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Ilott v The Blue Cross and others

Martin Oliver of Wright Hassall is a leading contentious probate solicitor.

The long-awaited decision in this case was handed down by the Supreme Court on 15 March 2017. Unfortunately, it does not provide any of us with the guidance that we had so hoped for and indeed the Supreme Court identify in their judgement “the unsatisfactory state of the present law”. So has this case really been the landmark that it was heralded to be?

Background

We were instructed by Mrs Ilott to challenge the Appeal brought by the residuary beneficiaries of Mrs Jackson’s Estate, which objected to the extent of the provision awarded to Mrs Ilott by the Court of Appeal following her claim for reasonable financial provision from Mrs Jackson’s Estate pursuant to the Inheritance (Provision for Family and Dependants) Act 1975.  As indicated by the title, the purpose of this Act is to make financial provision for family members or dependants of deceased individuals.  Specifically, it is intended to assist those who have not inherited because they have been left out of a will entirely or have not been left as much as they need by a will or where the intestacy rules, which apply where no will is left, do not provide sufficient provision to meet the applicant’s needs.

On the face of it, your first thought may be “what if I don’t want to leave my family money?”  There is certainly a school of thought that testators should have an absolute right to decide what happens to their money upon their death, and it is not for the courts to interfere with that.  However, would your opinion on this change if your family members are reliant on state benefits to survive on a day to day basis?  Is it right that the public purse continues to support your family members who have not been adequately provided for in your will if in fact there is sufficient in your estate to change that?  This was precisely the situation for Mrs Ilott.

Mrs Ilott and her mother, Mrs Jackson, fell out some 39 years ago, in 1978, when Mrs Ilott was just 17 years old.  Ms Ilott was an only child and the dispute arose from Mrs Ilott’s decision to leave the family home to live with her boyfriend, whom she later married. The couple had children whom they have successfully brought up. They were Mrs Jackson’s only grandchildren.  Unfortunately, despite attempts at reconciliation, the mother and daughter did not manage to resolve their differences before Mrs Jackson’s death in June 2004.

At the time of her death, Mrs Jackson’s will made no provision for her estranged daughter.  Instead, most of the £486,000 estate was left to three charities she previously had no interest in or connection with – Blue Cross, Royal Society for the Protection of Birds, and Royal Society for the Prevention of Cruelty to Animals.  Mrs Jackson wrote a letter of wishes (for her will in 1984 and also a later will in 2002) explaining her decision not to leave anything to her daughter. The explanations given by Mrs Jackson contain inaccuracies and false allegations against Mrs Ilott. Whilst in some ways Mrs Jackson may appear benevolent, leaving her money to charity, it left her daughter, who by then was a mother to five children of her own and living in difficult financial circumstances, with nothing.

At the time of Mrs Jackson’s death, Mrs Ilott did not work and her husband earnt a minimal sum per annum.  Four of the five children were still living at home, and only one was in work.  The family were reliant on state benefits, including child benefits, tax credits, housing benefit and council tax benefit.  The family’s net annual income (including the benefits) was just over £20,000 and it was understood that the family had lived on that or similar income for many years.  In the circumstances, Mrs Ilott brought a claim against the personal representatives of Mrs Jackson’s estate and the three charities who were to benefit from her mother’s will, under the 1975 Act.

The 1975 Act

Unlike the 1975 Act’s predecessor (the Inheritance (Family Provision) Act 1938), the 1975 Act entitles children of any age to bring a claim for reasonable financial provision; it is not confined to minor children.

What is reasonable financial provision?  The definition of reasonable financial provision within the 1975 Act varies depending upon the class of applicant.  For children of the deceased, such as Mrs Ilott, the definition is “such financial provision as it would be reasonable in all the circumstances of the case for the applicant to receive for his maintenance”.

