An update on ‘reasonable financial provision’

 In Wills

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IPFD reasonable financial provision for adult childWhat constitutes reasonable financial provision for the independent adult child in claims under the Inheritance (Provision for Family and Dependants) Act 1975:    Not “Ilott”!

Earlier this year the well-known case of Ilott v Mitson and Others was back before the court – Ilott v Mitson and Others [2014] EWHC 542.  This time the High Court was concerned, with an appeal by Mrs Ilott, the estranged adult daughter of the deceased, against the quantum of sum awarded to her at first instance in respect of her claim for reasonable financial provision under the Inheritance (Provision for Family and Dependants) Act 1975 (“1975 Act”). Although the appeal was ultimately dismissed by the High Court, the judgment provides some much needed insight into the court’s approach to claims brought by adult children under the 1975 Act.

The Facts

The Appellant (Mrs Ilott) was the adult child of the deceased (Mrs Melita Jackson) who died leaving a Will in which she left almost her entire net estate (with a value of £486,000) to three charities, the Respondents in the appeal. The Appellant who had become estranged from her mother in her late teens due to a rift concerning her life-style choices made a claim against her Mother’s estate for reasonable financial provision under the 1975 Act. She was a woman of little means. She lived with her husband and five children in Housing Association accommodation and was heavily dependent on state benefits (including housing benefit, council tax benefit and tax credit).  She did not work and her husband had only a small income.

The case was heard at first instance by District Judge Million as he was then was. The Appellant, who was at that stage 46 years old, argued that the Deceased’s Will did not make reasonable provision for her maintenance and that she should receive a share of the estate. She argued that she should receive (1) a housing fund (£186,000), (2)£53,000 to pay for an extension, (3) a capitalised sum equivalent to £10,000 a year and (4) further capital to permit refurbishment and equipment of the house once purchased (£40,950). The Claimant stated her income needs were £34,600 per annum and her joint income was £27,776.

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The Respondent resisted the claim on the basis that the Appellant had failed to establish that the Will did not make reasonable provision for her.

District Judge Million found that the dominant reason for the rift between the Appellant and the Deceased laid with the Deceased and that in turn led to her unreasonably excluding her daughter. He went on to conclude that on these facts reasonable provision for Mrs Illot had not been made. The Judge went on to say:

“I also accept that the [Appellant] had not had any expectancy for any provision for herself. The [Appellant] and the Husband have managed their life over many years without expectancy that the [Appellant] should receive anything. That does not mean that the result is a reasonable one in the straitened financial circumstances of the family. But it does mean ….that any provision must now be limited.”

District Judge Million accepted that Mrs Illot’s continuing obligations towards her children required that she remain at home for the time-being and any work that she obtained would be limited although he found it reasonable that she should attempt to secure some work during the course of the next few years. The District Judge calculated that Mrs Illot had a financial need of c£4,000 by reference to her entitlement to working tax credits which gave a capitalised sum of £69,200, which he reduced to £50,000 when he took into account her ability to be able to find some work.

The Appeals

Thereafter cross-appeals ensued, the Appellant appealing on quantum and the Respondent appealing the Judge’s finding that the Will had not made reasonable financial provision for the Appellant. In 2010, Eleanor King J allowed the Respondent’s appeal and thus the Appellant’s appeal on quantum fell away. The Appellant subsequently appealed to the Court of Appeal who overruled King J’s decision and reinstated the first instance decision. The Appellant’s decision on quantum was remitted to the High Court which came before Parker J.

The Grounds of Appeal

On appeal, the Appellant essentially put forward two main arguments as summarised by Parker J:

  1. That the learned judge was wrong to treat the fact that the Appellant had managed without any expectancy from the Deceased as a reason for reducing the provision that he would otherwise have made from the Deceased’s estate (“the Expectancy Argument”);
  2. That having found that reasonable financial provision had not been made it was unreasonable for District Judge Million to provide a lump sum which did not in reality provide any benefit for the Claimant given the effect that a capital lump sum would have on her state benefit entitlement and that the Claimant should have been re-housed and provided for her in the future which would require a lump sum of roughly half the estate.

The Decision

Parker J dismissed the Appellant’s appeal against quantum.

In dealing with the expectancy argument, the Parker J reaffirmed that section 3 of the 1975 Act sets out the factors which the court must consider when dealing with the gateways stage and the evaluative stage.  Crucially, however, she made clear that the court was engaged with a different exercise at each stage.

To illustrate the point Parker J explained by way of example of this that in a given a case a court might find that the financial resources of an applicant might be such as to render the provision unreasonable but the quantum would be affected by the amount of resource. In her view the District Judge was not wrong to take into account arguments about expectancy when assessing quantum.

The Judge found that the Appellant’s other principal argument that she would have no benefit unless her housing needs were met could not be the right approach. If it was then the District Judge’s determination that the lack of expectation tempered the award would be rendered meaningless. The Judge had conducted a balancing exercise of the various factors and was not wrong to conclude that the fact that the Appellant lived in straitened circumstances for many years did not justify an award which improved their circumstances.

The Discussion

Although the court in Espinosa v Bourke [1999] 1 FLR 74 made clear that a “special circumstance or moral obligation” was no longer required before an adult child could make a successful obligation, this recent decision suggests that such is in fact required before it will award anything more than a modest sum to an adult child.  Straitened financial circumstances without more may only elicit an award of a small proportion of the Deceased’s estate. We are reminded of the importance of the two-stage process. Just because an applicant passes the gateway does not mean that the applicant will recover a full bounty. This leaves open the question of whether an applicant could succeed but be awarded a peppercorn amount. The court has thus reinforced the testator’s ability to dispose of the estate as he wishes.

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