Inheritance Act 1975 claims
The general rule in England and Wales is that you can leave your property to anyone you want under your will. This includes choosing not to give anything to certain people, even family members. The Inheritance (Provision for Family and Dependants) Act 1975 imposes a qualification to this rule by permitting a spouse, former spouse, child or dependant of a deceased to apply to court for reasonable financial provision if they don't think the deceased’s estate provides enough for them.
The test for reasonable financial provision is deliberately vague. For anyone other than a spouse, it means what is reasonable for their maintenance – so enough for them not to live in poverty, but necessarily not so much that they live in luxury. The court must consider a range of factors when deciding whether or not to make an award, including the financial resources and needs to the applicant, any obligations the deceased may have had towards them, and the financial needs of the other beneficiaries under the estate.
These factors allow the court to decide each case on its own facts but there is little guidance as to how they should evaluate and balance competing claims. That is left to a value judgment in each case and, practically, can make it difficult to predict the outcome of a case with certainty.
Ilott v Mitson
Ilott v Mitson concerns an estranged adult daughter's claim under the 1975 Act for reasonable financial provision against her deceased mother’s estate. As a result of their estrangement, the deceased deliberately and expressly (by her letter of wishes) excluded her daughter from any benefit under her will and chose to leave her estate, worth roughly £486,000, to three animal charities with which she had no particular connection during her life.
Historically, adult children have been regarded as unlikely to be able to succeed in a 1975 Act claim unless they can show evidence of having been maintained by their deceased parent. However, at first instance, Mrs Ilott was successful. It was held that her mother's will failed to make reasonable financial provision for her and she was awarded a lump sum of £50,000.
Mrs Ilott appealed this decision on the basis that the award was not enough as it would:
- deprive her of her means tested state benefits
- not provide her with sufficient funds with which to purchase the housing association property she lived in.
The Court of Appeal set aside the first instance decision. Mrs Illott was awarded £143,000 in order to allow her to buy her home, together with a further £20,000 for additional income. This was then appealed to the Supreme Court.
The Supreme Court's decision in this case has been hotly anticipated as the Court of Appeal's decision to increase the award to Mrs Ilott was seen as indicative of a general trend towards more generous court treatment of 1975 Act claims by independent adult children – the practical result of which is to make it more difficult for testators to disinherit a child, even if they are estranged.
The Supreme Court decision
Almost 10 years after the first instance decision, the Supreme Court has reinstated Mrs Ilott's original £50,000 award.
The thrust of the Supreme Court's decision is that the Court of Appeal was wrong to interfere with and increase the award granted by the first instance judge. The judge had to make a value judgment based upon the evidence in front of him and he was perfectly entitled to reach the conclusion which he did.
The main judgment was given by Lord Hughes and covers a number of key issues.
The Supreme Court emphasised the importance of limiting awards to "maintenance". Maintenance is by definition the provision of income rather than capital and should be considered as such within the context of the 1975 Act. Lord Hughes said maintenance "cannot extend to any and every thing which it is desirable for the claimant to have. It must import provision to meet the everyday expenses of living".
Lady Hale recognised that "Housing is undoubtedly one of the first things that anyone needs for her maintenance, along with food and fuel" but the Court stated that "If housing is provided by way of maintenance, it is likely more often to be provided by such a life interest rather than by a capital sum". Claims by adult children will often focus on the applicant's housing need and the Court's guidance should assist defendants to claims which are focused upon a significant capital asset. Courts may in future limit awards of capital to circumstances where an award of an income nature would cause particular difficulties for the defendants.
As to what falls within the concept of "maintenance", the Court held items which are required to "make the household function properly can perfectly sensibly fit within the concept of maintenance" such as "essential white goods, basic carpeting, floor covering and curtains, and the replacement of worn out and broken beds".
Claimants will need to ensure that their submissions are properly directed towards items which are necessary for their maintenance and to refer to such items directly when particularising their needs.
There has been debate as to whether an adult child requires a moral claim in order to succeed in a 1975 Act claim. The Supreme Court has confirmed that an "additional something" must be present to achieve a successful outcome. Lord Hughes accepted that, in many cases, this will be a moral claim.
From an academic perspective, it is helpful that this point has been addressed but it does little to help those advising potential claimants on their likelihood of success.
In weighing the competing interests of Mrs Ilott and the charities who would otherwise benefit from the will, the Court of Appeal's view was that the charities did not have a competing need for maintenance and would not be prejudiced by a higher award to Mrs Ilott. This decision placed little importance on the deceased's express wishes and raised concerns for charities, who often rely heavily on legacy donations.
