A judge has ruled in favour of a financial adviser in a case brought by the beneficiaries of one of his client’s wills.
Claire Hartley and Tim Herring took Derbyshire-based Shorts Financial Services to court, claiming they didn’t receive the full inheritance their great aunt intended for them.
The client, known as Mrs Shemwell, asked her financial adviser to set up two trusts to help her mitigage inheritance tax.
But while the will her lawyer drafted contained legacies of £54,000 each, it did not devise a formula to ensure they each received £200,000 from the trusts, and did not check the cash held would pass to the claimants on Mrs Shemwell’s death.
In his ruling following a hearing at Leeds County Court, Judge Behrens said: “Mrs Shemwell asked [the financial adviser] Mr Sully to leave within five minutes of the start of the meeting and before there were any discussions about the will.
“Contrary to the submission of [the claimant’s barrister] Mr O’Sullivan, Mr Sully was in no sense part of the will making process. He was asked to leave before he could explain the nature of the trusts. If he had been asked he could and would have explained.
“If he had been contacted by [Mrs Shemwell’s lawyer] Mr Woodhead before he drafted the will, he (Mr Sully) would have provided the explanation but Mr Woodhead did not contact him at all.”
The claimants had also attempted to take their great-aunt’s law firm to court, alleging negligence, but this was settled following mediation.
In order to mitigate inheritance tax, Mrs Shemwell asked her financial adviser to set up two trusts in favour of the claimants in August 2011.
One was a discretionary trust which named them as the sole discretionary objects and she invested £175,000 in this trust. This was the maximum remaining to her in respect of her nil rate IHT band.
Another £125,000 was invested in a loan trust which also named the claimants as the sole discretionary beneficiaries.
Mrs Shemwell gave her lawyer instructions in relation to her 2011 will, initially saying she wished to increase the amount the claimants would receive to £175,000.
Later, on 31 October 2011, she increased this to £200,000.
Following Mrs Shemwell’s death the claimants did not receive the full £200,000 she intended them to receive.
They did receive the £54,000 and the cash in the discretionary trusts but they did not receive any part of the initial capital of the loan trust as it fell into the residuary estate.
When he briefly attended the meeting when the will was drafted, Mr Sully had prepared a single sheet of paper on which he had written various details about the trusts.
He described this piece of paper as an aide–memoire for his own use in case he was asked questions by Mr Woodhead.
The claimants contended a fair reading of the aide-memoire indicated £146,472 was held for each of them under the trusts but Shorts did not accept that.
Rachael Griffin, financial planning expert at Old Mutual Wealth, said: “While the judge found in favour of the adviser, the dispute centred on whether the adviser had adequately explained that any outstanding loan in a loan trust would remain in the settlor’s estate for IHT purposes.
“The case highlights the need for advisers to ensure they work with the will-drafter to ensure they understand the financial plans that have been put in place during the lifetime of the settlor.”
