Inheritance promises continue to lead to costly disputes

Good communication, along with clear details of asset ownership, effective partnership agreements and wills can go a long way to preventing proprietary estoppel claims being made.

Such claims are based on an expectation of inheritance following a promise to that effect, and where an individual relied on that promise to their detriment.

Cases typically see the son or daughter of farming parents working in the family business for decades, often for little reward, and foregoing other opportunities because of their expectation of inheritance.

See also: Supreme Court rules on disinherited son’s claim to farm

The legal challenge often, though not always, arises when there is a death and things turn out to be different from that expectation, either because wills have been changed or were never written in accordance with what the claimant understood to be the case.

Matters are usually complicated by the passage of time and often by the fact that the person who it is claimed made the promise is no longer alive.

“We are seeing a huge rise in proprietary estoppel cases,” says Katherine Marshall, a partner in the dispute resolution department of law firm Wilkin Chapman.

“The public generally only gets to know about the cases that go to trial. We handled about 10 cases last year that were settled, often through mediation.”

Several of these cases involved disputes between siblings claiming inheritances.   

Proprietary estoppel cases are complex and unpredictable.

 “Success hinges on the credibility of the parties involved and the ability to prove what might have occurred had the promise not been made,” says Katherine.

“The court route is fraught with risk. It comes down to the reliability and credibility of witnesses.

“Someone can be confident, but in front of a barrister, who will cross-examine them, it might be different.

“Sometimes the least risky option is to do a deal, which might involve the person who is claiming they relied on a promise having to sell some of the land or get a mortgage on it to pay out their sibling(s) when they might be in their sixties – it’s a big burden.

Alternatively, the farm might be sold and the proceeds divided.” Katherine expects that a sale of the whole farm will be the result in more cases in future.

Court route

The court route can often take up to two years before the actual hearing, and costs in the region of £150,000-£200,000 per party, says Katherine.

The general rule is that the “loser” pays the “winner’s” costs, leaving the disappointed party with a potential costs exposure of up to £400,000.

This entails huge stress and breakdown of family relations, which can echo through generations, she says.

Mediation is not cheap, but it is far cheaper than going to court, and much quicker.

This route can cost in the region of £10,000 per party, suggests Katherine.

It can sometimes begin within a couple of months of a dispute of this type arising, but it can take a year, or even longer, and depends on the attitude of the parties in terms of their willingness to engage.

Budget IHT relief cut

While the inheritance tax (IHT) relief cuts introduced by last Autumn’s Budget have prompted many succession discussions that needed to begin, there are mixed views on whether the move will prompt more proprietary estoppel claims.

Some think that the need to address the IHT risk will lead to more difficult situations among farming families.

Others hope it will promote a more ordered approach to succession and inheritance.

At law firm Thrings, disputes partner Robert James has taken on three estoppel cases in the past six weeks.

While there is no clear pattern, these normally follow a death.

Those left behind may not know what is in a will, and there is often a strong interplay with partnership matters, he says. 

The situation is commonly complicated by misunderstandings about who owns what – for example, what is partnership property and what is held personally by individuals.

“The reduction in agricultural property relief will mean a far greater IHT bill in future and more land coming to the market because it won’t be possible to raise the cash through the normal finance routes,” says Robert.

If there are any positives out of the Budget, it could be that it will encourage better engagement about succession and possibly lead to fewer proprietary estoppel claims, says Esther Woolford, a partner and agriculture sector head at law firm Clarke Willmott.

“Funding is a major issue with these cases, and they are so painful,” says Esther, who has several estoppel cases ongoing and has also seen an increase in demand for pre- and post-nuptial agreements.

“It’s really important to talk, make sure that partnership and personal assets are clear, that the wills and partnership agreement are joined-up.

“And you need to keep reviewing and updating the documents, have routine and regular meetings.”      

No will – no promise

Lawyers stress the importance of making a will, for many reasons.

This includes that when no will has been made, then the law of intestacy dictates what happens to the estate and no promise can be relied upon in such cases.