It is generally accepted that the Court are required to consider two questions when faced with claims under the 1975 Act, albeit they may be considered and answered at the same time as each other.  The first question is whether, objectively speaking, the will has made reasonable financial provision for the applicant (“the threshold question”).  In cases such as Mrs Ilott, where the applicant has been left out of the will entirely, it may appear that this question can be simply answered.  However, the 1975 Act only requires reasonable financial provisions for child applicants in respect of maintenance.  Accordingly, the applicable standard is considered with reference to what it would be reasonable for the applicant to live on, living neither a luxurious nor a poverty-stricken life.  The second question that the court must consider is what provision to make for the applicant, where reasonable financial provision has not been made (“the quantum question”).  The Court have the power to award the applicant financial provision from the net estate in the form of a lump sum payment, periodical payments, transfer of specified property or varying trust provisions.

Section 3 of the 1975 Act expressly sets out matters to which the court should have regard when exercising their power to make awards under the Act.  Such matters include:

  1. The financial resources and financial needs which the applicant has or is likely to have in the foreseeable future;

  2. The financial resources and financial needs which any other applicant has or is likely to have in the foreseeable future;

  3. The financial resources and financial needs which any beneficiary of the deceased’s estate has or is likely to have in the foreseeable future;

  4. Any obligations and responsibilities which the deceased had towards any applicant or beneficiary of the estate;

  5. The size and nature of the net estate of the deceased;

  6. Any physical or mental disability of any applicant or beneficiary; and

  7. 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.

These matters are clearly wide-ranging and allow the court to take into many factors when deciding what provision, if any, to order.

Previous decisions

This case has been considered through the hierarchy of the English legal system.  The decisions along the way have been far from consistent and it is useful to reflect on the different conclusions reached by judges at each stage, before turning our attention to the most recent decision.

The trial of Mrs Ilott’s claim took place before District Judge Million in May 2007.  He held that Mrs Jackson’s will failed to make reasonable financial provision for Mrs Ilott and that, in all the circumstances, reasonable financial provision would be a lump sum of £50,000, representing a capitalised sum for Mrs Ilott to receive for her maintenance.

Mrs Ilott was not satisfied with this award, not least because it would mean that she was deprived of her means-tested state benefits.  The housing benefit and council tax benefit that she received were means-tested, such that if the family were to have savings in excess of £16,000 (other than capital value in a family home), they would not qualify to receive the benefits.  This would result in a decrease of around £5,100 in the family’s annual income.  The award also did not provide her with sufficient funds with which to purchase the housing association property in which she lived.  As a sitting tenant, Mrs Ilott was entitled to buy her home at a concessionary price.  Accordingly, Mrs Ilott appealed DJ Million’s decision.  The Defendants cross-appealed in order to argue that Mrs Jackson had not failed to make reasonable provision for Mrs Ilott and accordingly had not satisfied the threshold for provision and she should not receive any award .

The appeal was heard in the High Court by Mrs Justice King in October 2009.  King J heard the cross-appeal first.  She concluded that Mrs Jackson’s will made reasonable financial provision in the circumstances of the case, by providing Mrs Ilott with nothing.  As King J concluded that reasonable financial provision had already been made in the will, she did not go on to consider the quantum question raised in Mrs Ilott’s appeal.

Now in a worse position than before, Mrs Ilott appealed King J’s decision and the case was heard by the Court of Appeal in February 2011.  As King J had only considered the threshold question / the cross-appeal, the Court of Appeal dealt solely with this element.  The Court of Appeal concluded that King J had been wrong to interfere with the District Judge’s decision on the threshold question and allowed Mrs Ilott’s appeal.  This left Mrs Ilott’s original appeal on quantum outstanding. 

The question of quantum was considered by Justice Parker in the High Court in October 2013.  Mrs Ilott’s position was that she should have been awarded enough to purchase her housing association property.  In Parker J’s judgment dated March 2014 she concluded that there was no reason for an appeal court to interfere with DJ Million’s original order for Mrs Ilott to receive £50,000.  Accordingly, Mrs Ilott found herself in the same position in March 2014 as she had been some seven years previously.  Mrs Ilott appealed against this decision to the Court of Appeal.

Arden LJ, in the Court of Appeal, provided the leading judgment and confirmed that there were three issues to be considered:

  1. Were there any errors in the reasoning of DJ Million on financial provision which meant that the Court of Appeal should set his judgement aside?

  2. If so, should the Court of Appeal re-exercise the discretion of DJ Million or remit the matter once more to the trial court?

