Lapse, disclaimer, and forfeiture

Overview

Failure of gifts in testamentary law occurs through mechanisms such as lapse, disclaimer, and forfeiture. Lapse arises when a testamentary gift fails because the intended beneficiary predeceases the testator or is otherwise ineligible. Disclaimer allows beneficiaries to voluntarily renounce their interest in a gift. Forfeiture, guided by principles of public policy, prevents individuals from benefiting in circumstances involving unlawful acts. Each of these concepts plays a significant role in the legal framework governing wills and the distribution of estates.

Lapse of Gifts

Lapse occurs when the beneficiary under a will dies before the testator, causing the gift to fail. This situation necessitates legal determination of how the lapsed gift should be redistributed within the estate.

Legal Framework

The Wills Act 1837, as amended by the Administration of Justice Act 1982, sets out the rules governing lapse.

• General Rule: If a beneficiary predeceases the testator, the gift to that beneficiary lapses and does not take effect.
• Gifts to Issue: Under Section 33 of the Wills Act 1837, if the gift is to a child or remoter descendant of the testator who predeceases the testator but leaves issue surviving the testator, the gift does not lapse but passes to the issue.
• Residuary Estate: If there is no provision to prevent lapse, the lapsed gift typically falls into the residuary estate, to be distributed according to the residuary clause of the will or, in its absence, under intestacy rules.

Case Law

In Re Rhodes [1957] 1 WLR 296, the court considered the scope of the term "issue" in the context of lapse. The decision expanded the interpretation to include all descendants, not just immediate children, affecting how gifts are distributed when a beneficiary predeceases the testator.

Practical Application

Consider Thomas, who makes a will leaving:

• £50,000 to his sister Sarah
• His art collection to his friend Frank
• The residue of his estate to his children, Emma and James

If Sarah dies before Thomas, her gift of £50,000 lapses. Unless the will provides otherwise, this amount falls into the residuary estate, increasing the shares of Emma and James. If James predeceases Thomas but leaves children, Section 33 of the Wills Act 1837 allows James's share of the residuary estate to pass to his own descendants, preventing the lapse of his gift.

Anti-Lapse Provisions

Testators can include provisions in their wills to prevent gifts from lapsing. For example: "I give £10,000 to my nephew John, but if he predeceases me, to his children in equal shares." Such anti-lapse clauses ensure that the gift passes according to the testator's wishes even if the beneficiary dies before them.

Disclaimer of Gifts

Disclaimer allows a beneficiary to refuse or renounce a gift made to them under a will. This might be done for personal reasons or to achieve financial or tax advantages.

Legal Requirements

For a disclaimer to be valid, certain conditions must be met:

1. Voluntary and Informed Decision: The beneficiary must disclaim the gift freely, without coercion, and with full understanding.
2. Formal Documentation: The disclaimer should be in writing, clearly stating the beneficiary's intention to disclaim the gift.
3. Timeliness: The disclaimer must be made within a reasonable period after becoming aware of the gift.
4. Absolute and Unconditional: The disclaimer cannot be partial or conditional; it must cover the entire gift.
5. No Prior Acceptance: The beneficiary must not have accepted any benefit from the gift before disclaiming.

Tax Effects

Disclaiming a gift can have significant tax implications. For inheritance tax purposes, if a beneficiary disclaims a gift, the gift is treated as if the beneficiary had predeceased the testator. The asset then passes according to the terms of the will or under intestacy rules, which can affect the overall tax liability of the estate and the beneficiaries.

Example Scenario

Elizabeth leaves her entire estate, valued at £1 million, to her son Michael. Michael decides to disclaim the inheritance, perhaps to prevent an increase in his own estate's tax liability or to allow the assets to pass directly to his children. As a result, under the terms of the will or the default rules, the estate passes to Elizabeth's grandchildren. This action might reduce the total inheritance tax payable, depending on the specific circumstances.

Forfeiture of Gifts

Forfeiture prevents a beneficiary from inheriting under a will when they have been involved in the unlawful killing of the testator or other serious offences. This rule upholds public policy by ensuring that individuals do not benefit from their wrongdoing.

Legal Principles

• Scope: The forfeiture rule applies to unlawful killings, including murder, manslaughter, and assisting in suicide.
• Effect: The offender is treated as having predeceased the testator, causing any gifts to them to lapse.
• Judicial Discretion: Under the Forfeiture Act 1982, courts have the discretion to modify the effect of the forfeiture rule in certain cases, such as where the offender is convicted of manslaughter but circumstances warrant leniency.

Application and Exceptions

In cases of murder, the forfeiture rule applies strictly, and the perpetrator cannot inherit from the victim. For manslaughter and other offences, the court may consider factors such as the offender's conduct and mental state. The court can grant relief from forfeiture if it deems it just in the circumstances.

Case Study

In Re K (Deceased) [1985] Ch 85, a wife killed her husband but was found to have diminished responsibility due to mental illness. The court exercised its discretion under the Forfeiture Act 1982 to allow her to inherit, considering her impaired mental state and the lack of malicious intent.

Interplay Between Lapse, Disclaimer, and Forfeiture

Understanding how these concepts interact is essential for determining the distribution of an estate.

1. Lapse and Disclaimer: Both can result in a gift not passing to the intended beneficiary. Lapse occurs due to the beneficiary's death before the testator, while disclaimer is a voluntary renunciation by the beneficiary. In both cases, the gift may fall into the residuary estate or pass to alternative beneficiaries if provided for in the will.

2. Forfeiture and Lapse: When forfeiture applies, the beneficiary is treated as having predeceased the testator, causing the gift to lapse. The rules regarding lapse then determine the redistribution of the gift.

3. Disclaimer and Tax Implications: A beneficiary's disclaimer can affect the estate's tax liabilities and the shares received by other beneficiaries. Careful consideration is necessary to understand the financial impact.

Conclusion

Forfeiture, with its complexities and potential for judicial discretion under the Forfeiture Act 1982, illustrates how unlawful conduct affects testamentary gifts. Lapse occurs when a beneficiary predeceases the testator, but provisions like Section 33 of the Wills Act 1837 and anti-lapse clauses can prevent gifts from failing. Disclaimer empowers beneficiaries to refuse gifts, influencing estate distribution and tax liabilities. The interaction of these principles determines how an estate is ultimately distributed. For example, a gift may fail due to forfeiture, and unless addressed by the will, it may pass to the residuary estate or to statutory successors. Legal practitioners must carefully consider these concepts when drafting wills to ensure the testator's intentions are fulfilled and to anticipate potential issues in estate administration.