Charities win on construction claim

Background

Audrey executed a will on 27 June 2016.  She died on 17 August 2017.  Her estate had a net value before payment of inheritance tax of a little over £3m.  The Royal Commonwealth Society for the Blind (“RCSB”) were one of 21 residuary beneficiaries named in Audrey’s will, all of whom were charities.

The claim

By an order dated 21 December 2020 RCSB were appointed as representative on behalf of all the charities and it brought a claim in relation to clause 4 of Audrey’s will as regards a gift referred to therein to John Beasant (“John”), a friend of Audrey and a named beneficiary of legacies and a specific devise.

The charities’ position

The charities’ contended that clause 4 meant any sum due there under was the sum left, if any, after deduction of the value of all other legacies of the will on which inheritance tax was charged at the nil-rate.  As the value of the other legacies and devise exceeded the nil-rate limit, the charities contended that no sum was payable to John.

John’s position

John contended that clause 4 was construed so that there was a tax-free gift of an amount of the nil-rate limit in force at Audrey’s death, without reference to the other gifts of the will and so £325,000.00 should be paid to him.

Construction

Audrey’s will was professionally drawn up by Goran Vučičevič, a chartered legal executive and director in Alletsons solicitors, the second defendant in the claim.  The execution of the will took place before him and he, along with a secretary at his firm, attested Audrey’s signature.

The will appointed a partner in Alletsons to act as executor together with John and a third person who did not join in taking out the grant of probate.

Clause 4 of the will provided a legacy to John as follows:

“4.        I GIVE the Nil-Rate Sum to my Trustees on trust for my said friend JOHN WAYLAND BEASANT

4.1        In this clause “the Nil-Rate Sum” means the largest sum of cash which could be given on the trusts of this clause without any inheritance tax becoming due in respect of the transfer of the value of my estate which I am deemed to make immediately before my death.”

In contrast to the wording of clause 4, gifts referred to in later clauses of the will were expressed to be made free of inheritance tax.  Clause 5 provided for a specific devise to John of Audrey’s property known as Apartment 1 10 Castle Street Bridgwater Somerset which was also expressed to be gifted free of any mortgage or charge thereon.  The property had a probate value of £240,000.00.

By clause 6, Audrey gifted all her shares in Imperial Tobacco Group plc to John.  They had a probate value of £218,256.63.  By clause 7 of the will Audrey gifted all of her personal chattels with a probate value of £1,390.00 to John.  Clause 8 of the will gifted various pecuniary legacies to 6 identified people and were all expressed to be free of tax.  These totalled £45,000.00.

The remainder of Audrey’s estate as per clause 9 of the will was gifted, after payment of debts, expenses and inheritance tax to her trustees to be retained or sold and divided and held equally between the 21 named charities.  All but one of the charities were approved charities for tax purposes and therefore exempt from inheritance tax.

The nil-rate band at the date of Audrey’s death was £325,000.00.

The law

In Perrin V Morgan [1943] Viscount Simon LC said “the fundamental rule in construing the language of a will is to put on the words used the meaning which, having regard to the terms of the will, the testator intended.  The question is not, of course, what the testator meant to do when he made the will, but what the written word he uses mean in the particular case – what are the “expressed intentions” of the testator.”.

In Marley V Rawlings [2014] Lord Neuberger set out the task for the court when construing a document:

“When interpreting a contract, the court is concerned to find the intention of the party or parties, and it does this by identifying the meaning of the relevant words, (a) in the light of (i) the natural and ordinary meaning of those words, (ii) the overall purpose of the document, (iii) any other provisions of the document, (iv) the facts known or assumed by the parties at the time that the document was executed, and (v) common sense, but (b) ignoring subjective evidence of any party’s intentions. …

When it comes to interpreting wills, it seems to me that the approach should be the same.  Whether the document in question is a commercial contract or a will, the aim is to identify the intention of the party or parties to the document by interpreting the words used in their documentary, factual and commercial context. …”.

John’s defence to the claim

John’s counsel raised six points in opposition to the RCSB’s claim as follows:

1        He said the court should disregard sub-clause 4.1 of the will as it was unnecessary.

2.    Alternatively, he said there was no reference in clause 4.1 to the other gifts under the will or exempt gifts, simply the largest sum of cash that could be paid to John.  So all that sub-clause 4.1 does is to say what the nil rate band is at the date of Audrey’s death.

