Analysis
Leonard Dunthorn (Mr Dunthorn) died in 2018, leaving a will pursuant to which the residue of his estate, after a pecuniary legacy, was to pass to his sister Ruby Watts (Mrs Watts), provided she survived him by 28 days. If she did not do so, the residue was to be divided between ten named charities. Mrs Watts survived Mr Dunthorn by more than 28 days and became entitled to his residue. She in turn passed away in 2019, leaving a will which left her residue (after a number of pecuniary legacies) to 11 named charities, the first ten of which were those charities that had been named in Mr Dunthorn’s will. The eleventh charity named in Mrs Watts’ will was not a beneficiary under Mr Dunthorn’s will. The first claimant, one of the charities, wrote to the solicitors for Mrs Watts’s executors shortly after her death, suggesting that a deed of variation could be executed varying Mr Dunthorn’s will for tax purposes pursuant to s142 Inheritance Tax Act 1984 (IHTA), so that the residue of his estate would be treated as going directly to the 11 charities taking under Mrs Watts’ will. By executing such a deed, the charities could save the inheritance tax (IHT) that had been paid on the residuary gift from Mr Dunthorn to Mrs Watts. Some exchanges of correspondence ensued, as a part of which the solicitor wrote to the Salvation Army, the fifth claimant, asking for assistance in drafting a deed of variation, and indicating that the HMRC Charities Helpline had been contacted for advice but that no response had been received.
A deed of variation of the type proposed was executed on 12 December 2019, by the executors of Mr Dunthorn’s estate and the executors of Mrs Watts’ estate, but not by any of the charities, notwithstanding that they (with one exception) were named in the deed as parties. The solicitor for the executors had, at some point, come to the view that it was necessary to exclude the eleventh charity named in Mrs Watts’ will from the deed of variation because it was not a beneficiary of Mr Dunthorn’s will, and therefore the executed deed omitted the eleventh charity from its list of parties. The charities sought an order that:
- 1) the deed of variation was void for want or proper execution, having been executed only by the executors of the two estates and not by the ten charities, notwithstanding that they had been named as parties to the deed;
- 2) further or alternatively, the deed was void as having been outside of the executor’s powers, since executors have no power absent beneficiary consent to execute a deed which has the effect of disposing of a valuable asset of the estate (in a manner other than as specified in the will itself); and
- 3) further or alternatively, the deed could and should be set aside on the basis of mistake occasioned by inadequate deliberation, amounting to breach of fiduciary duty.
Held:
The deed was not void for want of proper execution. While the consent of all of the beneficiaries whose interest under the relevant will is prejudiced by a deed of variation is necessary for that deed to be effective for the purposes of s142 IHTA, it does not follow that absent such consent a deed will be void entirely generally. The fact that the ten charities had not signed the deed did not prevent the deed from being binding on the executors, who had signed it.
The deed was, however, void as having been made outside of the executors’ powers. The executors had no power to deprive the eleventh charity of its entitlement under Mrs Watts’ will, and hence the purported exercise of the power was void, following principles established in Pitt v Holt.
Furthermore, the will was liable to be set aside for mistake occasioned by inadequate deliberation (under the rule in Hastings-Bass and Pitt v Holt). The executors were not familiar with deeds of variation and had not sought the advice which they ought to have sought and therefore their execution of the deed was occasioned by inadequate deliberation. In the circumstances this amounted to a breach of fiduciary duty, and as such the deed was liable to be set aside.
Finally, the deed of variation was also liable to be set aside under the equitable jurisdiction arising out of mistake (as opposed to the rule in Hastings-Bass). The deed resulted from a fundamental mistake on the part of the executors as to the scope of their powers (namely the mistaken belief that they had the power to deprive the eleventh charity of its interest under Mrs Watts’ will) and mistakes as to the imagined need to exclude the eleventh charity from the deed, and as to the operation of s142 IHTA. These were causative mistakes of such gravity that the deed ought to be set aside, it being unconscionable for it to stand and to deprive the eleventh charity of its entitlement.
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