Life interests vs lump sums in 1975 Act claims

 In Probate

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Banfield v Campbell [2018] EWHC 1943 (Ch)

Master Teverson’s recent decision in Banfield v Campbell is the latest example of what seems to be a shift towards awarding life interests rather than outright transfers of capital to surviving cohabitants under the Inheritance (Provision for Family and Dependants) Act 1975 (“the 1975 Act”).

Facts

The dispute concerned the estate of Sarah Campbell, who died on 7 October 2015 aged 63 whilst on a flight to the Canary Islands. She had married Neil Campbell in 1981 and had a son with him, James. Mr Campbell died of cancer in 1992 when James was 10 years old and the deceased was 40. The deceased inherited the 3-bedroom detached family home in Thames Ditton, which was registered in her sole name and unencumbered at the date of her death.

In around 1993 the deceased began a relationship with the claimant, Mr Banfield, who was the same age as her. He was living with his mother but gradually spent more and more time with the deceased at the property, and eventually moved in permanently with her from 2001. He was still living in the property with the deceased when she died 14 years later.

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There was a dispute as to whether Mr Banfield and the deceased had become engaged to be married. The Master held that “in the sense of commitment to each other they became engaged”, although there were no plans to marry. There was also a dispute as to whether the relationship had deteriorated by the date of the deceased’s death.

The deceased’s net estate available for distribution was likely to be worth in the region of £753,000 (the precise figures were in dispute). The bulk of this consisted of the Thames Ditton property, which was valued at c.£700,000. Under the deceased’s last will, which she had made in 2001, the estate passed entirely to James, save for a gift of £5,000 to Mr Banfield, who was described as a “friend”.

In 1999 the deceased had written a moving letter to James saying “needless to say it is all yours-with my love”. She had also written a letter of wishes purporting to leave her estate on trust for James until his 25th birthday (he was 19 at the time). The letter was signed by the deceased but only one witness, and was therefore not a valid will.

Mr Banfield was 66 years old at the date of trial. His income exceeded his outgoings by c.£900 per month. He had various investments, mostly inherited from his late mother, worth c.£277,000. His principal need was thus for accommodation. He suffered from spinal decompression, for which he had undergone two operations, the second of which caused severe nerve damage. He also suffered from longstanding type 2 diabetes and was overweight.

James was 35 years old at the date of trial. He lived with his fiancée in a flat in Clapham which they rented from his fiancée’s mother. He worked as an assistant project manager earning a net annual income of c.£40,000. He owned an investment property in North London which he had purchased in 2016 for £450,000 with the help of a mortgage of c.£337,500 and a loan of c.£126,500 from his uncle, who in 2015 was imprisoned for 9 years. There was some dispute as to whether the uncle’s loan was a loan or a gift, but Master Teverson concluded that it was a loan which James would have to repay (albeit a ‘soft’ loan which carried no interest and had flexible repayment terms).

Mr Banfield sought an award of a lump sum of c.£450,000 to enable him to buy a 2-bedroom, ground-floor maisonette within a 5 mile radius of Thames Ditton with a private garden for his dog. James argued this was excessive and that Mr Banfield’s accommodation needs could be met by an over-55s or over-60s lease, or by a 1-bedroom apartment costing up to £220,000.

Decision

Master Teverson held that neither approach was correct. He considered Mr Banfield’s housing preferences to be reasonable. However, he held that “this is a clear case in which [the provision of a lump sum in the region of £350,000 to £450,000] would go beyond maintenance provision and be excessive capital provision. It would involve Mr Banfield receiving 50% or more of the capital of the net estate.

He therefore ordered that the Thames Ditton property should be sold and that half of its net proceeds of sale should be held on a life interest trust for Mr Banfield to be used to provide him with alternative accommodation, and should then pass to James.

Take home points

  • Master Teverson extracted the following 10 propositions from paragraphs 14 and 15 of Lord Hughes’ judgment in Ilott v Mitson [2017] UKSC 17:
  1. The concept of maintenance cannot extend to everything which it would be desirable for the claimant to have. It must import provision to meet the everyday expenses of living;
  2. It connotes only payments which, directly or indirectly, enable the applicant in the future to discharge the costs of his daily living at whatever standard of living is appropriate to him;
  3. The 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 to that degree of income expenditure;
  4. Whether it should be by way of a lump sum will depend on the circumstances of each case and a review of the section 3 factors;
  5. The level at which maintenance may be provided for is flexible and falls to be assessed on the facts of each case;
  6. It is not limited to subsistence level;
  7. “Maintenance” is, by definition, the provision of income rather than capital. It may however be more appropriate as well as cheaper and more convenient if income is provided by way of a lump sum;
  8. There is no reason why the provision of housing should not be maintenance;
  9. It is necessary to remember the statutory power is to provide maintenance, not to confer capital on the claimant;
  10. If housing is provided by way of maintenance, it is likely more often to be provided by a life interest rather than by a capital sum.
  • The case is a good illustration of propositions 9 and 10 being applied in practice. Master Teverson suggested that a life interest was likely to be particularly appropriate where there are children from an earlier relationship for whom the deceased wished to provide capital: ” A particular feature of the present case is that the property forming the main asset of the estate was a pre-owned asset owned and inherited by the Deceased before the start of her relationship with Mr Banfield.
  • The decision also indicates that the court may decide to impose a life interest trust despite the fact that the parties have fallen out and want a clean break. Master Teverson held that “[t]he fact that relations between the parties have broken down as a result of this litigation does not persuade me that it is right to make provision in the form of a lump sum”.
  • The case is also a reminder that “living as husband and wife” for the purposes of section 1(1A)(b) of the 1975 Act is a flexible concept. James argued that the fact that Mr Banfield slept downstairs from around 2011 and that for some time prior to that slept in a separate bedroom from the deceased indicated that they were not “living as husband and wife” in the 2 years prior to the deceased’s death. Master Teverson rejected this. He referred to the well-known passage in Re Watson [1999] 1 FLR 878 in which Neuberger J (as he then was) held that the test is “[w]hether, in the opinion of a reasonable person with normal perceptions, it could be said that the two people in question were living together as husband and wife; but when considering that question, one should not ignore the multifarious nature of marital relationships.” Master Teverson then held: “[t]heir relationship undoubtedly became more burdensome for the Deceased but I do not think it right or fair to characterise Mr Banfield as being no more than a lodger.

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