Blessed are the dependants, for they shall inherit the earth (possibly)
23rd March 2017
How straightforward is it to ensure that an unfavoured family member does not nonetheless make a claim for financial provision from your estate?
On 15 March 2017, in Ilott v The Blue Cross & Ors.  UKSC 17, the Supreme Court handed down its first decision about the judicial discretion under the Inheritance (Provision for Family and Dependants) Act 1975 (the I(PFD)A 1975) to make reasonable financial provision for those who do not otherwise stand to benefit from the estate of a deceased person.
What is the I(PFD)A 1975?
The I(PFD)A 1975 enables claims to be brought “on the ground that the disposition of the deceased’s estate effected by his will or the law relating to intestacy, or the combination of his will and that law, is not such as to make reasonable financial provision for the applicant”.
The potential applicants (claimants) can be:
- spouses / partners (civil or de facto);
- former spouses and partners;
- children (including adult children, and those treated as children) and, finally
- those who were actually being maintained by the deceased at the time of death.
The scope of claims by anyone other than a spouse or civil partner is solely ‘maintenance’: a claim cannot be brought for a larger slice of an estate (i.e. capital) unless the claimant is a spouse or civil partner.
Absent any I(PFD)A 1975 claim (which, according to s 4 of the statute, must usually be made within 6 months of the grant of probate or letters of administration), the will or the rules of intestacy will apply.
A family feud had erupted between Mrs Melita Jackson and her only child, Heather (now Mrs Ilott) following Heather’s decision in 1978, at age 17, secretly to leave her mother’s home and go to live with her boyfriend (Mr Ilott), an individual of whom Mrs Jackson did not approve. A lifelong estrangement followed, lasting for the quarter of a century before Mrs Jackson died at the age of 70 in July 2004.
At least as early as Spring 1984, Mrs Jackson decided to make no provision for her daughter in her will. The decision was not made in haste, and Mrs Jackson reiterated the same firm decision in her last will in 2002. In each case she had left a side-letter of wishes explaining her decision. In the final such letter Mrs Jackson stated that she felt no moral or financial obligations towards her daughter, and she instructed her executors to resist any potential claim from Mrs Ilott. Furthermore, she informed Mrs Ilott of all of this.
Mrs Jackson left her estate – which was valued at c. £486k and which largely consisted of her home – to various charities – The Blue Cross, RSPB and RSPCA. She had no particular connection to any of the charities.
Mrs Ilott, as an adult child of the deceased, made a claim under s 2 of the I(PFD)A 1975 for reasonable financial provision from her late mother’s estate.
Mrs Ilott’s financial circumstances
The financial circumstances of the Ilott family were modest and straitened, and they lived in a Housing Association property, upon which they hoped at some point to exercise the right-to-buy. Aside from undertaking a tiny amount of paid book-keeping for her husband, Mrs Ilott did not work. Mr Ilott was a part-time supporting actor, and the family was in receipt of state benefits, including means-tested benefits (council tax benefit and housing benefit). This potentially complicated the nature of any provision which may be made because receipt of a lump sum would jeopardise continued payment of means-tested benefits. The first-instance judge, DJ Million (as he then was) found the net household income to be c. £20.3k pa. The right-to-buy could have been exercised at the time of the hearing before DJ Million for £186k, and by the time of the penultimate appeal in 2015 for £143k.
There were no less than five previous rounds of litigation in the lower courts, including two appeals to the High Court and two appeals to the Court of Appeal (summarised with commendable concision by Lord Hughes at § 26 – 28), starting with the initial judgment of DJ Million on 7 August 2007, and spanning an “unconscionable time” via the second Court of Appeal decision (Ilott v Mitson  EWCA Civ 797) on 27 July 2015, to the arguments before the Supreme Court in mid-December 2016 arising from the order made by the Court of Appeal.
Mrs Ilott’s claim had “varied over time” and “both before the District Judge and on appeal from him she sought capital provision amounting to half or more of the estate” (§ 26).
DJ Million had calculated that, including the sum for the right-to-buy, an extension and capitalised sums for various categories of ‘maintenance’, Mrs Ilott sought £562k, which exceeded the size of the estate. This was “ill thought out and unhelpful” of her (§ 37).
In 2007 DJ Million at the Principal Registry of the Family Division had listened to evidence at a two-day trial, reserved judgment and had determined that “the disposition of [Mrs Jackson’s] estate effected by (her) will…(was) not such as to make reasonable financial provision” for Mrs Ilott, and he awarded her a lump sum of £50,000, representing a capitalisation of the sum which he found it would be reasonable in all the circumstances for Mrs Ilott to receive for her maintenance.
