Imperfect Wills and Trusts

Transcription

1 Imperfect Wills and Trusts 1. The drafting of a will or trust, whether in short, medium or long form, can be a precise and exact exercise requiring great skill and care especially when the settlor/trustee has assets in multiple jurisdictions. The ultimate test of whether the draftsman achieved the testator/settlor s intention often happens when the testator/settlor dies and his assets are to be distributed to his beneficiaries. The focus of this paper is on wills that fail to achieve the testator s intention in disposing of assets outside the testator s jurisdiction, and attempts by settlors outside the BVI to transfer shares in a BVI company to a trust by way of gift. Foreign Elements in Wills 2. The simplest case is that of a BVI domiciliary with assets in the BVI. His estate will be governed entirely by BVI law. Different considerations apply where: i. He has foreign assets ii. He is domiciled in a foreign country and has assets that are legally situated in the BVI. The object of the drafting exercise is to ensure that the will will comply with the rules as to a. Essential validity. b. Formal validity. Essential Validity 1 3. Essential validity is concerned with the testator s ability to dispose of his assets by will. The conflict of laws rules of England, which apply to the BVI except where varied by 1 Dicey, Morris & Collins 14 th Ed. Rule 145 Para et seq. 1

2 statute or local court decisions, vary according to whether the property is movable to immovable. 4. Issues relating to the disposal of movable property are governed by the law of the testator s domicile while those relating to immovable property are governed by the law of the location or situs of the property. 5. The distinction is important when drafting the will or trust. For example, shares in a BVI company are personal property and by s. 245 of the Business Companies Act are located in the BVI. However, if the testator is domiciled in a foreign country, that country s laws will determine the validity of a gift of the shares. This is particularly important if the testator is domiciled in a country that has forced heirship rules which mandate that a portion of his estate must be given to specified beneficiaries, usually the surviving spouse and children. BVI law has complete freedom of testamentary disposition and the local draftsman who is not mindful of the foreign element in disposing of the shares may be inclined to follow the testator s wishes of giving all the shares to a beneficiary who is not one of the designated beneficiaries under the laws of the testator s domicile. The testator s attempt to avoid those rules by a BVI will will be in vain. 6. Similarly, a BVI will disposing of land in a foreign country will have to comply with the laws of the place where the land is situated and any attempt to avoid those laws by will will also be in vain. 7. The guiding principle in relation to essential validity, as in all aspects of dealing with foreign assets, is that the testator should take and be guided by expert advice from lawyers in the jurisdiction of the governing law of each gift. 8. Thus a BVI will disposing of movable property should comply with the relevant laws of the testator s domicile at the time of his death, and/or with the laws of the situs of immovable property, as the case may be. 2

3 Formal Validity 2 9. The law governing the formal validity of a will, no matter where executed, depends on the asset being disposed of. At common law the formal validity of a will in relation to movables is governed by the law of the testator s domicile at the time of his death, not the time of making the will. 10. Formal validity of a will disposing of immovable assets is governed by the law of situs of the assets, and movable assets is governed by the law of his domicile. Obvious practical difficulties will inevitably arise where the testator has movable and immovable assets in different countries. The formal validity of the will may have to be judged by the laws of different countries depending on where the various assets are located. These difficulties have been addressed in England by the Wills Act 1963 but the common law rules still apply in the BVI. 11. Great care must be taken by the draftsman to ensure that a will disposing of foreign assets complies with the requirements for formal validity under the laws of the relevant country. 12. Failure to comply with these basic rules can result in the gift failing and falling into the testator s residuary estate. Capacity 13. Capacity to make a will relating to movables is determined by the law of the testator s domicile. There are no decided cases on the time when capacity is determined. The better view is that capacity is determined at the time of making the will, not the date of death 3. 2 See Dicey, Morris & Collins 14 th Ed. Rule 143 paragraph Dicey Morris & Collins Rule 142 paragraph

