• Lawyers see three-fold increase in disputes
  • Negligence claims against trustees likely to rise

The number of disputes over wills and trusts has rocketed in recent years, as the value of estates and accumulated wealth has soared, says Wedlake Bell, the City law firm.

Says Fay Copeland, Head of Wedlake Bell’s Contentious Trusts and Probate team, “Over the last four years, we have seen around a three-fold increase in the number of people seeking to challenge wills and trusts.”

“As personal wealth has swelled in value in recent years, thanks to escalating house prices, bumper bonus payments and the strength of other long-term investment returns, the assets left in wills and trusts have become all the more worth fighting for.”

“Added to this, the rising divorce rate is creating more complex family structures, clouding the issue of who should get what. Potential beneficiaries such as ex-spouses and children by different marriages often feel they have competing claims or have been treated unfairly.”

According to research by Merrill Lynch and Cap Gemini, the number of high net worth individuals in the UK (those who hold financial assets of around £500,000 or more, excluding their primary residence, collectibles and consumables) has grown by over 10% in the past two years.

“With several recent high profile cases hitting the headlines and a more litigious climate generally, people are now more inclined to try to recover what they feel they are due,” says Copeland.

Last month, a farmer who worked for free for his cousin for 30 years lost his fight to claim a £2.1million inheritance, and a millionaire’s widow launched legal action to claim a greater share of her children’s inheritance.

Last year, the Charman v Charman case cast doubt over the extent to which trusts can be used to protect assets from spouses following divorce, when a judge ruled that assets held in a Bermudan trust created by the husband should be taken into account in the wife’s divorce settlement.

Comments Fay Copeland, “Although people may be unwilling to take disputes involving other family members all the way to court, there are still often significant emotional and financial costs involved in settling the dispute, even if it doesn’t reach the stage of full-blown litigation.”

Negligence claims against trustees over likely to rise

Fay Copeland adds, “We are also starting to see disputes over trustees’ oversight of the investment management of the trust’s portfolio. With trusts now a widely used tax mitigation and inheritance planning tool, increased asset price volatility is likely to drive growing numbers of claims for negligence if trustees have failed to meet their responsibilities to ensure that investments are appropriately managed.”

“When the market was buoyant and asset values were rising, beneficiaries would probably not have questioned the portfolio investment strategy but now they are far more likely to do so if they feel that their best interests are not being served,” she says. “While trustees can’t be expected to call the market, they are required to ensure that investments are being proactively managed to try to maximise returns and mitigate potential losses from any downturn.”

She explains that although trustees themselves are not required to have professional investment qualifications, they could be held personally liable if they have not taken and kept under review professional investment advice.

“Even ‘safe’ options such as leaving cash in the bank rather than investing it could also be seen as a negligent strategy, rather than a prudent one. This option might offer good security, but it could be argued that this is at the expense of stronger returns, depending on market conditions.”

“Executors of wills could also be held liable if they have unnecessarily and excessively delayed key asset management decisions, such as selling property, and are forced to sell in a market slump.”

Adds Fay Copeland, “People writing wills or setting up trusts often like to appoint family or friends as executors or trustees, but they need to bear in mind that it is a big responsibility. Even though “lay” trustees would probably be allowed more leeway by a court in terms of their duty of care, if they are held personally liable for any negligence, they would have to reimburse the estate or trust out of their own funds. In those circumstances, it’s unlikely that they would be covered by insurance.”