The second Court of Appeal decision
By the time the matter reached the Court of Appeal for the second time, the issues had been cast as follows. Mrs Ilott argued that DJ Million had fallen into two ‘fundamental’ errors of principle when he awarded her a lump sum of £50,000 from the £486,000 estate:
- The DJ had said that the award should be limited, but he had not identified what it would have been without the limiting factors of a) the estrangement, b) the lack of expectation of benefit, and c) the claimant’s independent life;
- The initial award of £50,000 had been made without knowledge of the effect on the state benefits of the Ilott family.
Agreeing with Mrs Ilott, the Court of Appeal decided that it was able to re-evaluate the decision for itself, and it decided:
- that a claimant in receipt of state benefits should be treated in the same way as an elderly or disabled claimant, with attention to preserving the state benefits; and
- therefore a capital sum sufficient to enable Mrs Ilott to exercise her right-to-buy would be awarded – i.e. £143k – enabling a subsequent possible income augmentation via equity release in later life; plus
- a further £20,000 would be payable to Mrs Ilott, which could be drawn down in instalments (in order to avoid jeopardising receipt of means-tested benefits).
Success of appeal by Charities to Supreme Court
The Supreme Court was not impressed by the analysis in the Court of Appeal and it unanimously allowed the appeal of the three charities, restoring the order of DJ Million, and at the same time no doubt instilling relief into the entire charity community in the UK, as “charities depend heavily on testamentary bequests for their work” (§ 46).
It is easy with hindsight to say that the Supreme Court decision “doesn’t change the law” and that it simply highlights the correct approach “which we all knew anyway”.
However, a cursory internet search for Ilott v Mitson (the case-name in the various lower courts) will reveal the numerous articles, blogs, tweets and advertorials all proclaiming how the Court of Appeal / each earlier decision had clearly applied the correct analysis and how dreadfully wrong any previous decisions had been. The second Court of Appeal panel could hardly be described as inexperienced, including as it did Arden and Ryder LJJ together with Sir Colin Rimer.
Nonetheless as Lady Hale observed (§ 66) the present law remains in an “unsatisfactory state…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. I regret that the Law Commission did not reconsider the fundamental principles underlying such claims when last they dealt with this topic in 2011.”
DJ Million and Parker J (Ilott v Mitson & Others  EWHC 542 (Fam)) will perhaps both be shrouded with a warm Ready-Brek glow, the Supreme Court having vindicated their decisions, but what are the significant points for practitioners to take from this sixth decision, the final analysis from the highest court in the land?
What is maintenance?
The following can be drawn from the Supreme Court’s judgment and its review of the authorities:
- maintenance is not limited to subsistence (§ 15);
- maintenance “cannot extend to any or everything which it would be desirable for the claimant to have. It must import provision to meet the everyday expenses of living” (§ 14);
- the paying off of a mortgage by a married adult son living with his family in comfortable circumstances was “correctly, firmly rejected” as maintenance (In Re Jennings, deceased  Ch 286 at 198F);
- a lump sum from which both income and capital can be drawn over the years, for example on the Duxbury model familiar to family lawyers (see Duxbury v Duxbury (Note)  Fam 62) may often be more appropriate, cheaper and convenient;
- the maintenance provision can be by way of a lump sum, for example, to buy a house in which the applicant can be housed, thereby relieving him pro tanto of income expenditure (see Browne Wilkinson J in In re Dennis, deceased  2 All ER 140 at 145 – 146);
- maintenance provision must not confer capital on a claimant (§ 15);
- provision of housing will normally be by way of a life interest (see e.g. Munby J in In re Myers  EWHC 1944 (Fam);  WTLR 851 at §s 89 – 90 and 99 – 101) (§ 15). As Lady Hale added at § 65 “It is difficult to reconcile the grant of an absolute interest in real property with the concept of reasonable provision for maintenance: buying the house and settling it upon [the claimant] for life with reversion to the estate would be more compatible with that”;
- payment of existing debts may be appropriate as a maintenance payment “for example, to pay the debts of an applicant in order to enable him to continue to carry on a profit-making business or profession may well be for his maintenance” (In re Dennis, Deceased, supra);
- A capital sum to meet capital transfer tax on a sizeable gift made to the claimant by the deceased is not maintenance (see In Re Dennis, supra, and Ilott at § 14);
- Maintenance covers “food and fuel” (§ 65 (2));
- “essential white goods, basic carpeting, floor covering and curtains, and the replacement of worn out and broken beds” could be construed as maintenance – Mrs Ilott herself made a “strong case” for “items which [she] needed to make the household function properly”(§ 40);
- similar necessities such as a reliable car, or a holiday, could be included too (§ 40); although
- repairs to the structure of a house would not fall to be included as maintenance (§ 40).