4 14. Capacity in relation to immovables is determined by the law of the situs of the asset being disposed of. Situs of Assets 15. The draftsman of a will should be cognisant of the situs of assets being disposed of by the will. The situs of both of movable and immovable property is determined by their physical location, but this is not conclusive. The position can be varied by statute. For example s. 245 of the BVI Business Companies Act stipulates that: For the purposes of determining matters relating to title and jurisdiction but not for purposes of taxation, the situs of the ownership of shares, debt obligations and securities of a (BVI) company is in the Virgin Islands. 16. The BVI courts, unsurprisingly, have routinely treated this provision as giving the BVI jurisdiction to deal with issues relating to ownership of shares. However, this has to be viewed in the context of the English conflict of laws rule that the situs of registered shares is where the share register is kept. Section 96 of the Business Companies Act provides that the share register or a copy of the register must be kept at the office of the registered agent of the company (in the BVI). The original register is often kept outside the BVI and updated copies are routinely sent to the registered agent. This suggests that in a country that applies the English conflict of law rules will regard the shares as being located in the place where the register is kept. 17. The recent decision of Ellis, J. in the Probate Division of the High Court in Re Liao Yo Chang, deceased 4 effectively confirms that notwithstanding the provisions of s. 245 of the Business Companies Act the succession to shares in a BVI company is governed by the law of the deceased s domicile at the time of his death. 18. The Liao case also illustrates that any decision regarding title to shares in a BVI company will have to be recorded in the register kept by the registered agent, whether original or copy, and the registered agent will only act on the basis of a grant of probate or administration issued by the BVI court. This should be clearly understood by any practitioner preparing a will disposing of shares in a BVI company. 4 BVIHCV 222/2011 (unreported) 4

5 19. The treatment of shares in a BVI company therefore requires special attention to ensure that the Testator s intentions are not defeated by, say, forced heirship rules under the lex domicilii or non-compliance with the foreign laws on issues of formal validity. 20. Where the testator has assets in multiple jurisdictions, or where local assets are subject to foreign laws the testator should make multiple wills ensuring insofar as it is necessary that (a) each disposes of the foreign assets in accordance with the relevant law; and (b) that subsequent wills do not revoke prior wills by operation of law. Conclusion on Wills 21. I have said enough to indicate that great care must be taken in drafting wills with foreign elements. The most important consideration is that the draftsman takes advice from lawyers in the foreign jurisdiction on all foreign law elements in the will. Disputes 22. The most notable case in recent times in the BVI on estate disputes is T. Choithram International SA et al v Lalibai Thakerdos Pagarani et al 5. The deceased, T. C. Pagarani ( TCP ) was a wealthy businessman and generous philanthropist. Prior to February 1992 he gave his solicitors in London instructions to prepare a will (which was never signed) and another firm of solicitors instructions to prepare a declaration of trust giving all his wealth to the purposes of the Choithram International Foundation ( the Foundation ). He was one of several trustees of the trust. He had previously made generous provisions for all his children. He became gravely ill and on February 17, 1992 he made a solemn oral declaration gifting all his assets, including his shares in four BVI companies, to the Foundation. Later that same day he and some of the trustees signed the declaration of trust and minutes of meetings of the four companies confirming the gift to the Foundation. He did not sign the instruments of transfers for the shares but 5 [2000] 59 WIR 148 5

6 directed his trusted agent, Mr. Param, to do all that was necessary to complete the gift of the shares to the Foundation. 23. The trial judge Georges, J. found that TCP had a clear and settled intention to give the shares to the Foundation and that the words that he used on February 17, 1992 were meant to achieve that objective. However, he did not do all that was legally necessary to complete the transfer of the shares to the Foundation, and, applying the well-known equitable principle that equity will not assist a volunteer, found that the gift was incomplete and failed. More to the point of this paper, he found that the words used by TCP were words of gift, not a declaration of trust, and applied the rule in Milroy v Lord 6 that the court will not give a benevolent construction so as to treat ineffective words of outright gift as taking effect as a declaration of trust in favour of the donee. On both grounds (gift and declaration of trust), he decided that the gift of the shares to the Foundation was ineffective and failed, and the shares and other assets passed to his residuary estate (his children). The Court of Appeal dismissed the appeal against the decision of Georges, J. 24. On appeal to the Privy Council their Lordships found that although the words used by TCP were appropriate for an outright words of gift -... in the present context there is no breach of the principle in Milroy v Lord if the words of TCP s gift (i.e. to the foundation) are given their only possible meaning in this context. The foundation has no legal existence apart from the trust declared by the foundation trust deed. Therefore the words I give to the foundation can only mean I give to the trustees of the foundation trust deed. Although the words are apparently words of outright gift they are essentially words of gift on trust. 7 In arriving at this finding Lord Browne-Wilkinson applied a benevolent construction to the words of gift used by TCP. 25. Their Lordships also relied on the equitable principles that- Although equity will not aid a volunteer, it will not strive officiously to defeat a gift. 8 and 6 [1862] 4 De GFT&J Op. cit. at page Op. cit. at page 158 6

