Probate law

Power of appointment and the ambit of propertyMelville v IRC (2001) LTL 31 July: CA (Lords Justice Peter Gibson, Kay, Arden) The above case upheld the decision of Mr Justice Lightman.The settlor had transferred property into a discretionary settlement subject to a right to require the trustees to revest all or part of the settled property in him at any time during his lifetime after the expiry of 90 days.The hope was that the scheme would produce a saving of capital gains tax at very little cost in inheritance tax (IHT).

Capital gains tax holdover relief would be available because the transfer was immediately chargeable to IHT.However, the value of the assets transferred to the trust would be heavily discounted because the settlor could reclaim them so there would be little IHT.

The Court of Appeal agreed with Mr Justice Lightman that the right to require the revesting of the assets was 'property' within the meaning of section 272 of the Inheritance Tax Act 1984.

That section defines property to include 'rights and interests of any description'.There were opposing arguments as to whether or not a general power of appointment constituted property but the reality was that such a power was something of substantial value and the definition of property in section 272 was very wide.

The context did not require that wide meaning to be cut down in any way.The decision that a general power of appointment is to be regarded as property, worked in the taxpayer's favour in this case.However, there may be cases where the existence of a general power of appointment will mean that a taxpayer will face a charge to IHT which would not have arisen had the Inland Revenue's contention that it is not property been accepted.Rectification of a willGrattan v McNaughten, Grattan and McKinnon (2001) LTL 8 August This case is a useful reminder of the requirements for rectification of a will under section 20 of the Administration of Estates Act 1982.Rectification is only possible where the will fails to carry out the testator's instructions either because of a clerical error or because the draftsman failed to understand his instructions.The widow (W) had married the deceased (G) in 1987.

G had two adult children from a previous marriage.

In 1991 G and W severed the joint tenancy of the matrimonial home and made similar wills.

The survivor had a right of occupation in the other's half share but only until remarriage or cohabitation.On G's death W brought an action in negligence against the solicitors who drafted the will contending that the wills did not reflect the true intentions of Gand W.These proceedings were dismissed on the ground that there was insufficient evidence.

Therefore, it was unsurprising that Mr Justice Behrens dismissed the rectification claim.He was not satisfied that the will failed to reflect the testator's intentions in consequence of the draftsman's failure to understand the instructions.However, G's will failed to make reasonable provision for W and W was successful in an application under the Inheritance (Provision for Family and Dependants) Act 1975.

The judge widened the right of occupation by striking down the restrictions on cohabitation and remarriage and permitting W a right of occupation of any substitute property bought.

He then made further orders for the redistribution of G's estate.

By Lesley King, College of Law, London