Succession and succession issues can cause litigation to arise in different ways. In my many years of expert witness work I have seen a wide variety of types of case relating to succession one way or another. For this article, however, I will limit myself to describing three separate cases which relate to promissory estoppel, negligent IHT advice and a contested probate valuation.
Promissory estoppel
The farmer put his hand on his son’s shoulder as they gazed out over the fields, “One day my son all of this will be yours…”.
Dad, however, later developed dementia and there was no written record of his promise. Mum did not believe it had been made.
Many years later, in the Court of Appeal, the learned judges decided that the promise had been made and relied upon and all the farming assets should be transferred to the son. The law in question here is known as ‘promissory estoppel’ and it was a case in which I had acted as a shadow expert for several years.
The expertise required from me, by the solicitor for one of the parties, was my tax knowledge. At each stage of the process tax calculations were needed in respect of various scenarios. There were a considerable number of assets in the farming partnership as well as a trading company and other assets held outside of the partnership.
I needed to look at capital gains tax, gift relief, inheritance tax, agricultural property relief, business property relief, income tax and stamp duty land tax issues. In addition to this the timing of the transfers was far from clear and the partnership accounts were not complete. Also, in the final court order no directions were given in respect of tax. It certainty took a lot of ‘cold towel over the head’ moments trying to sort out all of that!
Professional negligence
A farming widow, at the age of 92, approached an investment firm to try and reduce the inheritance tax (IHT) arising on her death which was expected to be substantial. She asked for planning that would reduce her liability by £800,000, without her having to give away any of her capital assets.
From a review of the documentation it appeared that very few mitigation strategies were discussed. Only one IHT mitigation action was actually undertaken, which was to invest £800,000 in an Enterprise Investment Scheme type investment. After holding this investment for two years, this value was removed from the widow’s estate due to the availability of Business Property Relief (BPR) on her death.
Unfortunately, however, there was an error in the advisers calculations as, although the value of the estate was reduced by £800,000, the IHT saving was 40% of this figure i.e. £320,000 rather than the £800,000 of IHT, the adviser thought would be saved.
The adviser also appeared to have missed the planning opportunities potentially available as the widow was in a farming partnership with her son. The assets in this partnership were already exempt from IHT due to the availability of Agricultural Property. Investing in agricultural land through the partnership would therefore have put that value outside of her estate. This was without having to wait for two years (as was needed with the BPR investment), which at the age of 92, might have been thought to been sensible planning.
In this case, the matter settled soon after my report was served.
Continuous probate valuation
Two solicitors had acted together in partnership for many years. They also jointly owned a small company and several investment properties. When one of them died I was asked to value the partnership and company for probate purposes which I duly did.
The probate values were accepted by HMRC but a year later the probate solicitor approached me again as the remaining partner was contesting the estate valuation of all of the joint assets. The properties were not my concern as I am not a property valuer and the company was so small that it did not justify a dispute.
After responding to a series of questions in respect of my valuation of the partnership I was asked to discuss the valuation principles with the other side’s expert. There were various items that she felt should reduce the valuation but as these mostly related to the period after the date of death I felt they were not relevant. She also disagreed with the multiple of profits I had used.
As usual with these types of discussion we managed to narrow the issues between us. We ended up with different opinions of a few points but suggested to our respective solicitors that the difference be split between the parties as the quantum did not justify further professional costs. Fortunately, the solicitors on both sides agreed and the matter was resolved.
In matters of succession it is usually best to try and avoid issues arising that lead to litigation. This can often be achieved by receiving good professional advice on a timely basis.