Diana's legacy entrusted to safe pair of hands

It may have made top City firms green with envy, but Mishcons was the natural choice to handle Diana's probate, reports Robert Lindsay. A certain amount of envy was apparent among the City's top-notch trust and estate lawyers when it became clear that Mishcon de Reya had been instructed on the probate for Princess Diana's estate and to set up the memorial fund.

"Nice little earner for them," commented one partner. But Mishcons was the natural choice for Diana's family and entourage, having successfully advised Diana on both her £17m divorce settlement from the Prince of Wales and her battle with the Mirror Group over the publication of a photograph of her in a gym.

Diana was grateful to Mishcons and to Anthony Julius in particular, the firm's prominent litigation partner. As The Lawyer revealed in its 21 January issue, the Princess presented Julius with a silver ink blotter inscribed with the words: "To Anthony, thank you for giving me my wings, love Diana." And there is no doubt that Julius and several members of the firm who attended Diana's funeral were deeply upset by her death.

Nevertheless, the work is likely to pull in some big fees for the firm. While its work on the trust is, for the moment, on a pro bono basis, some lawyers who have worked on big estates estimate it could take up to £2m from the probate work.

All lawyers in the field agree that Mishcons has done the right thing in including in the trust deed a clause allowing it to charge for any work it does for the trust in a professional capacity. A trustee, like Julius, who is also a professional would, the deed states, have to withdraw from any meetings trustees have about instructing his firm or paying him fees.

The deed, signed and presumably drafted by assistant Bernadette O'Reilly, a former articled clerk of leading trust and tax partner Martyn Gowar of Lawrence Graham, also gives the widest brief to the trustees as to how they spend the trust money, something that will be decided by all eight trustees once they are chosen.

The objects of the trust are to use the income from the fund and all or part of the capital for charities. It allows the trustees "without fettering their discretion" to have regard for charitable causes with which the Princess of Wales was associated. Trustees are to be appointed either on the basis of their professional or personal skills, or because of their "special knowledge of the interests of Diana, Princess of Wales, in charitable causes".

Although the question of whether the capital will be invested or spent straight away will await the decision of the trustees, the deed allows them to appoint a professional investment manager who can be paid commission fees and expenses.

Press reports have estimated Diana's estate to be worth £40m. Law Society guidelines suggest a fee for probate lawyers of one per cent of the value of the estate. But leading probate lawyers say that a percentage fee on large estates like Diana's would be unusual and that Mishcons would probably charge an hourly rate.

The rate is likely to be quite high and could amount to between 1.5 per cent and 5 per cent of the value. If the estate is worth £40m then this would give Mishcons a fee of between £600,000 and £2m.

Because Diana was not technically a member of the Royal Family, her estate will not be exempt from inheritance tax at 40 per cent. Mishcons will have to work out what her assets are, those that have not been given to the nation, and those that are exempt because they are held in trust for her children, Princes William and Harry, and then negotiate with the Inland Revenue on their value. A tax lawyer said: "Anything connected with her - clothes and so on - must have a premium price. How do you value that?"

One of Diana's dresses, which fetched £24,500 when it was auctioned for charity in June, fetched £130,000 when it was re-auctioned in the US last week. But another tax lawyer said the Revenue tended to take the lower valuation of goods whose values were not easily arrived at.

Whatever the details, lawyers are right to envy Mishcons. The firm is on the way to regaining its past prominence, albeit in circumstances that no one could either have expected or desired.