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Patriarch’s Succession Planning Triggers Ruinous Family War

In a thought-provoking example of the best laid succession plans leading to grave and unforeseen consequences, a landowner’s lifelong obsession with avoiding ‘ruinous taxation’ was the root cause of a venomous dispute that tore apart his family after his death.

John Vincent Sheffield had been left with the ‘mental scars’ of seeing his family's fortune severely depleted by death duties when he was a young man and was determined to avoid the same happening again. His efforts to rebuild the family holdings saw him rise to become Chairman of a public limited company and establish a 1,000-acre farming estate in a prime corner of Hampshire.

Mr Sheffield’s fervent wish was that the estate should pass to his heirs intact. He died, aged 95, in 2008, unaware that his attempts to minimise the tax authorities’ share of his fortune would ultimately lead to a High Court dispute that set his grandson, John, against the estate trustees, including his father, Julian.

After being advised that he could save on Capital Transfer Tax by making lifetime gifts to his heirs, Mr Sheffield had signed documents in 1983 that handed a 25 per cent share of the net income from the estate to John, who was then aged 19 and in his second year at university.

John did not read the documents properly before he signed them and his grandfather led him to believe that he would not see any real financial benefit from the transaction until after his death. It was only in 2004 – by which time John was bitterly estranged from his father and other members of the family – that he discovered the truth about the gift and the income rights that no-one had ever told him about.

Ruling in favour of John following a week-long hearing, the High Court found that there 'could be no real doubt' that the true effect of the gift had been 'deliberately concealed' from John and that he had been entitled to a 25 per cent share of the estate's net income since the day the documents were signed.

By retaining his income from the estate and continuing to behave 'as if nothing had changed' until the day he died, Mr Sheffield had acted in breach of trust. At no time was John consulted, as he should have been, about any aspect of the management of the estate and Mr Sheffield had continued to live free in his home on the estate when, in reality, he ought to have been paying rent to his grandson.

The court's decision was a devastating blow to the family trust that owns the estate as it meant that John was entitled to be paid a 25 per cent share of its net income for 25 years, between 1983 and the date of his grandfather's death. The Court also found that he should be compensated for the lost rent on his grandfather's home and for Mr Sheffield's failure, in breach of trust, to properly exploit opportunities for commercial shooting on the estate – something which he had ‘simply never considered’ during his lifetime.

The estate trustees had argued that John was well aware that the 1983 transactions were part of his grandfather’s estate and tax planning. It was submitted that there had been ‘an informal arrangement’ between John and his grandfather that the former would receive no income from the estate until after the latter’s death.

But the Court noted that, if that were so, the gift to John was ‘a sham in its classical sense’. The trustees had failed to prove the existence of any such side agreement and the documents signed in 1983 ‘took effect in accordance with their terms’, conferring an absolute right to 25 per cent of the estate's net income on John.