To what matters must the court have regard, and when?
At § 11 of the judgment Lord Hughes set out s 3 of the statute, which directs the court (in the case of children of the deceased) to have regard to: –
- current and future financial resources and needs of both applicant(s) and other beneficiaries;
- any obligations and responsibilities of the deceased towards any of the above individuals;
- the size and nature of the estate;
- any disability of the applicant(s) or other beneficiaries;
- the manner in which the applicant was being, or was expecting to be, trained or educated; and
- a catch-all category of “any other matter, including the conduct of the applicant or any other person, which in the circumstances of the case the court may consider relevant”.
Various supplemental considerations are applicable for spouses / partners (civil or otherwise) of the deceased or for children (including adult children, and those treated as children) and those who were actually being maintained by the deceased at the time of death.
The court’s objective approach
Approving the approach of Oliver J in In re Coventry  Ch 461, Lord Hughes re-iterated that the court’s determination of the above must be objective and not dependent upon, for example, “asking the wrong question” of whether the deceased acted unreasonably (§ 17). However the actions of the deceased still fall to be considered under the ‘obligations and responsibilities’ and ‘any other matter’ headings above (§ 17).
By way of example, in In re Jennings, deceased (supra), the deceased had been unreasonable in his failure to maintain his son, but the court awarded no financial provision to the son.
This is straightforward: “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” (§ 25).
Reasonable financial provision
Building on the decision of Goff LJ in In Re Coventry (supra), the Supreme Court determined that two questions must be asked (even if not explicitly):
- firstly “did the will/intestacy make reasonable financial provision for the claimant” and, secondly
- “if not, what reasonable financial provision ought now to be made for him?”.
The approach is to be “broad brush” and in many cases, “exactly the same conclusions” will answer both questions (§ 24).
A hypothetical standard of reasonable provision?
The court’s determination should be a single assessment of reasonable financial provision informed by the statutory factors in s 3. It is not required “to fix some hypothetical standard of reasonable provision and then either add to it, or discount from it, by percentage points or otherwise, for variable factors…There is no warrant in the Act for requiring a process of the kind suggested by the Court of Appeal”. After all, “[w]hich of the facts is [the court] to ignore for the purpose of arriving at a hypothetical or “headline” figure, before adjusting it?” (§ 34).
Relevance of the estrangement
The “relationship between the deceased and the claimant” is relevant (§ 23). In this case “the estrangement was one of the two dominant factors…the other was Mrs Ilott’s very straitened financial position. Some judges might legitimately have concluded that the very long and deep estrangement had meant that the deceased had no remaining obligation to make any provision for her independent adult daughter”. This was the conclusion reached by Eleanor King J in this case.
But the Supreme Court concluded that the judge was perfectly entitled to reach the conclusion which he did, namely that there was a failure of reasonable financial provision, but [what that] reasonable provision would be was coloured by the nature of the relationship between mother and daughter” (§ 35).
Indeed, DJ Million “gave effect to his findings as to the causes of the estrangement in allowing the claim, as he was entitled to do” (§ 47).
The testator’s clear wishes
The view of the Court of Appeal was that “[this factor] counted for little, and that Mrs Ilott’s lack of expectation of any benefit from the estate was likewise of little weight, in part because the charities had no expectation of benefit either.” The Supreme Court stated that this view should be “treated with caution”. Although “not based on personal need…charities depend heavily on testamentary bequests for their work, which is by definition of public benefit and in many cases will be for demonstrably humanitarian purposes. More fundamentally, these charities were the chosen beneficiaries of the deceased. [I]t cannot be ignored that an award under the Act is at the expense of those whom the testator intended to benefit” (§ 46).
“It is not the case that once there is a qualified claimant and a demonstrated need for maintenance, the testator’s wishes cease to be of any weight. They may of course be overridden, but they are part of the circumstances of the case and fall to be assessed in the round together with all other relevant factors (§ 47).
