Nil rate band legacies - Simplifying the case of Woodland Trust v Loring and Others  EWCA
Barny Croft, a solicitor in Michelmores' Disputed Wills and Trusts team, looks at the case of Woodland Trust V Loring which considered whether Nil Rate Band legacies include the Transferable Nil Rate Band.
The case of Woodland Trust v Loring could have important ramifications on charities and individual beneficiaries. However, as is often the way with lawyers, many articles and commentaries have made it sound very complicated, which can dilute the most important principles of the case. The aim of this article is to simplify the case to highlight its key principles.
Mrs Smith died leaving an estate worth about £680,805 to be shared between the Woodland Trust and five members of her family. The issue that arose was how much the charity was entitled to, and how much the other beneficiaries were entitled to.
Mrs Smith's Will was executed on 2 February 2001. The argument concerned the following clauses of her Will:
“(5) MY TRUSTEES shall set aside out of my residuary estate assets or cash of an aggregate value equal to such sum as is at the date of my death the amount of my unused nil rate band for Inheritance Tax and to hold the same for such of the following as shall survive me and in the case of grandchildren attain 23 and if more than one in equal shares absolutely. [Mrs Smith listed her five individual beneficiaries here.]
(6) Subject as aforesaid my Trustees shall hold the remainder of my estate for the Woodland Trust of Autumn Park Grantham aforesaid absolutely…”
The issue fundamentally concerned whether Mrs Smith intended for her family members to have the benefit of just her unused nil rate band ("NRB") (which was £325,000) or that of hers and her husband combined (which was £650,000) who had died some years before.
Section 8A of the Inheritance Tax Act 1984 enabled the transfer of any unused NRB on a person's death to the estate of their surviving spouse or civil partner, where that person dies on or after 9 October 2007, thereby increasing it from £325,000 to £650,000. In this instance, the Executors had successfully increased Mrs Smith's NRB from £325,000 to £650,000.
The family claimed the effect of the increase meant that they were entitled to the full £650,000 rather than only £325,000.
The charity, on the other hand, argued that taking the natural meaning of the Will, Mrs Smith had intended to leave the value of only her NRB at the date of her death (see the above underlined extract of Mrs Smith's Will). They also advanced an interesting argument that Mrs Smith's reference to her "unused" NRB, should not include any addition to that band which her Executors might later make after her death. If it did, it would effectively make the value of gifts contingent on the Executors applying discretion to make a claim under s.8A, or not. From the charity's perspective, the outcome would determine whether they received, as residuary beneficiary, the sum of £30,805 or £355,805.
The court's decision
At first instance Mrs Smith's family succeeded. The Woodland Trust appealed and the original judgment was upheld. In giving its judgment, the Court of Appeal made it clear that it was attracted to the argument that Mrs Smith could not have intended the amount of her legacy to the family members to vary according to the exercise of a discretion by her Executors, and that the wording of the Will indicated that all she had in mind was the NRB available to her (i.e. £325,000). However, ultimately the court concluded that Mrs Smith did not have in mind a specific amount that she intended to pass to her family members. She intended that gift to be equal to the amount of her unused NRB, which, as a statutory consequence of s.8A, was £650,000.
The key importance of the case
The NRB clause in Mrs Smith's Will was a standard clause used by solicitors throughout the country. Many testators will not have had their Wills reviewed since the implementation of s.8A, and so the argument that arose in the case of Woodland Trust v Loring and Others is likely to arise again in the future. Also, given it is now a well-publicised judgment, it is probable questions will be asked of solicitors who do not advise their clients to clarify their exact intentions before they pass away, and review their Wills as appropriate.