A recent case highlights the sort of problems that can arise when family members make informal financial arrangements with one another. It concerned a man who had been left a half interest in his late mother’s residuary estate (the residuary estate is what is left in the estate after the specific bequests have been made and the estate expenses met). The only asset in the estate was a house, which had been bought in 1982 and which was financed from money realised from the sale of the son’s property. The son had helped his parents finance the purchase of the property because he wished to provide for them in their old age. The property was bought in his parents’ names and he agreed with them that he would be entitled to ‘half the property’ when they died. It was concluded as a matter of fact by the court that the son’s contribution was probably more than a half of the purchase cost of the house.
When his father died, the man’s mother became the sole owner of the property. When she died, she left half her estate to the son and the other half to her other children. The question that arose was whether her son was entitled to half of the value of the house or whether he was entitled to a half share in the residuary estate under the will: a lesser sum. The son argued that a half share in the house was held in trust for him by his mother.
To decide the point, the court first had to consider whether the son’s rights arose as a result of the creation of a contract when the house was bought in 1982 or whether he had a beneficial interest in the property under common law.
If the son had a beneficial interest, it had to be determined whether his mother considered that her will disposed of the whole beneficial interest in the property and therefore believed that her will included the value of the house. Regrettably, her will did not make this clear. If so, equity demands that her son would need to elect whether to renounce his bequest under the will (retaining his beneficial interest in the house) or to accept the bequest and compensate the other beneficiaries.
In court the judge ruled that the son did not have a beneficial interest in the house, but only had a half share in the estate.
The decision was appealed to the Court of Appeal. The Court ruled that the son did have a substantial beneficial interest in the house and that it was clearly common ground between him and his parents that he owned a half interest in it.
Evidence was produced that the mother considered that by her will she was disposing of the whole of the property. Therefore, the son would be required to make an election with regard to his interest under the will. The mother had intended her son to have no more than a half share in her estate.
This case shows the complications that can arise if decisions regarding the ownership of assets are not evidenced in writing. In this case, had the extent of the son’s title to the property been clear at the outset, the argument would not have arisen.