The second suggested error – the effect on state benefits
The District Judge clearly should have been provided by Mrs Ilott with information setting out the effect of receipt of an award on her state benefits. Although he had not been, he did not fail to address the impact on benefits of any order he might make, but “was, unsurprisingly as a District Judge sitting regularly in the Principal Registry of the Family Division, sufficiently familiar with the structure of state benefits to work on the basis of the likely consequences for them”. What’s more, he correctly distinguished between benefits and credits (“probably including child benefit”) and over- rather than under-estimated the effect of any award on the claimant.
If a substantial part of the claimant’s £50,000 award were to be spent on “necessary replacement of essential household items” then that was indeed the “maintenance of daily living”, “put[ting] the household onto a much sounder footing without for long retaining capital beyond the £16,000 ceiling at which entitlement to Housing and Council Tax Benefits is lost” (§ 41).
Difficulties with the Court of Appeal’s proposed order
The £143,000 ‘right-to-buy’ housing award
This was wrong: Lord Hughes noted that “the right order would be likely to have been a life interest in the necessary sum, rather than an outright payment of it”. The “rather incidental reference to the possibility of equity release” was “designed to clothe the claim for the price of the house with a vestige of income-provision, but it was not supported by any evidence of how the figures might work” (§ 44).
The £20,000 to be drawn down in instalments
Absent a discretionary trust, “the additional ‘option’ to draw down £20,000 at will would fall foul of exactly the same capital disqualification rules as to benefits, because those rules treat capital which is available to the claimant, but of which he has deprived himself, as being in his possession: see Housing Benefit Regulations 2006, SI 213/2006, regulations 49 & 50, (consolidated with the Council Tax Benefit Regulations SI 215/2006), together with the Guidance Manual issued to officers by the Department of Work and Pensions BW1 (13 September 2013), to which it does not seem the Court of Appeal was referred”.
Unsatisfactory state of the law: deserving or undeserving adult children?
A “respectable case” could be made for the District Judge:
- making no order at all: Lady Hale pointed out that “[t]he law has not, or not yet, recognised a public interest in expecting or obliging parents to support their adult children so as to save the public money. Thus it is not surprising that Eleanor King J regarded [declining to make any order at all] as the reasonable result”;
- making a ‘dual-benefit order’ (as the Court of Appeal did in 2015) “giving the applicant what she most needed and saving the public purse the most money”; or
- doing what he did, reasoning that the claimant’s ‘share’ of the household tax credit entitlement of £4,000 could be capitalised to c. £50,000 in a “rough and ready way” (see § 65).
Ilott “raises some profound questions about the nature of family obligations, the relationship between family obligations and the state, and the relationship between the freedom of property owners to dispose of their property as they see fit and their duty to fulfil their family obligations. All are raised by the facts of this case but none is answered by the legislation which we have to apply or by the work of the Law Commission which led to it” (Lady Hale, § 49).
Nonetheless, the Supreme Court decision has bolstered the principle of testamentary freedom, something for which Lady Hale noted there is “strong emotional support” in society, and which is “linked to ideas of individualism and human rights” (§ 54).
Clarity has been provided as to the scope of the concept of maintenance (as set out above), and as to the point at which the assessment is to take place (the date of the hearing).
There is no hypothetical standard of ‘reasonable financial provision’.
Estrangement can be a “dominant factor” for a court in exercising its discretion.
The Supreme Court has highlighted the public benefit in charities being gifted monies, and has enabled testators to remain a little more confident that their wishes will indeed be respected.
The Supreme Court has limited a possible burgeoning line of development in the concept of lump sums for capital provision of ‘housing’ being described as ‘maintenance’ and several times in the judgement provides a clear steer towards the correct approach of ‘life interests’ in property.
But, so long as the I(PFD)A 1975 subsists in its current form, the hazards for those administering estates of claims from individuals who have been expressly disinherited by the deceased remain, and the breadth of judicial discretion afforded by the statute will continue to cause misery for those who have recently lost loved ones through their being denied closure and their being compelled to engage in costly and potentially protracted litigation.
Perhaps the last word has to go to the late Sir Nicholas Wall P, cited by Lady Hale at § 65 (1), who concurred with the observation of Wilson LJ that had the District Judge dismissed the claim ‘I doubt very much whether the appellant would have secured reversal of that dismissal on appeal’ (§ 59).
The Ilotts had married and stayed together, having five children, but there was no financial connection whatsoever with Mrs Jackson. Three attempts at reconciliation, in 1983, 1994 and 1999 had failed.