7 ... it would be unconscionable and contrary to the principles of equity to allow such a donor to resile from his gift Their Lordships also overcame the principle in Bridge v Bridge 10 that the vesting of the property in one of several trustees is not sufficient to constitute a trust. Their lordships doubted the correctness of the decision in Bridge, distinguished the case on the facts and applied the unconscionable principle above to constitute the trust based on TCP s clear intention and conduct. 27. Although the Privy Council undoubtedly came to a decision that honoured TCP s wishes, the decision introduces uncertainty into an area of law that was previously settled by cases such as Milroy v Lord 11 and Re Rose, Midland Bank Executor & Trustee Co. Ltd. v Rose 12 and Re Rose, Rose v Inland Revenue Commissioners 13. For example, Milroy v Lord clearly established that the donor had to do all that was in his power to transfer the shares, and if he did not the transfer was ineffective regardless of the donor s intention. The trial judge and the Court of Appeal in Pagarani followed and applied this reasoning and found that TCP s gift to the Foundation was ineffective even though that was clearly TCP s intention. The Privy Council has now introduced the donor s intention as an overriding factor in determining the efficacy of the gift. It is now more difficult to advise parties to a dispute when the settlor/donor uses words of gift which fail but can, on a benevolent construction of all the circumstances, be treated as a declaration of trust. 28. The reasoning of the Privy Council in the Pagarani case has been applied by the Court of Appeal in Shah v Shah 14 and Pennington v Waine In Shah v Shah the donor signed a letter disposing of shares to his brother. He delivered the letter with a signed stock transfer form but without the share certificate. The donor attempted to resile from the transfer. The Court of Appeal confirmed the trial 9 Op. cit. at page [1852] 16 Beav Se paragraph [ ] above 12 [1949] Ch [1952] Ch [2010] WECA Civ [2002] 4 All ER 215 7

8 judge s finding that the letter and the signing of the stock transfer form evinced a sufficiently clear intention to create a trust in favour of the donee. The judgment of the Court of Appeal was delivered by Arden LJ with whom Elias, LJ and Norris, J agreed. Arden LJ cited with approval passages from the judgment of Lord Browne-Wilkinson in Pagarani, and her own judgment in the Pennington case which itself had approved Lord Browne-Wilkinson s reasoning in Pagarani. 30. Another interesting development in estate law in the BVI is the 2013 decision of Ellis, J in Re Liao Yo Chang 16. LYC died intestate domiciled in Taiwan. A large part of his very substantial estate was owned by three BVI holding companies. His widow and two sons have been engaged in bitter disputes in the BVI and Taiwan regarding the ownership and control of the estate. 31. The first BVI case concerned the choice of administrator between the widow, the son who was against her ( LCT ), and an independent administrator proposed by LCT (if he was not appointed). There was no dispute that Taiwanese law, as the law of the domicile, governed succession to LYC s shares in the BVI companies, and that BVI law, as the lex situs, governed the administration of the shares. However, BVI law is silent on the choice of administrator when the deceased dies domiciled outside the BVI. To fill the lacuna and appoint an administrator Ellis, J. had resort to Rule 30 of the English Non-contentious Probate Rules via s. 11 of the Supreme Court Act which applies English practice and procedure where BVI law is silent. Rule 30 sets out the order of priority for a grant of administration where the deceased died intestate domiciled outside England (read BVI). Sub-rule 1(c) of Rule 30 provides that the Registrar (read court) is to appoint the administrator. Following a four day trial Ellis, J. appointed the widow, who was previously appointed as administrator ad colligenda bona, in preference to LCT and the independent administrator. 32. LCT s appeal against the choice of the widow as administrator was dismissed by the Court of Appeal. 16 See above paragraph [ ] 8

9 33. A new dispute has arisen between the parties regarding the distribution of the BVI estate, which, in the writer s opinions, is a matter of administration of the BVI estate (as opposed to succession to the assets) and therefore governed by BVI law. Conclusion 34. The cases and principles above illustrate the difficulties that can arise when the deceased either does not make a will or constitute a trust, or makes a will or trust that does not dispose of his assets in the way intended. Great care and attention is needed in taking instructions and preparing the will or trust, taking appropriate legal advice of foreign law issues where necessary. Dated the 17 th April 2014 Paul Webster, QC Senior Partner O Neal Webster British Virgin Islands 9