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Case Studies

Executors Forced to Defend their Position by a Beneficiary were Protected by Executors Insurance

Joint executors were unexpectedly served with an action for removal by one of the beneficiaries of the estate. Luckily the executors had taken out Executors insurance when they had first accepted their role, to protect themselves against unlimited and personal liability, reclaiming the cost of the insurance from the estate as part of their legitimate expenses.

From the outset the behaviour of the beneficiary seemed unreasonable and so the executors made the decision to defend their position. The executors had already contacted solicitors, Mishcon de Reya LLP, and the insurer agreed that they would be happy for this company to continue working on the Acknowledgement of Service and defence.

The solicitors were successful in their defence of the two executors and their invoice, which was in excess of £150,000 was settled by the insurers.

Executors Became Liable for Capital Gains Tax due to the Actions of a Third-party

Executors discovered that the stockbroker they were working with on a complex estate had not correctly allocated the sale of certain investments to charities prior to their sale, leaving the executors personally liable for Capital Gains Tax.

The Executors intended to pre-allocate a series of investments to various charities before their sale, which would ensure that the sale of these investment for the charities would not incur Capital Gains Tax.

A draft unsigned letter of authority from the executors to sell the investments had been forwarded to the stockbroker to help outline the executors’ intentions. This draft letter of authority was mistakenly viewed as an instruction to sell; as a consequence, the sales were now treated as a sale by executors, rather than on behalf of the charities and the income was subject to Capital Gains Tax which the executors themselves were held liable.

Although the error could be traced to the stockbroker, the beneficiaries could still hold the executors responsible for mistakes made by third parties which they employed, particularly if there is an inference that they were not adequately supervised.

Executors Became Personally Liable for Defence Costs of Over £1million

Executors dealing with an estate with multiple beneficiaries, resisted an action against their removal by one of the beneficiaries, the daughter of the settlor, who brought a claim alleging conflict of interest.

She argued that the executors were two closely aligned to one group of beneficiaries, the settlor’s son and children. The daughter believed that transactions that had happened during her mother’s lifetime, when she had reduced capacity, could not be fairly investigated by the executors because of their close relationship with her brother and his children, and that the estate had not been fairly managed to benefit all beneficiaries after her mother’s death.

The executors chose in the first instance to resist removal by defending the claim. If this had been seen as a reasonable action the executors would have had benefited from an indemnity from the estate, meaning defence costs would have been covered by the estate. In this instance though both the trial and the appeal judges decided there was a genuine conflict of interest and it was unreasonable for the executors to act in defence of their own removal.

The executors later dropped their defence and changed to a neutral position but the two judges ruled that they were personally liable for all the costs relating to the initial defence, which was in excess of £1million.

The original trial judge referred to the Law Society’s Practice Note on Disputed Wills:

‘As an executor you are a fiduciary with duties to the beneficiaries of the estate, whoever they turn out to be. If you are partisan in the litigation, you risk a cost order being made against you personally… To avoid being at risk of costs you should therefore remain neutral and allow the beneficiaries of the will or next of kin to pursue litigation. Your only obligation in the proceedings is to provide information and preserve the estate.’

Executors Pay Nearly £14,500 to HMRC after Underestimating Deceased’s Income

In 2012 executors of Terence Guy submitted a final income tax return, paid the inheritance tax that they thought was due and closed his estate distributing it amongst his beneficiaries. Then in 2014 HMRC came back with a query on the accuracy of the tax return and concluded that his income had been underestimated. HMRC made a claim against the executors for the undeclared income and interest, which amounted to £14,458. They also imposed a penalty of £5060 for the failure to disclose the income.

The case was heard by the First Tier Tax Tribunal who waived the penalty because there was a long delay in HMRC challenging the tax return and because the executors argued that they would have difficulty getting money back from the beneficiries. The executors were held liable for the tax and and interest and this had to be repaid from their own pockets as the estate had already been distributed.

