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How to avoid family breakdown over heirlooms

Wealthy families should not overlook the emotional and legal complexities involved in the disposal of their valuables, write Ann Stanyer and Andrew O’Keeffe.

It is not every day that you see a court grappling with one of the rather unusual sections of the Law of Property Act 1925. Section 188(1) was at the centre of a case to determine the ultimate distribution of the late Sir Michael Butler's extensive collection of valuable Ming and Qing dynasty vases, said to be worth approximately £8 million. The simple point in issue was whether two of Butler's children could say that their entitlement to a quarter share each of the collection trumped the defendants' contention that their half share meant that the court could rule that the collection should be kept intact. Ultimately, the court ruled that the collection should be divided equally between the four siblings: a decision which will have come at some considerable cost to the unsuccessful defendants.

This case is, therefore, a salutary reminder that taking detailed legal advice on the disposal of your chattels is as important as advice on the disposal of your real estate or investments. Chattels have great emotional resonance for family members and need to be given careful consideration by testators. Simply hoping that siblings would put aside previous rivalries and reach an amicable agreement is wishful thinking.  It is often the case that conflicts intensify once the parent/testator is no longer alive to keep the peace and to arbitrate between siblings.

What can be done then to avoid costly litigation and a family breakdown? It seems trite to say it but taking time to explain your collections and other chattels with your trusted adviser is time well spent. Don't assume that your adviser has a full understanding of what you want to achieve. You may not know yourself. What is clear is that Butler changed his mind over the years as to what he wanted to do. Having a letter of wishes signifying your objectives is fine if everyone is in agreement and your executors are able to carry out those wishes. But remember a letter of wishes, as the judge explained in the case, ‘may have some moral standing but they are of no legal significance’.  They can be set aside or partially carried out by the executors. Advisers are at pains to explain this to clients.

A far better way to deal with the division of chattels under your will is to have a full discretionary trust will appointing professional executors. Professional executors have the experience over many of years of making decisions in the best interests of the estate as a whole. They are independent of any family members and not to be drawn into family disputes. The testator should have a structure whereby items and collections are clearly identified, and orders for selection set out. Similarly a testator should involve known valuers and experts during their lifetime and these same experts are used again for estate tax and distribution valuations and advice. This provides consistency and assists with provenance, ownership and storage issues.

One of the issues arising from the case was whether the various ceramics acquired at different times and gifted over a number of years and on death, constituted a collection which should not be broken up. This issue causes problems for many wealthy families. The capital gains tax (CGT) tax consequences can be considerable. A collection is regarded as a set and as such a disposal of the whole would attract £6000 worth of chattels exemption, whereas a disposal of a separate item would not.

Finally, having clear written evidence as to any lifetime gifts of chattels is essential in order to avoid arguments over identification, valuation and ownership. One of themes of this case was the conflicting understanding of the various siblings as to what Butler had wanted to achieve, whether he wanted to the collection to remain intact and if so, for how long.  Advisors are responsible for ensuring that HNW clients appreciate the detailed paperwork and instructions required so that all parties have a clear understanding and disputes can be avoided.

Ann Stanyer is a private client partner and author of Sweet & Maxwell's 'Personal Chattels: Law, Practice and Tax' and Andrew O'Keeffe is a partner in charge of contentious private client litigation at Wedlake Bell.