AML: HMRC flexes enforcement muscle to the tune of £7.8 million
(Legg v Burton )
Bernard and June Clark were a Thatcherite success story; they exercised their right to buy their council house and created a nest egg. Perhaps for the first time in their family history, there was something to pass on to their nearest and dearest. Being new to making wills, they engaged a solicitor to prepare their July 2000 mirror wills, with a desire of ‘doing it once and doing it right’ (per Judge Matthews’ findings). The wills gave their estates to each other with gift over to their two daughters (Ann and Lynn) on the survivor’s death. The solicitor gave equivocal support to Bernard’s question about whether these will terms were ‘set in stone’ – it seems Bernard did not fully understand what the solicitor said about subsequent testamentary freedom, or only chose to hear what he wanted to. The judge nevertheless found that Bernard and June had verbally agreed not to revoke or change their July 2000 wills at two points: some time before, and immediately after, the attendance on them at home by the solicitor for the will signings. Bernard died soon after in May 2001 at which point neither Bernard nor June had changed or revoked their July 2000 wills. June lived another nearly 15 years, dying in April 2016. The relationship between June and her daughters weakened for various reasons in her widowhood and, after a series of other will changes, she died leaving her last will dated 12 December 2014 under which Ann and Lynn took much smaller legacies, the majority beneficiaries now being Lynn’s children Aaron and Michael.
(i) Were the verbal agreements between Bernard and June sufficient to invoke the doctrine of mutual wills, thus prohibiting June from making any changes to, or revoking her July 2000 will following Bernard’s death?
The judge held that yes, the verbal agreements were sufficient to invoke the doctrine. Furthermore, even if there were any problems characterising the agreement(s) as a valid contract (e.g. a contract involving a disposition of land needs to be in writing), he saw no reason why the doctrine could not instead be founded upon a proprietary estoppel, which he seemed ready to find here if necessary.
(ii) If the mutual wills doctrine was indeed invoked, at what point did the constructive trust arise and over what property?
The judge held that the parties were free to agree whatever constructive trust terms they desired, although in this case, as per what is ‘usually…imposed’ the trust commenced at June’s death and comprised everything which was left in her estate.
(iii) What is the significance of the case and how helpful is this judgment in clarifying the law in this area?
It remains to be seen. Judge Matthews has taken on the orthodox private client advice position, as often set out in textbooks, that making mutual wills is not sensible. This is primarily because mutual wills take away a testator’s ability to adapt their will to changing circumstances, but also because of the inherent uncertainty of relying upon a doctrine which requires a constructive trust (the terms and timing of which are very likely to be vague and thus probably disputed), to be effective. In contrast, this judgment shows it remains a helpful equitable remedy in certain cases. The question is how many cases? - i.e. will this one be severely restricted to its own facts, or can the principles be applied more widely? Doubtless this uncertainty will be seen as a potentially new or at least strengthened line of attack for disappointed beneficiaries, where the facts and evidence permit.
It is interesting to note the Law Commission’s three proposals for the doctrine in its recent wills consultation paper: (i) abolish it; (ii) reform it a little; (iii) write it into statute. The paper concluded (supported by the Law Society’s response) that mild reform is the preference. Writing it into statute was not approved because it would be seen to be encouraging this problematic doctrine. However, abolishing it was also seen as a step too far as it would limit a testator’s choices (a little ironic if you were the surviving party to a mutual will rueing having deprived themself of testamentary freedom such as June Clark). The mild proposed reform is for the assets subject to the trust arising on the first death to fall within the scope of an Inheritance (provision for family and dependants) Act 1975 claim on the second death. This weakens the doctrine. For example, using the above case again, someone who had been financially dependent upon June Clark’s trust assets would currently be prevented from claiming against these as they derive from Bernard’s estate. However, following the reform, those trust assets would be included within the definition of June’s net estate and could be claimed against.
(iv) What are the practical implications for practitioners?
Pending future judicial interpretation, practitioners would be well advised, especially in mirror will or joint property scenarios, to expressly cover whether the testator knows about mutual wills and how the doctrine could alter their planning. If, as is anticipated in the majority of situations, the testator does not want to burden their or the connected person’s estate with the possibility of a mutual will scenario, the will could confirm this by a clause expressly denying any intent to create a mutual will. If after taking professional advice, testators still favour mutual wills over tried and tested alternatives such as a life interest trust for the survivor, maybe a tangible way of showing the potentially lasting consequences for the survivor is for them to sign the same document i.e. a joint will.
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