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Artist left vast fortune to secret beneficiaries

Thursday, 31 July, 2014

It has emerged that the artist Lucian Freud left his multi-million residuary estate jointly to his solicitor and a daughter – but subject to a secret promise that they would distribute it to undisclosed recipients.

The story came out in a High Court judgment published this week.

Freud died in 2011 leaving an estate worth GBP96 million. After inheritance tax and specific legacies, the residue was GBP42 million. The sixth paragraph of his last will, executed in 2006, left this residue as follows:

‘I give all the residue of my estate (out of which shall be paid my funeral and testamentary expenses and my debts) and any property over which I have a general power of appointment to the said Diana Mary Rawstron and the said Rose Pearce jointly’.

Rose Pearce was one of Freud's daughters. Diana Rawstron TEP had been his solicitor and close associate for decades, and in fact was a partner in Goodman Derrick, the firm that drafted the will. The will also appointed the two women as sole executors.

Although the clause as written suggests an absolute gift of the residuary estate to the two beneficiaries, they have subsequently revealed that they are to distribute it to some beneficiaries whom the testator specified, but whom he wished to remain anonymous.

This fact gave rise to a challenge from one of Freud's several illegitimate sons, Paul McAdam Freud. His case was that the will should be construed such that the residuary estate was not given to the two women for their absolute benefit, but to hold on trust for others. The relevant clause, he claimed, imposed a half-secret trust (whose existence is known but whose details are not) and not a fully secret trust (whose existence would not be made public).

This week the England & Wales High Court gave judgment on the challenge. The matter turned on whether the trust was fully secret or half secret, and on the testator's conversations with the two trustees.

If the trust was ruled to be fully secret, then it was valid, provided the testator had told them its terms at any time during his lifetime. However, if the trust was deemed half-secret, then the trusts were only enforceable if the testator told the two women about the trust before he executed the will, or at the same time. If he did not tell them until afterwards, then the trusts would fail.

So the point of Paul Freud's challenge was this: if the trust was half-secret then the clause could be declared invalid. The estate would thus be partially intestate and he could claim a share of the residue under the intestacy rules. Otherwise he would get nothing.

Pearce and Rawstron insisted that the gift of the residuary estate to them was absolute, as indicated by the wording of the will, and thus Paul Freud's challenge fell at the first hurdle. However, they also told the court that even if a half-secret trust existed, Lucien Freud had told them all about his wishes before he executed the will, and so the trust would be valid.

They claimed to have documents to support this assertion, but refused to show them to Paul Freud because, they said, the testator had not wanted anyone else to see them. Paul Freud naturally did not take their word for it.

Ultimately the High Court under Richard Spearman QC found in favour of the two women, declaring that they were absolute beneficiaries of the gift. Spearman relied on 'the natural and ordinary meaning of the words used in clause 6 of the will' as well as its other provisions and overall purpose. A key factor in the decision, he said, was that the 2006 will revoked an earlier will that contained a differently worded clause 6 which was plainly intended to create a half-secret trust. This, said Spearman, showed that Lucian Freud did not intend to create a half-secret trust by clause 6 of the new will (Rawstron v Freud, 2014 EWHC 2577 Ch).

Sources