The case of Ashcroft v Barnsdale is an object lesson in how it can sometimes be worth crying over spilt milk.
The case involved a deed of variation, which changed the terms of a will. By way of background, it is possible for the effect of a will to be varied within two years of death, provided that various conditions are met, including the agreement of the affected beneficiaries. In many cases wills are varied for tax reasons.
In the present case £10,000 plus some farmland of the £1.7m estate was to pass to the deceased’s husband and the rest was to pass to the deceased’s children. The husband’s accountant suggested that the effect of the will should be varied to make it more tax efficient and a deed of variation was executed. This was defective and led to an additional £33,000 of inheritance tax. The parties attempted to rectify the deed of variation to the effect that the husband would not be liable to pay inheritance tax. HMRC refused to accept the efficacy of the deed of rectification for tax purposes. The claimant applied to the court seeking approval of the deed of rectification.
The court found in favour of the husband and allowed the deed of rectification. The judge distinguished between a mistake as to the fiscal effect of the deed of variation and the document not giving effect to the true agreement or arrangement between the parties. The court would not order rectification of a document if the parties’ rights would be unaffected, and if the only effect of the order would be to secure a fiscal benefit for one or more of them. On the other hand, where the mistake was as to the meaning or effect of a document, this might be amenable to rectification.
In many ways this case highlights just how flexible our legal system is. The parties were not only able to amend the will, but when they got this wrong, they were then able to correct this mistake to give effect to their true intentions.
The case also highlights two other things. First is the need for proper will planning – for if the deceased had received the correct advice while alive none of this would have needed to happen. The other is the power of deeds of variation to create a much more favourable outcome for the beneficiaries.
If you would like to discuss any of the points raised here, please contact our Wealth Management team on 01923 202020.