On that analysis, Master Shuman said it seemed strange that the amount of the pecuniary legacy to John was set by the amount of the nil rate band in force at the date of death but that it had no connection with the purpose of the nil rate band despite the language of the will demonstrating an appreciation of the incidence of inheritance tax.

As to the language of the will, Master Shuman stated that if Audrey had intended to gift the nil rate band to John the will could simply have said that.  Mr Vučičevič could easily have drawn up the will which gifted an amount to John equal to the nil rate band and expressed that it be free of inheritance tax as the gifts under clauses 5, 6 and 7 provided.  There would have been no need to include the definition in sub-clause 4.1 and yet the will did include it.

Moreover, said Master Shuman the sub-clause demonstrated an understanding of how inheritance tax is chargeable.  It also used “could” in the past tense with a temporal function, “means the largest sum of cash which could be given”.  In the circumstances, he said he did not accept the wording in sub-clause 4.1 was superfluous or otiose.  Clause 4 clearly contemplated that the “nil rate sum” was to be calculated by reference to the operation of inheritance tax across the whole of Audrey’s estate and the order of the gifts in the will did not matter.  The sum was limited to the amount left of the nil rate band, if any, before tax would become payable.

3.    John’s counsel went on to state that it could not have been Audrey’s intention to pass nothing to John under clause 4; otherwise, why include it?

In RSPCA V Sharp [2010] Patten LJ and Lord Neuberger giving substantive judgments in the court of appeal stated that “it was dangerous to approach the assessment of the testator’s intentions other than through the language of the will.  The first relevant consideration in my view is that the will was professionally drafted by a solicitor who has to be assumed to be competent.  Although solicitors do obviously make mistakes, there needs to be something in the language of the document or its admissible background to justify the inference.  More importantly, these factors must be such as to permit the court to give the words actually used a meaning which is not strictly in accordance with the usual rules of grammar or vocabulary ..

The judge had fallen into error by speculating that the testator would not have wished to reduce the amounts to be paid to his brother and the Sharps. …”.

Master Shuman considered that John’s counsel had fallen into the trap that Patten LJ had warned of in the RSCPA case; it is speculation on his part.

4.    John’s counsel also pointed to Audrey’s desire to relieve him of the burden of inheritance tax as expressed in clauses 3 to 5 of the will which he said was in keeping with the general presumption that specific gifts and pecuniary legacies take priority over residue.

RCSB’s counsel stated that the fact Audrey subordinated her intention for overall inheritance tax efficiency to her preference for John to receive specific assets without any tax consequences did not undermine her clear intention in clause 4 to limit the sum passing to him by reference to the tax position.  Master Shuman agreed with this.

5.    John’s counsel stated that Audrey knew what her taxable assets were and broadly their values and so the effect of clauses 5 and 6, given their known values, was to create a liability for tax so that clause 4 could not take effect unless the gifts fell below the nil rate band or the nil rate band amount was raised.  He said it required “mental gymnastics” for the construction contended by RCSB as it was obvious that clause 4 would be “doomed to fail”.  In the circumstances, he asserted that to suggest clause 4 would ever be operable was fanciful.

Master Shuman did not agree.  He stated that it was not inevitable that the sum passing under clause 4 was nil.  Audrey was 91 years of age when she died and 90 when she made the will.  It was certainly possible that she might realise or restructure her assets – for example, if she needed care that could not be provided in her home.  Had the gifts under clauses 5 and 6 failed John would have received an amount up to the value of the unutilised balance of the nil rate band.  Viewed in this way the will took the opportunity to exclude inheritance tax in the event that Audrey no longer retained the specific assets that she wished John to receive in specie at the date of her death.

6.    Lastly, John’s counsel said that it would be whimsical or harsh to construe clause 4 as suggested by RCSB.

Master Shuman did not accept this argument.  He said it would do considerable violence to the language of the will to effectively read clause 4 as meaning a sum which equated to the nil rate band at the date of Audrey’s death and to ignore sub-clause 4.1 in its entirety.

Judgment

In all the circumstances, Master Shuman accepted RCSB’s construction of clause 4 and held that no such was payable to John.

Conclusion

This case demonstrates once again the importance of ignoring any subjective evidence of a deceased’s intention when construing a will put before the court and instead focusing on the specific clause in question and the words set out therein.