Much has been made of the recent decision by the Court of Appeal to award a third of her mother’s estate to an adult daughter who had been deliberately excluded from her mother’s Will.
In fact the crucial decision, that receiving nil from her mother’s estate meant that ‘reasonable provision’ had not been made, was first reached in 2011. The question then became one of what sum would constitute ‘reasonable provision.’ Ms Ilott was initially awarded just £50,000 out of a £486,000 estate, the rest still going to the charities her mother had named in the Will.
After appeal and counter-appeal of the original decision from each side, Ms Ilott appealed further, arguing that the capital sum of £50,000 would reduce her means-tested benefits pound for pound, all the way down to the £16,000 floor. Although capital used to buy a home is an exception to this, £50,000 would be insufficient to re-house her and her family. Despite the High Court rejecting her plea in March 2014, Ms Ilott returned to the Court of Appeal and has now succeeded in having her award increased to a sum that will enable her to buy her house from the housing association (which currently lets it to her), while retaining her means-tested state benefits.
This surely cannot be a surprise, in the light of the original judgment. The fact that the daughter was dependent on state benefits was certainly a factor which the Court took into consideration. What may be more of a surprise is that, even while drawing attention to the fact that the mother had no previous connection to the charities who benefited under her Will, the Court of Appeal has still seen fit to allow them to retain some 2/3 of the estate. On the other hand, eyebrows will also have been raised at the Court’s use of the word “capricious” to describe the mother’s decision to disinherit the daughter; a decision which was presumably grounded in many years of resentment and ill-will, rather than the whim of a mere moment; particularly given that “a testator is permitted to be capricious & improvident” is one of those quotes from 19th century case law that every law student still learns by heart!
So what options do you have if you fear a family member may contest your Will under the 1975 Act after you’ve gone? One option is the “no contest” clause, which reduces a (small) legacy to nil in the event of the legatee contesting the Will in any way. Whilst this is entirely legal, it is of doubtful use as the clause becomes effective immediately on a claim being made, so that the disappointed legatee will be making a claim effectively from a position of nil provision, not from the small amount they were originally left.
Another is to make a clear statement regarding the reasons for the various bequests and, more importantly, for any decision to exclude someone. However, in the light of the Court of Appeal’s use of the word capricious to describe an unvarying intention based on decades of resentment, the effectiveness of this is now uncertain. Indeed, in this case the mother had prepared just such a statement and it proved to be of little force. The Courts are showing an increasing tendency to look with favour on claimants who are in genuine need, regardless of the deceased’s reasons for excluding them.
If charities are to benefit instead of a family member it would be as well to begin making regular donations to them, preferably by standing order, during your lifetime.
A more effective approach could be the use of a discretionary trust, naming as beneficiaries all those who the testator believes may have some expectation of benefit, together with a settlor’s Letter of Wishes indicating their own wishes with respect to each. This should mean that the trustees are free to make payments to beneficiaries at their discretion, with those decisions being informed by the Letter of Wishes. There are as yet no cases where the 1975 Act has been used to overturn a discretionary Will trust. As long as the Letter of Wishes does not seek to bind the hands of the trustees by insisting that a particular individual should receive nothing, it is difficult to see how the Court could decide that reasonable provision has not been made. That is even supposing that the Court would be able to demand sight of the Letter of Wishes. After all, a Letter of Wishes is not a document with any statutory existence, nor is it mandatory to have one. There is also doubt as to whether it constitutes part of the trust documentation at all. Of course, the flexibility afforded to the trustees by this arrangement could potentially result in funds still reaching a beneficiary who the deceased did not intend to benefit. But that is yet another reason to choose your trustees carefully and word your Letter of Wishes precisely.
As a possiblebelt and braces approach it is worth noting that a number of jurisdictions, including Jersey, Guernsey, the Cayman Islands and the Isle of Man have so-called firewall legislation in place, the effect of which is to ensure that no transfers of property into trust will be set aside because of rights from foreign marriage or forced succession law and that the law of that jurisdiction is sole authority as to whether the trust is valid and/or can be varied. The legislation in some cases also states that no order of a foreign court which is inconsistent with such provisions will be enforced. So, choosing the law of such a jurisdiction as the applicable law for the trust will bring the trust under the protective umbrella of its firewall even if the trust is not to be resident there for tax purposes. Thus, even if a disappointed beneficiary were to win a 1975 Act claim for provision, they could still not get it enforced against the trustees. This approach would, of course, mean that the law of England & Wales would no longer apply to the trust. Anyone contemplating using this route would be well advised to take advice on the trust law of the particular jurisdiction.
It is also worth bearing in mind that the charities concerned have yet to decide whether to appeal.