How to Deal with Legacies in an ‘Old’ Foreign Currency

Posted by Private: Judith Rountree

26-09-2014

scotlandI have recently been asked an unusual but interesting query by a charity client and thought I would share the query within the Update. As this related to a change in a countries’ currency, when set against last week’s events with the Scottish referendum the issue could have become a daily concern for legacy officers.

The charity involved had received a copy Will made in 2001 from a testatrix who lived in Ireland and who died during 2014. The charity was a residuary beneficiary but there were also numerous pecuniary legacies which were listed in Irish Punts rather than Euros. Ireland converted to the Euro along with other countries during what is known as the Transition Period from 1 January 1999 to 31 December 2001.

The question I was asked was whether the legacies listed in Irish Punts automatically became treated as Euros, and if so on what date did the conversion to Euros take effect? Was this the date of death, the date the bequests are paid out, or the date the Will was made?

The first issue that sprung to mind related to a question of construction and interpretation. This is because it is possible to argue the gift fails as the asset (in Irish Punts) no longer exists.

In general the courts are not in favour of a gift lapsing and will try to establish a common sense interpretation. When constructing ambiguous clauses in wills, the probate courts often look to the approach taken to the construction of ambiguous contracts by the commercial courts, where an objective test is adopted from the standpoint of a ‘reasonable person’. The ultimate interpretation should therefore be consistent with a common sense approach (Investors Compensation Scheme Ltd v. West Bromwich Building Society [1997] UKHL 28, followed by Rainy Sky SA v. Kookmin Bank [2011] UKSC 50).

With regard to the Euro conversion, the commercial courts have also stated that where a contract stipulates a particular currency for payment, such payment will continue to be made in that currency until 31 December 2001 (the end of the Transition Period) unless the parties otherwise agree. From 1 January 2002 all non-cash payments (including legacies) must be made in Euros. This is set against the fact the testatrix’s bank accounts will by the date of death, have been converted into Euros in any event.

As the legacy relates to a currency no longer in circulation, the conversion rate between the Euro and the Irish Punt was irrevocably fixed from 1 January 1999 (the first date of the Transition Period). This means that any transactions in Irish Punts will automatically be converted (if not converted already) to the Euro from the date of 31 December 2001 (the last day of the Transition Period) but that the rate of conversion will always remain as the rate set on 1 January 1999. (Article 2 Council Regulation 1103/97).

Were the case was slightly different, for example a legacy in USA dollars which was to be converted into Sterling, case law appears to suggest that the conversion rate applicable would be the rate prevailing on the first anniversary of the testatrix’s death unless otherwise stated in the Will (Re Eighmie, Colbourne v. Wilks [1935] ch 524).

In day to day practice, were our Inheritance Protection Team asked to make a legacy in a foreign currency, they will ensure a clause is inserted into the Will to confirm the date that the legacy is to be converted from, i.e. either on the date of death, or the date of distribution. The above case, whilst helpful, is unlikely to be practical since most estates can be administered a lot quicker than one year after the date of death.

Had Scotland been successful in its vote for independence and also adopted a new currency, similar issues would have been encountered quite regularly. For now, they appear to be quite unusual, but an interesting query nevertheless. From a charity perspective, if it is known that a legacy is to be left in a foreign currency, the administration will be made easier if the Will makes provision for the intended date of conversion. Unless of course, the legacy was left prior to or during the Transition Period, in which case the conversion rate has already been fixed to that on the 1 January 1999.


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