  3. If the Court of Appeal is to re-exercise the discretion, how should it do so?

Ultimately, the Court of Appeal set aside the award made by DJ Million and re-determined the quantum to be awarded to Mrs Ilott.  Arden LJ considered that there were two fundamental errors in DJ Million’s judgment.  The first revolved around DJ Million’s decision to limit the award to Mrs Ilott taking into account (1) her lack of expectancy of an inheritance and (2) her ability to live within her existing means.  Although Arden LJ did not take issue with DJ Million’s decision to limit the award in this way, she considered it erroneous not to explain what award he would have made had he not decided to limit the award by those matters.  The second error identified by Arden LJ was that DJ Million had omitted to calculate the actual effect of his award on Mrs Ilott’s state benefits, albeit he assumed that her state benefits would be reduced.  In Arden LJ’s opinion, this assumption should have been verified and DJ Million had sufficient evidence before him to do so.

Arden LJ concluded that the Court of Appeal should determine the question of quantum instead of remitting the case back to the trial court.  When determining quantum, Arden LJ considered the matters set out in section 3 of the 1975 Act, attributing weight to each as she considered appropriate.  One key point to note is that Arden LJ rejected the suggestion that Mrs Jackson’s testamentary wishes should carry certain weight, instead relying on the 1975 Act to strike the correct balance.   Arden LJ was keen to ensure that Mrs Ilott’s state benefits were preserved, to ensure a proper financial provision for maintenance.  She concluded that the provision of housing would allow Mrs Ilott to receive a capital sum whilst keeping her tax credits, and that the property could be used to provide Mrs Ilott with a pension in the future by way of equity release.  Accordingly, the Court of Appeal awarded Mrs Ilott £143,000 to buy the property that she was living in, plus reasonable expenses of buying the property.  They also awarded her a further amount of £20,000 to supplement her state benefits, but provided Mrs Ilott with the liberty to request a lesser amount in order to preserve her benefits should she wish to do so.

Many professionals commenting on the Court of Appeal’s decision at the time were of the opinion that it had made it easier for adult children to challenge the effect of valid wills that they had been left out of.  Although the decision was made on specific facts, it appears generally accepted that there was a resulting practical implication that it had become more difficult to disinherit a child, even one you had not spoken to in years.

Appeal to the Supreme Court

The three charities who were to benefit from Mrs Jackson’s will were given permission to appeal the Court of Appeal’s decision.  It is understood that the charities appealed to the Supreme Court in order to obtain clarity from the Supreme Court regarding the scope of the court’s power to interfere with a person’s testamentary wishes via the 1975 Act. 

The appeal was based on the following points:

  1. Whether the Court of Appeal was wrong to set aside the award made by DJ Million;

  2. Whether the Court of Appeal was wrong to consider that s.3(5) of the 1975 Act required an appeal court to assess matters at the date of the appeal as opposed to at the date of the trial;

  3. Whether the Court of Appeal erred in its approach to assessing maintenance under the 1975 Act and particularly the focus on preserving Mrs Ilott’s entitlement to state benefits;

  4. Whether the Court of Appeal erred in its approach to the balancing exercise, by failing to give weight to key facts whilst attributing weight to others.

Mrs Ilott’s response was that:

  1. DJ Million’s exercise of discretion involved errors of law and was plainly wrong such that the Court of Appeal were correct in its conclusion;
     
  2. The Court of Appeal was correct to use the date of the appeal hearing when assessing matters;
     
  3. The Court of Appeal made no error in exercising its discretion on the evidence before it, including concluding that the purchase of a house could provide maintenance, properly considering the actual impact of any award on Mrs Ilott’s state benefits and applying the weight of various factors appropriately.

The case was heard by the Supreme Court on 12 December 2016 and judgment was handed down on 15 March 2017.

The Supreme Court’s decision

The leading judgment of the Supreme Court was provided by Lord Hughes, with whom the other six Lords and Lady agreed.  Lord Hughes stated at the outset that some factors of the judgment may apply to types of cases other than those of an independent adult child, “but there is no occasion for this court to meet every difficulty to which claims for family provision may give rise[3].  As such, it is clear that the judgment is not intended to provide a comprehensive road map to be followed in all claims under the 1975 Act.