Executor Ordered to Pay Costs for Failed Appeal

The Court of Appeal Upheld a decision allowing an unmarried partner to buy the home he had shared with the deceased for 19 years – the Executor who had brought the appeal was ordered to pay costs

In 2016 an Executor was ordered to pay costs for two failed appeals against her mother’s former partner.

Thomas Warner and Audrey Blackwell had lived as husband and wife in Mrs Blackwell’s house, for 19 years until her death in May 2014. Mr Warner, was older than Mrs Blackwell and significantly better off and had not expected to receive anything under her Will although he had made provision for her in his own Will as he anticipated pre-deceasing her.

On Mrs Blackwell’s death in 2014, there was no provision for Mr Warner in her will , who by then was in his eighties and very frail and wanted to remain in his home of 19 years. He made a successful claim for ‘reasonable financial provision’ under the Inheritance (Provision for Family and Dependants) Act 1975 – this gave him the right to buy the home he had lived in with Mrs Blackwell, from the estate at full value. The decision was appealed twice by Mrs Blackwell’s daughter, Mrs Lewis, who was her sole executrix and heir, on the basis that Mr Warner was not in need of financial provision, being able to afford alternative accommodation.

The Court of Appeal dismissed Mrs Lewis’s appeal, confirming that Mrs Blackwell’s Will did not make reasonable financial provision for Mr Warner’s maintenance. Taking into consideration various factors including his age, frailty, the length of time he had resided at this house and the assistance he received from neighbours, the judge concluded that Mr Warner needed that maintenance to continue and should remain in the house. The executor, Mrs Lewis, was ordered to pay Mr Warner’s costs.

Court Awards Daughter £30,000 after Estate of Estranged Father has been Distributed by Executor

In July 2017 the Supreme Court awarded an estranged daughter £30,000 from her deceased father’s estate although her father, Stanley Nahajec, had clearly stated in his will that he wished to make no provision for any of his children, instead leaving his entire estate to a friend, Stephen Fowle.

Two of his three children made a claim on the will and one son received a £22,000 settlement. The daughter’s case reached the Supreme Court and the judge eventually made a partial settlement to her although this contradicted wishes laid out in the father’s will. Adult children do not have an automatic claim on the assets of adeceased parent but the judge made the decision in Mis Nahajec’s favour because of two factors. He believed the estrangement between father and daughter was due to actions of the deceased with the daughter able to prove she had made many historic attempts at reconcilliation. He also believed that Miss Nahajec’s father had some responsibility and obligations towards her because of her striken financial circumstances.

In summing up the judge admonished Mr Fowle, the executor and beneficiary because he had unjustifiably dissipated the estate in knowledge of the claim. As both executor and beneficiary Mr Fowle had largely “spent” the assets of the estate. In these circumstances the successful £30,000 claim by Miss Nahajec and possibly court costs would have personally fallen to Mr Fowle as the executor, whether or not he was a beneficiary of the estate.

Executor fails to tell insurer about mortgage interest and claim is unpaid

An Executor let out a house which was part of the estate to a tennant without telling insurers about interests of mortgage provider. As a consequence when a claim arose the insurers refused to pay.

In addition the mortgage also had to be re-arranged at considerable cost to the executor.

Executor Personally Liable for £20,000 Overpaid Pension Credit Connected with Deceased Estate

An executor and sole beneficiary asked solicitors to release estate monies on account to her. The Pension Credit was the only matter left unresolved. All other debts had been paid and the monies collected in. She was advised that the Pension Credit issue was outstanding and the total amount of the liability was unknown and that if the monies were released to her, she would have to sort the matter out herself. Reluctant to pay further solicitors fees she settled with the solicitors and the estate monies were transferred.

Nine months later the Department of Work and Pensions wrote to her with a demand for £20,000 in overpaid pension credit. As the executor she was held personally liable for the debt.

Undeclared Gift Resulted in an Executor being Fined £10,000 by HMRC

An executor did not declare a gift which resulted in a fine of £10,000 from HMRC. Although liability insurance would not cover the fine it would provide defence costs for the executor if they had chosen to challenge HMRC.

