Mark McLaughlin warns that imprecise wording in wills can result in disputes and unexpected results, including for inheritance tax purposes.
Most people prefer to avoid thinking about their own demise. This is understandable but it can result in poorly drafted wills (or even worse, no wills at all), causing potential disputes about what has been inherited and by whom.
Confusion over legacies in wills can be caused (among other things) by a lack of clarity over the deceased’s intended use of the inheritance tax (IHT) nil rate band.
Too generous?
For example, in the case of married couples (or civil partners), the transferable nil rate band (TNRB) rules broadly allow claims for unused nil rate band of a deceased spouse (or civil partner) to be transferred to the survivor. The availability of a TNRB from an earlier spouse’s death can cause problems on the survivor’s death. For example, some wills were drafted before the TNRB rules were introduced, so they do not take TNRBs into account.
In addition, the wording of a will might be confusing (e.g., in terms of whether a legacy was intended to leave a particular beneficiary an amount by reference to the nil rate band).
In Royal Commonwealth Society for the Blind v Beasant & Anor (2) Benjamin Ho [2021] EWHC 2315 (Ch), a dispute arose between the claimant charity (RCSB) and the defendants about the construction of a will clause and a gift to the first defendant (JWB, a named beneficiary under the will). Clause 4 provided for the legacy to JWB 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…”.
RCSB contended that the amount under clause 4 was the sum left (if any) after deducting all other legacies of the will on which IHT was charged at the nil rate. As the other legacies exceeded the nil rate band, nothing was payable to JWB. On the other hand, JWB 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 the date of the deceased’s death, without reference to the other gifts in the will; so £325,000 should be paid to him.
However, the High Court considered that if the deceased intended to gift the nil rate band to JWB, the will could simply have said that. A will could easily have been drawn up which gifted an amount to JWB equal to the nil rate band and expressed that to be free of IHT. The court concluded that the ‘nil rate sum’ was limited to the amount left of the nil rate band (if any) before tax would become payable. The court accepted RCSB’s construction of clause 4.
Practical tip
Take care that your will is worded carefully, particularly: (a) where there are legacies involving nil rate band (and TNRB) amounts; or (b) if the will includes a legacy to charity. In the latter case, charities are not generally slow to engage in litigation to secure the sum they interpret to be their entitlement (e.g., see RSPCA v Sharp [2010] EWCA Civ 1474, and Woodland Trust v Loring [2014] EWCA Civ 1314).
