New report commissioned by RICS suggests need for significant reform to the real estate valuation sector
Judgment has now been given at the High Court in London in the dispute over Lucian Freud’s £96 million estate. Freud was an internationally-recognised and highly successful artist and draughtsman. His residuary estate after payment of legacies and inheritance tax but before administration expenses was estimated by the claimants to be worth about £42 million. The first claimant, Diana Rawstron, was Freud’s solicitor and the second claimant, Rose Pearce, was one of his children. They were the executrices of the disputed will. The defendant, Paul Freud, was one of his 14 children.
In clause 1 of his will, Freud defined "my Trustees" as his personal representatives and trustees for the time being and referred to them as such when disposing of his personal chattels in clause 3 and his copyrights in clause 4, but mentioned them only by name in cause 6.
Clause 6 stated: “I give all the residue of my estate (out of which shall be paid my funeral and testamentary expenses and my debts) and any property over which I have a general power of appointment to the said Diana Mary Rawstron and the said Rose Pearce jointly”.
The defendant asserted that on a proper interpretation of the will the residuary estate had been given to the claimants on trusts that were not set out in the will, and that if those trusts had not been validly created there would be an intestacy under which he would be entitled to a share of the residue as a child of Freud.
The claimants claimed that the clause 6 gift was subject to a secret trust, the terms of which Freud had not wished to be disclosed, but they stated that the defendant was not a beneficiary under it. If the claimants' case was correct, the defendant could only claim provision under the Inheritance (Provision for Family and Dependants) Act 1975. The claimants' case was that, even if the defendant's interpretation of the will was correct, the secret trust attached to the gift would still qualify as a half-secret trust, as Freud had communicated its terms to them before the will was executed, but the supporting evidence of that communication was confidential.
This case has had many people asking what a secret trust actually is. It arises when a person leaves money to a person in their will on the understanding that the person will pass the funds to an unnamed third party. Fully secret trusts arise when there’s no mention of the trust in the will, which provides for money to be given to the trustee, and only the trustee and the person making the will know of the specific instructions to give money to an unnamed third party. Half secret trusts raise arise when the will refers to a trust but the specific instructions of where to pay the money to are given separately in confidence to the trustee.
The issue for the court was whether, on its true construction, the provision in clause 6 of the will made the claimants absolutely entitled to Freud’s residuary estate, which would allow them to give effect to the alleged secret trust.
The claim succeeded and the court accepted that the claimants were entitled to the money outright and that a full secret trust had been created.
The court held that the correct approach was that the will should be interpreted in the same way as a contract (as previously confirmed in Marley v Rawlings 2014), identifying the ordinary meaning of relevant words in the light of the overall purpose of the document, the facts known or assumed by the parties when it was executed, and common sense, but ignoring subjective evidence of any party's intentions.
The court held that the claimants’ interpretation of clause 6 of the will was to be preferred to that suggested by the defendant in the light of the following considerations:
The judge considered it essential that that the gift in clause 6 was expressed as a simple gift of residue, and that clause contains no mention of a trust. Looking at the will objectively he concluded that the fact that Freud referred to the claimants by their actual names at clause 6 (rather than as trustees) suggests that he intended them to take the residue personally and absolutely. The judge appears to have been influenced by the fact that the will was drawn up professionally and one of the individuals named in clause 6 was a solicitor. The solicitor, Diana Rawstron, had given a witness statement saying that in any event the defendant was not a beneficiary of the secret trust and the judge considered that “it would be a strong thing for such a statement to be made without proper foundation”.
This case would probably raise eyebrows to onlookers outside the legal profession and one can see why the defendant was less than happy about being told that the will (on its’ face) says one thing but means another and further that he is not entitled to information about to whom the assets in the secret trust would be distributed. However, creating secret trusts is a legitimate way for private individuals like Freud to keep their testamentary dispositions confidential; albeit at the same time possibly creating a recipe for litigation between warring family members.
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