In a case which underscores the wisdom of keeping your will up to date, changes in the law relating to Inheritance Tax (IHT) led to a bitter dispute between a widow's family and her favourite charity in respect of her £680,805 estate.
In an apparently straightforward attempt to achieve tax efficiency, the widow had in 2001 signed a professionally drafted will, leaving to her family the proportion of her estate which fell below the nil rate threshold for IHT, which was £325,000 at the date of her death in 2011. The balance she left in trust for the Woodland Trust.
Between the signing of the will and her death, the Finance Act 2008 became law. In a widely welcomed loosening of the IHT regime, the Act made it possible for the unused portion of the nil rate band to be transferred between spouses and civil partners. The widow's husband had died many years earlier. His nil rate band was unused and £650,000 of her estate was thus free from IHT.
In those circumstances, a dispute arose as to whether the charity was entitled to £355,805 from the widow's estate, or just the lesser amount of £30,805 as claimed by her family – that being the sum remaining after the total available nil rate band was exhausted. A judge ruled in the family's favour on that issue.
In dismissing the Woodland Trust's challenge to the decision of the lower court, the Court of Appeal found that the implicit purpose of the will was to leave as much as possible to family members without incurring IHT. The widow was unlikely to have had a sophisticated appreciation of the intricacies of tax planning and, on a correct interpretation of her will, her family was entitled to inherit up to the full extent of the tax break available to her on her death.
Charities are eager to maximise their bequests and cases in which wills are challenged are by no means uncommon. This dispute could have been avoided had the will been brought up to date with a simple codicil.