Executor Faced with £33,000 Bill Over Non-refundable NHS Care Fees

An executor failed to advise the NHS in time after death to receive a full reimbursement of care fees paid in advance. The Executor was unable to recover the fees and the loss to the executor was £33,000.

Executor Failed to Notify HMRC of Fall in Value of an Asset and Forfeited the right to Offset the Loss

In this case an asset was discovered long after the death and had by the time of its discovery fallen in value. The 12 months statutory period for claiming IHT loss relief had expired. The executors were not able to extend the reporting period and factor in the loss of value.

The estate suffered an unecessary loss as a result of this mistake but it is not known if the executors were subsequently sued by the beneficiaries.

HMRC Tries to Fine Executor for a Negligent Property Valuation although the Executor Declared an Increase in Value

In this In 2007 Mr Lever, acting as executor for his late mother-in-law’s estate, paid £400,000 in inheritance tax, closed the accounts, and distributed the balance of the estate to beneficiaries of her will. Four months later he received a letter from HMRC saying they were re-considering the value on his late mother-in-law’s home – the house had orginally been valued by a local estate agent at £1.4 million (this was declared in the IHT200 form and submitted to HMRC) but it eventually went on to sell through a non-binding sealed-bid auction for over £2 million.

Although Mr Lever paid the full value of inheritance tax on the £2 million sold value of the property and not on the original estate agent’s lower estimate HMRC said they were considering enforcing a personal penalty for negligence on Mr Lever for the sum of £44,000 because of the information he submitted in his original IHT200 form. He refused to pay the penalty, arguing that he had not been negligent but had informed them promptly when the house sold for more than its estimated value and paid all inheritance tax in full.

Executor Had to Reimburse £300,000 to an Estate Because of Intentions Set Out in an Earlier Mutual Will

Two sisters made detailed mutual wills (leaving their estates to each other) in 1991. The wills stated that when one sister predeceased the other, further clauses in each other’s wills would come into effect, leaving their estates to 15 beneficiaries. In spite of this agreement however, in 2003, the surviving sister decided to change her will to add two new beneficiaries including her hairdresser. Then in 2006 she changed her will for a second time leaving the entire estate to her hairdresser, Ms Fraser, whom she also appointed as sole executrix. Upon her death, this had the effect of leaving Ms Fraser with £300,000.

The claimants in this case – who were some of the beneficiaries under the original mutual wills – brought action claiming the original mutual wills were still valid, therefore requesting the new executor and beneficiary return the £300,000. The court found there was sufficient evidence of intention when the original mutual wills were created for them to still be in force; therefore, the executor had to reimburse the estate.

Mutual Wills Dispute Results in Executors Paying £350,000 in Court Fees on a £134,000 Estate

Here, in a further case of mutual wills, two widowers with their own separate families married each other and created their mirror wills leaving everything to each other, with the provision that afterwards, the estate would be equally divided among all their children. However, upon the wife’s death, her husband altered his will, leaving the estate to just his descendants, and naming his son-in-law as one of the executors.

The claimants – members of the wife’s family – succeeded in claiming that the previous wills should be treated as mutual wills and so were in fact still valid.

Initially, the executors were allowed to reimburse their costs out of the estate, but due to legal bills amounting to over £350,000 for a £134,000 estate this left the claimants with nothing; this fact, and the extent to which the executors had become involved in the dispute, led the Court of Appeal to conclude that the executors should be personally liable for the entirety of the costs.

Executor Became Personally Liable for £90,000 in Court Case Costs and Estate Capital Transfer Tax and Interest

Here, the Inland Revenue attempted to sue the executor of a deceased’s estate for approx. £75,000 capital transfer tax and interest. The defendant claimed that firstly, as executor he was only a representative of the estate and not personally liable, and secondly, as a resident of Jersey he was immune from any English legal action.

However, it was held that both the court had appropriate jurisdiction under which it could bring the case, and furthermore, the executor could be sued in de bonis propriis form; therefore, he was personally liable for the amount – which, by the end of the case had reached over £90,000 plus the Revenue’s costs.