Maintenance

Lord Hughes was clear that reasonable financial provisions for children under the 1975 Act is such provision as would be reasonable for the applicant to receive for maintenance only.  This is in contrast to provision for spouses and civil partners, which are not limited in this manner.

Lord Hughes commented that maintenance falls to be assessed on the facts of each case, and referenced previous case law where it was held that maintenance is payment to “enable the applicant in future to discharge the cost of his daily living at whatever standard of living is appropriate to him[14].  Lord Hughes also confirmed that provision of housing could be maintenance in some cases, although it is likely to be provided by a life interest in a trust fund with power of advancement, rather than by a capital sum.

Reasonable financial provision

Lord Hughes confirmed that the Court does not have an unrestricted right to effectively amend a deceased’s will and such amendment should only be made in the limited circumstances provided for by the 1975 Act (i.e. in a case such as this, where reasonable financial provision for maintenance has not been made).  He noted that long periods of estrangement may be an example of the proposition that needs are not always enough to justify a claim under the 1975 Act, and also that competing claims of other may inhibit the practicability of wholly meeting the needs of an applicant, however reasonable.

The applicable date

As set out above, one ground of the appeal to the Supreme Court was the relevant date to assess the facts of the case.  Lord Hughes concluded that the relevant date is the date of the hearing and not the date of any appeal.

The first suggested error – failure to explain to what extent the award had been limited

In relation to the first error by DJ Million as identified by the Court of Appeal, Lord Hughes commented that the 1975 Act “does not require the judge to fix some hypothetical standard of reasonable provision and then either add to it, or discount from it, by percentage points or otherwise[34].  Instead, Lord Hughes confirmed that it was for the Court to consider all relevant factors set out in section 3 of the 1975 Act and carry out a single assessment of reasonable financial provision in light of that. Whilst acknowledging that in some cases it may be appropriate for the Court to tackle the threshold question and the quantum question as two stages Lord Hughes made it clear that was not necessary and it would more often be appropriate for the Court to consider the s3 factors once and then deal with its conclusions on the two stages in light of the overall impact of that single exercise,

Lord Hughes concluded that DJ Million “was perfectly entitled to reach the conclusion which he did, namely that there was a failure of reasonable financial provision, but that what reasonable provision would be was coloured by the nature of the relationship between mother and daughter[35].

The second suggested error – failure to verify the effect of the award on Mrs Ilott’s benefits

Commenting on DJ Million’s second error as identified by the Court of Appeal, Lord Hughes highlighted that DJ Million’s approach could not be said to have disadvantaged Mrs Ilott.  In fact, if DJ Million was wrong in his assumption as to the effect on state benefits, that assumption in any event worked in Mrs Ilott’s favour.  Lord Hughes went on to note that Mrs Ilott had evidenced a need to replace and repair various household items which Lord Hughes described as “necessities for daily living” which “perfectly sensibly fit within the concept of maintenance[40-41].  Therefore, Mrs Ilott could have used the award from DJ Million to repair and replace necessary household items, thereby quickly reducing her savings to below £16,000 and ensuring that her benefits were not affected. The Court expressed no concern about awards being formulated in either a benefit or tax efficient way.

As Lord Hughes concluded that DJ Million did not make either of the two errors on which the Court of Appeal relied to revisit the award to Mrs Ilott, he concluded that this was enough to require the Supreme Court to set aside the order of the Court of Appeal.  Looking more specifically at the award made by the Court of Appeal, Lord Hughes commented that (1) the right order may be made in order to make provision of housing but the appropriate formulation of such an award is likely to be a life interest in the necessary sum as opposed to an outright payment, and (2) the option to draw down up to £20,000, in the absence of a discretionary trust, would likely lead Mrs Ilott to lose her benefits whether she drew on the money or not.  This is because the benefits regulations take into account capital which is available to an individual, even if that individual had deprived themselves of that capital.

