The right to choose who inherits one’s wealth, and how, is a right that the English take for granted - but it's not unqualified, says Adam Carvalho of Farrer & Co.
‘For thirty years my wife has never lost an opportunity of lashing me with her tongue and making me the butt of her vulgar wit’ wrote a nineteenth century Liverpudlian, who accordingly bequeathed his wife an annuity of £300 on the condition that she, and her mother, ‘whose tongue is as poisonous as her own, and whom she hates as cordially as she does me… together visit my grave on the first day of each month, and in the presence of my solicitor, or his deputy, express regret for the unhappiness they have caused me’. One imagines that the hen-pecked writer of this will (‘the testator’) enjoyed setting out the terms of his wife’s inheritance, though pity the poor solicitor, or his deputy, who had to oversee the enforced monthly confessions.
Such wills are not commonplace. However, the right to choose who inherits one’s wealth, and how, is a right that the English take for granted. Unlike our continental neighbours, an English testator can disinherit family members as he or she sees fit, and ultimately can leave his or her worldly wealth to the Battersea Dogs’ Home, safe in the knowledge that, after his death, the Battersea Dogs’ Home will inherit his or her Estate. The ability to do so is known as ‘testamentary freedom’, and English lawyers are rather proud of it.
The right is, however, not unqualified. The Inheritance (Provision for Family and Dependants) Act 1975 (‘the Act’) allows the close family and dependants of the deceased to apply to court for a share of his or her estate, on the basis that his Will does not make ‘reasonable financial provision’ for that relative or dependant.
This article sketches the outlines of the Act and examines a ‘big money, short marriage’ case where a wife felt that her husband’s will did not make reasonable financial provision from her – and the court agreed.
1. Who can apply under the Act?
The Inheritance (Family Provision) Act 1938, the precursor to the Act, allowed only three categories of people to apply for provision from a deceased’s estate: a surviving spouse, an unmarried or disabled daughter, and a son who was under 21 or disabled. Over the intervening 75 years the number of categories has expanded to include:-
o spouses or civil partners of the deceased;
o former spouses or civil partners of the deceased who have not re-married;
o any child of the deceased;
o any person who was treated as a child of the family;
o a person who was maintained by the deceased;
o a cohabitant (for two years or more) of the deceased.
2. What must applicants show?
An applicant must persuade the court that:
a. The will (or intestacy rules, where applicable) does not make ‘reasonable financial provision’ for the applicant. There are two separate standards, one for spouses (and civil partners) and one for all other applicants. Applicants other than spouses and civil partners are limited to such provision as would be reasonable in all the circumstances for the applicant to receive for his or her maintenance. Spouses and civil partners (and, possibly, cohabitants, if Law Commission proposals are adopted) are entitled to such provision as it would be reasonable in all the circumstances for them to receive, whether or not that provision is required for their maintenance.
b. If the court considers that the will does not make reasonable financial provision for the applicant, it must then consider what provision should be made with regard to:
o the present and foreseeable future financial needs and resources of the applicant, any other potential applicant, and the present beneficiaries of the estate (together, ‘the parties’);
o the size of the net estate;
o any obligation or responsibility that the testator had to the parties;
o any physical or mental disability suffered by the parties;
o any other matter the court considers relevant (including, for instance, the deceased’s testamentary wishes and the conduct of the parties).
Where the applicant is a spouse or civil partner, the court will also have regard to:-
o the age of the applicant and the length of marriage;
o the applicant’s contribution to the welfare of the deceased’s family;
o the provision which the applicant might reasonably have expected to have received if, instead of the marriage being terminated by death, the marriage had instead been terminated by divorce.
3. Lilleyman v Lilleyman
When the future Mr and Mrs Lilleyman met in 2004, they were both aged 59. Both had two adult sons from their first marriages. During his first marriage, Mr Lilleyman had started and run a successful steel company, the shares in which formed a substantial part of his estate. Mrs Lilleyman owned her own house, and a half share in a second property. By the time of Mr Lilleyman’s death in 2010, the couple had been married two and a quarter years.
Mr Lilleyman’s will left his wife the right to occupy the matrimonial home (Water Meadows) and to occupy a second home (Dunhome) until she married, cohabited or ceased occupation. She also inherited his personal chattels, worth around £36,000 (including a Dinky toy collection and coin collection). The bulk of the rest of the estate passed to his two sons, Nigel and Chris. By any measure, this was not a generous provision for a wife from a net estate valued just under £6.5 million; as the Daily Mail said: ‘Husband left £6m estate… but widow only got his Dinky toy cars and a few coins.’
Mrs Lilleyman applied to court for provision from Mr Lilleyman’s estate. The case was heard in April 2012 by Mr Justice Briggs in the High Court. Applying the two-stage test outlined under heading 2 (above):
a. Briggs J court found that it was ‘manifestly clear’ that the will did not make reasonable financial provision for Mrs Lilleyman;
b. Briggs J weighed up the relevant factors and – on the basis that a surviving spouse has a legitimate expectation that they will have financial security for the rest of their life – he awarded Mrs Lilleyman:
• The estate’s interest in Water Meadows (to provide secure housing); and
• Either £330,000 or the whole interest in Dunhome, at Mrs Lilleyman’s election.
The value of the order was around £560,000 and gave Mrs Lilleyman assets of around £942,000 from the estate.
The award was rather lower than Mrs Lilleyman had aimed for. Nonetheless given the assets she had brought into the marriage, the length of the marriage, and the fact that the vast majority of the estate comprised assets which Mr Lilleyman had acquired before the marriage, many will consider it to have been generous.
A word on jurisdiction
The Law Commission has proposed a number of changes to the Act, and has produced a draft bill which is currently awaiting approval by the Government. The draft bill would (among other things) extend the jurisdiction of the Act. Currently, the Act only applies to the estates of English domiciliaries. However, the draft bill provides that the Act would apply to the worldwide estate of anyone who leaves any assets which devolve under English law. This would mean that the estate of a ‘non-dom’ or English expat who owns a house or flat in England could be subject to a claim under the Act (though not if that house or flat is held by a company).
The legal landscape has changed somewhat since our hen-pecked Liverpudlian set out his testamentary wishes. Modern testators should consider whether they have made reasonable financial provision for potential applicants under the Act. If not, there are estate planning possibilities, though none of them can do more than discourage an applicant from launching a claim.
Once a testator has died, if a relative or dependant feels that reasonable financial provision has not been made, the advice for that relative, and for the executors and beneficiaries who must contest the potential claim, is the same: take advice quickly, and be prepared to reach a creative settlement.
Adam Carvalho is a solicitor at Farrer & Co