The Supreme Court has said the Court of Appeal's reasoning was "erroneous". If the defendants are the deceased's freely made and considered choice of beneficiaries, they should not be required to justify a claim under the 1975 Act in order to successfully defend such a claim. While they may not have a competing need, claims under the 1975 Act impact on their interests by reducing the legacy they would otherwise receive.
The Supreme Court has rowed back from the decision of the Court of Appeal and should give comfort to those making wills that their future wishes will be one of the relevant factors to be taken into account in the event of a future 1975 Act claim. Charities will welcome the Supreme Court's recognition of the position of express beneficiaries but this decision has wider implications, in that it helps to protect the interests of any financially sound and independent beneficiaries who would struggle to demonstrate a need for maintenance from the deceased's estate.
The impact of the first instance decision of £50,000 was to deprive Mrs Ilott of her means tested benefits by bringing her savings above the £16,000 limit. This has prompted significant debate about the relationship of family obligations and those of the state.
The Supreme Court has now held that "Benefits are part of the resources of the claimant, and it is relevant to consider whether they will continue to be received”. Although, in this case, Mrs Ilott had identified a number of household items within her needs which required replacement in order to allow her household to function properly. As the replacement of these items would require Mrs Ilott to spend a significant proportion of her £50,000 award, the Supreme Court felt the impact upon the family's benefits would be minimised.
It is significant that the Supreme Court did not express any concern about awards being formulated in a benefit or tax-efficient way.
The relevant date
Lord Hughes confirmed that "Where a court has to assess whether reasonable financial provision has been made, and/or what it should be, the relevant date is the date of the hearing. Of course, on an appeal, if the question is whether the trial judge made an error of principle the facts and evidence must be taken as they stood before him."
In some cases, there will be a significant period of time between the date of death of the deceased and the first instance hearing of any 1975 Act claim. If the applicant's financial position were to change significantly in that period, it could have a profound impact on the viability of their claim.
The Supreme Court described this case as "an example of much to be regretted prolongation... of the forensic process". On the subject of appeals more generally it said "The order made by the judge ought to be upset only if he has erred in principle or in law. An appellate court will be very slow to interfere and should never do so simply on the grounds that its judge(s) would have been inclined, if sitting at first instance, to have reached a different conclusion... It is to “kill the parties with kindness” to permit marginal appeals in cases which are essentially individual value judgments such as those under the 1975 Act should be."
In this case, Lady Hale demonstrated the breadth of the Court's discretion in 1975 Act claims by identifying three reasonable conclusions which it was open to the first instance judge to reach by properly applying the Act. Following this judgment, we anticipate that it will be very difficult to successfully appeal a first instance decision under the 1975 Act.
What next for the law in this area?
This is the first time that the Supreme Court has been asked to consider a claim under the 1975 Act. This area of law raises profound questions regarding the breadth of testators' freedom to dispose of their property as the wish and there is little guidance on how the courts should evaluate or balance the various claims against an estate. The eyes of the private client world have been fixed on this case in the hope that the Supreme Court would use it as an opportunity to clarify the approach that should be taken in such cases.
Sadly, the Court appears to have felt powerless to provide this comprehensive guidance. The explanation that the first instance judge could reasonably have reached a number of very different conclusions based upon the facts of the case serves to demonstrate the practical difficulties for practitioners trying to accurately predict the outcome of cases for their clients. Lady Hale's judgment refers to the law in this area as "unsatisfactory... giving as it does no guidance as to the factors to be taken into account in deciding whether an adult child is deserving or undeserving of reasonable maintenance”.
Given Lady Hale's criticism of the law in this area, there may be change on the horizon.
The impact for testators
As to whether this decision leaves testators free to ignore their adult children when making a will, the answer is yes – but with caveats.
The Supreme Court's decision has been heralded as a win for testamentary freedom. But, the door remains open for 1975 Act claims and in the right circumstances, claims by adult children will still succeed. This Supreme Court decision supports testators' freedom to choose their beneficiaries and should give some comfort to those making wills that their wishes will be a factor taken into account by the Court in the event of a future 1975 Act claim.
When making a will which might be regarded as excluding or limiting the inheritance of a potential claimant, the position remains that thought should always be given to the 1975 Act.
This article was written by Caroline Emslie, Kevin Kennedy and Tom Hewitt.