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Case law: Financial provision award to disinherited adult child reduced by Supreme Court

Will-makers need to consider carefully before excluding their adult children (and others) from their Wills following various rulings, but the risk of the court overruling the Will terms may have now diminished after a Supreme Court ruling.

Legal Alert

This update was published in Legal Alert - April 2017

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

The testator's daughter had left home at 17 and lived on benefits with her partner and five children. Contact with her mother (the testator) had been minimal for 26 years since. That had mainly been the mother's choice, although there was fault on both sides. The mother died and left her estate of around £500,000 to three charities in which she had shown no previous interest. She left a letter explaining why she had not left anything to her daughter and specifically instructing her executors to fight any claim her daughter might make.

The daughter had not expected to receive anything under her mother's Will. However, she claimed a share of her mother's estate under the Inheritance (Provision for Family and Dependants) Act 1975 which allows dependents to claim 'reasonable provision' from a deceased's estate if the Will does not leave them enough. It is very difficult for an independent adult to make a successful claim under this Act.

However, the High Court awarded her £50,000. An effect of this award was that the daughter lost her entitlement to means-tested benefits such as housing benefits, without providing her with enough to buy a property of her own. It therefore meant she could no longer afford a place to live. She argued she was worse off than before winning the award and appealed, claiming she should receive around £250,000 and appealed.

The Court of Appeal said the High Court should have taken the effect of the award on her benefits entitlement into account when deciding what amounted to 'reasonable provision' for her. It increased her award to £143,000, together with an option to receive up to £20,000 in one or more instalments (which would allow her to regulate what she received and retain her entitlement to benefits). The rationale was that this would enable her to buy a house so that she no longer needed to claim means-tested housing benefit – but she could continue to claim non means-tested benefits such as tax credits. The award also took into account that the charities also had no expectation of receiving anything before the Will took effect.

The Supreme Court has reinstated the original award of £50,000 and made the following points:

  • Reasonable financial provision (for anyone except spouses and partners) means the amount it is reasonable for them to receive as maintenance (ie. income) not capital - '…they cannot make a claim on the general basis that it was unfair that they did not receive any, or a larger, slice of the estate'
  • The test of reasonableness is objective, to be decided by the court
  • Maintenance can exceed subsistence level, but does not extend to anything or everything it would be desirable for the claimant to have
  • The amount of maintenance depends on the facts of each case, as at the date of the hearing of the application for financial provision
  • Although it is, by definition, income and not capital, maintenance can be paid as a lump sum

On the issue of benefits, the Supreme Court disagreed with the Court of Appeal's view that the High Court's award was of little or no value to the daughter because of the impact it had on her entitlement to benefits. It said she could use a large part of an award of £50,000 to replace household equipment, which she could not otherwise have afforded to do. Such expenditure amounted to maintenance for daily living, and would mean that the daughter's capital would soon reduce sufficient for her to retain her entitlement to benefits.

The Court also found that:

  • There was nothing in principle to stop reasonable financial provision from including provision of housing, but this would ordinarily be provided by putting the property in trust and giving the claimant a life interest in it, ie. the right to live in the property during their life time, rather than giving them capital or property directly
  • The Court of Appeal had not sufficiently taken into account the mother's very clear wishes and the long period during which she had specifically decided not to contact her daughter
  • The Court of Appeal should not have taken into account that the charities had no expectation of receiving anything under the mother's Will. Beneficiaries other than a person claiming reasonable financial provision do not have to justify their entitlement to inherit under the Will

Operative date

  • Now

Recommendation

  • Will-makers still need to consider carefully whether and how to exclude their adult children (and some other relatives) from their Wills, including writing an appropriate side letter. However, the risk of the court overruling the terms of their Will to make 'reasonable financial provision' for an adult child appear to have diminished as a result of this ruling

Case ref: Ilott v The Blue Cross and ors [2017] UKSC 17

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.