Construction – RSPCA v Sharp & Mason [2010] EWHC 268

 In Wills

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The interpretation of a testator’s Will was challenged by the RSPCA as residuary beneficiary which caused the judge to comment that the charity’s claim was “extremely weak and should not have been brought”. However, the charity argued that all it was trying to do was to honour what it believed was the deceased’s intention.

George Mason made a Will on 19 January 2005. He appointed his lifelong friends, Mr and Mrs Sharp, as his executors and then made the following gifts:
“3. I GIVE the amount which at my death equals the maximum which I can give to them by this my Will without Inheritance Tax becoming payable in respect of this gift:

(a) as to 78% to the said Norman James Sharp and Patricia Daphne Sharp as shall survive me and if more than one in equal shares absolutely

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(b) as to 22% to John Edward Mason of 4 Jervis Avenue Freezywater EN3 6LT absolutely

4. I GIVE my property situate and known as 39 Malvern Road Gosport in Hampshire PO12 3LH to the said Norman James Sharp and Patricia Daphne Sharp as shall survive me and if more than one jointly and equally absolutely and I direct that the Inheritance Tax (if any) payable on my death in respect of the property and all costs of the registration of the said Norman James Sharp and Patricia Daphne Sharp as proprietors thereof shall be payable out of my residuary estate.

5. SUBJECT TO the payment of my just debts funeral and testamentary expenses and the legacies given by this my Will or any Codicil hereto I GIVE DEVISE AND BEQUEATH the residue of my estate of whatsoever nature and wheresoever situate (which said estate and property and the property for the time being representing the same and herein referred to as “my residuary estate”) unto my trustees upon trust to sell the same or any part thereof or to retain the same or any part thereof in its actual state of investment or condition at the time of my death.

6. MY TRUSTEES shall possessed of my residuary estate upon trust for the Royal Society for the Prevention of Cruelty to Animals of Causeway Horsham West Sussex RH12 1HG for its general purposes and I direct that the receipt of the secretary treasurer or other proper officer shall be a sufficient discharge to my trustees.”

The deceased’s estate on death comprised £771,178 in Bank and Building Society accounts; £12,832 in cash; and the property at 39 Malvern Road valued at £169,000.

The nil rate band at the time of Mr Mason’s death was £300,000 and the executors administered the estate on the basis that the full value of the NRB was to be divided as per clause 3 between themselves and the deceased’s brother. The house was then to be given free of tax to the Sharps which would mean that the residue had to bear IHT of £112,667 on the gift of the house. As a result the RSPCA would receive £370,153.

The RSPCA argued that the way the Sharps construed the Will was incorrect. It argued that the way to determine how much of the NRB was available for distribution under clause 3 was to assume the legacy of the house in clause 4 ate into the NRB which meant only £131,000 was left for division under the terms of clause 3. The effect of which was that the residue did not bear any IHT at all and the cash gifts in clause 3 were significantly reduced.

It is common form to include pecuniary and specific legacies in Wills before any further clause soaking up the NRB. In this case the order of the clauses in the Will was differently organised. The RSPCA’s claim was that the way in which they would interpret the Will was more tax efficient and that was surely what the deceased had intended:

 

RSPCA’s view Executor’s view
Clause 3 for Sharp’s £102,180 £234,000
Clause 3 for Brother £28,820 £66,000
Clause 4 – house £169,000 £169,000
HMRC NIL £112,667
Charity £651,820 £370,153

 

It was argued that the maximum amount which the deceased could give at his death “by this my Will” is the sum which could be paid under clause 3 without IHT being payable and that required taking into account the other clauses in the Will.

However, the Judge made the point that if the value of the house on death had exceeded the NRB then the Sharps and the deceased’s brother would receive no cash. As Mr Mason was the deceased’s only living relative the testator would surely have intended his brother to receive something rather than potentially nothing. In fact the Judge said

“I cannot believe that that is what the deceased intended. It is so unlikely as to be incredible. Further it is not logical and gives undue violence to the simple and straightforward wording of clauses 3 & 4.”

The Judge went on to say:

“ It is a matter of regret in my view that this action was ever brought. It clearly caused great distress to the Defendants and I cannot believe the Deceased would have been happy to see arguments by the RSPCA designed to erode the largess in favour of his friends and relative to their benefit in this way.”

Practice point

How do you word your Wills when you include specific and pecuniary legacies as well as a ‘maximum sum’ gift under the NRB? Make sure you have considered its operation carefully.

© Gill Steel, LawSkills Ltd. 2009

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