigation by Mr or Ms 35%?
Claimants often run the arguments that the will is invalid in form or for lack of capacity. No clue here as to the likely merits. A child of the deceased is an eligible claimant under s1(c) of the 1975 Act. Surely the Court applying s2(2)(b) is not going to award 35% of the residue “for his maintenance”. The Executor should have given some thought, and even taken advice, on this point. It may be difficult to be precise ahead of disclosure e.g. as to his personal resources. It is not the only pertinent factor. Threatened litigation always entails uncertainty of outcome, delay in estate administration, hassle and cost. The compromise agreement should ideally have included formal relinquishment of FP rights and all other challenges to the Will.
Failure to assess all factors must mean a PR is exposed in principle to a claim of overpayment by the 65% inheritors unless the original sole legatee was either a formal party to the compromise contract or the PR acted on his instructions; so that the beneficiaries under his will are bound by it as by any enforceable contract made by in his lifetime or in equity if he directed the PR to contract, so must be indemnified. This seems to be the case here as regards the advisers who were asked to make the offer and this should be their defence: that they were acting under instructions. The Executor would also be off the hook as he is entitled to accept the sole beneficiary’s authority to enter into the contract, if the latter was not a party, as the sum to be paid is coming out of his own share, not out of the estate as such.
Were they, Executor or advisers, in any way involved in determining its amount? An individual acting sui juris with capacity is fully entitled to offer any including a silly amount of his choice in reduction of his own share, however subjectively or objectively inflated e.g. a sum calculated to speedily dispose of the nuisance, even partly to avoid non-monetary problems like family aggro. I am not an expert on what is reasonable (or indeed on anything else, per Mrs H, who is) but it might well form part of an adviser’s duty per instructions to advise or obtain advice on quantum, unless excluded by the retainer.
Conclusions
It may, one hopes, be feasible to reach a deal by out of court negotiations between the Executor of both estates, the beneficiaries of the original sole legatee, and the putative owner of the 35%. Presumably he still very much wants his lolly and will rely on the putative contract. Those who wish to deprive him of it in whole or in part will apparently have to reckon with disavowing that contract. In the absence of a (more or less) amicable binding agreement inter partes it may possible to settle the matter; by agreeing instructions to Counsel on the basis that his or her advice on the point will be binding on all those with an interest in the outcome. Minors or DT trustees may be a theoretical problem. That seems to me the optimum timing of this step. Otherwise the parties will all have to take separate advice, if they so resolve and if not already taken, expect a letter before action on behalf of the 35% individual, and prepare for the matter’s possible solemn, protracted and expensive entry into Chancery upon the mercy of Cocklecarrot J. and even, the gods forfend, the EWCA and the SC.
Jack Harper