Whilst the 1975 Act allows a testator’s wishes to be overruled, Lord Hughes was clear that those wishes should still be considered as a relevant fact and that whether the wishes were themselves reasonable or not could properly be a part of that consideration.  Moreover, he was critical of the Court of Appeal’s approach of treating the charities on par with Mrs Ilott, i.e. that neither had an expectation of receipt from Mrs Jackson’s will.  Lord Hughes rightly identified that the charities were not a 1975 Act claimant, like Mrs Ilott.  As such, it was erroneous to conclude that the charities suffered no prejudice by Mrs Ilott’s award being increased – of course the prejudice they suffered was a reduction in their own award, at the expense of Mrs Jackson’s wishes.

Conclusion

Lord Hughes accordingly allowed the charities’ appeal and restored the order of DJ Million.  The other Lords at the Supreme Court were all in full agreement with this decision, but Lady Hale went on to make further comments which are set out below.

Lady Hale’s comments

Lady Hale rightly identified that this case raised some profound questions as to family and state obligations as well as an individual’s freedom of choice when it comes to disposing of their assets upon death.  She also stated that the current legislation and the work of the Law Commission which led to the legislation did not answer these questions and does not help the judiciary to decide how to evaluate such claims or balance them appropriately.

At paragraphs 50 onwards of the judgment, Lady Hale discusses the history of family law and provision, including Law Commission reports and some academic studies.  Under current law, freedom of testation is the default position, subject to the courts’ limited discretionary powers.  However, the studies of public opinion that Lady Hale referred to showed a general opinion that descendants should be entitled to a share of a deceased’s estate, in some instances for a variety of reasons.  Those reasons included (1) blood-line / lineage; (2) need; and (3) desert by reason of having made a contribution to the estate or earning an entitlement for instance by caring for the deceased.

Lady Hale referred with approval to a passage by Black LJ, who considered Mrs Ilott’s case when it first went to the Court of Appeal, in relation to the lack of guidance given by the current legislation.  Black LJ stated “A dispassionate study of each of the matters set out in section 3(1) will not provide the answer to the question whether the will makes reasonable financial provision for the applicant, no matter how thorough and careful it is”.  The key issue identified by Black LJ is that the 1975 Act does not give any guidance on the relative importance to be attached to each criteria, and therefore it is incumbent upon the judiciary to attribute such value in each case.  Invariable, this will lead to inconsistency.

Lady Hale expresses sympathy for the position in which DJ Million found himself, faced with the complete disinheritance of a child dependant on the state but estranged from her mother for a number of years, in favour of charities whom the deceased had shown little previous interest in.  Lady Hale considered that there were three options that were open to DJ Million properly applying the Act. They were to:

  1. Decline to make any order at all – after all, the law has not yet recognised a public interest in expecting or obliging parents to support their adult children so as to save the public money (despite the obvious appeals of such an obligation);
     
  2. Make an order which had dual benefits of giving Mrs Ilott what she needed most and saving the public purse the most money – this is essentially what the Court of Appeal did, providing Mrs Ilott with housing and a method for income now and in the future, whilst alleviating the public’s money in terms of housing benefit.
     
  3. Make order to provide some level of income – this is what DJ Million did.

Unfortunately, Lady Hale’s comments simply serve to highlight the huge range in the options available to DJ Million, the pros and cons of each option, and the variance in public opinion.  She expressly states that she wrote her judgment simply to “demonstrate what, in [her] opinion, is the unsatisfactory state of the present law, 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”.

Conclusion

Returning to the question posed at the beginning - is this a landmark case?  Given the circular conclusion, some may say not.  Ultimately, the law has not been changed.  However, we would disagree given the number of Courts that this case has been through, the varied outcomes at each and the ultimate conclusion which demonstrate the Act gives the Court’s wide powers and very little by way of structure or guidance in how to use them.  Although the Supreme Court ultimately reinstated DJ Million’s order, the pathway there was far from clear.  Lady Hale rightly identified that this case raised profound questions about the nature of family obligations and the inter-play between such obligations and those of the state, as well as the freedom of property owners to dispose of their property as they see fit and the Act provides no clear answers.

This case is an example of the judiciary’s reluctance to legislate through the back door and one can only hope that the Law Commission take heed of Lady Hale’s comments and address this topic shortly in order to provide clarity for all going forwards.