Ramus v Holt: A life interest can be reasonable financial provision…

By his Will dated 30 April 2014, Mr Ramus left his wife a life interest in the residuary estate, entitling her to receive the income from the trust fund for life.  The Will gave the trustees discretion to provide Mrs Ramus with capital should she require it, but it also gave them the power to terminate her life interest.  Subject to the life interest, the trust fund was to be held on flexible discretionary trusts for Mr Ramus’ children and remoter issue and also for Mrs Ramus (unless the trustees decided to exclude her from benefit).  A letter of wishes accompanying the Will instructed the trustees that Mr Ramus did not wish for his wife to receive any capital from the trust fund as he wished to protect it for future generations.  The Will appointed Mrs Ramus’ daughter and two family friends as trustees.

Mrs Ramus made a claim for reasonable financial provision under the Inheritance (Provision for Family and Dependants) Act 1975 (the Act).  The basis for challenge was that Mrs Ramus had a difficult relationship with her daughter, and she was concerned that, as a consequence of this, the trustees would not provide her with income or capital from the trust to maintain her standard of living.

Mrs Ramus claimed that her monthly income was not sufficient to meet her outgoings, despite having a £420,000 reserve that she was accustomed to keeping as a ‘cushion in case of emergencies’.  When asked how much she needed from the estate to supplement her income, Mrs Ramus said that there had been no mention of a figure and that nothing was ascertained. She needed to safeguard her interest and needed additional income to help her but could not put a figure on it.

Mrs Ramus did not seek a large capital lump sum from the estate or seek to break the trust but sought an order which enabled her to be satisfied that she would receive sufficient income and/or capital from the trust to enable her to discharge her outgoings and which did not leave her subject to the unfettered discretion of the trustees. A solution which Mrs Ramus would find acceptable was to remove all three current trustees and replace them with independent professional trustees.

Mrs Ramus failed in her challenge and the case was dismissed on the basis that:

1. simply because one might have a financial emergency in the future does not mean that there has been a failure to make reasonable financial provision;
2. reasonable financial provision from the estate of the deceased does not become unreasonable financial provision because of the identity of the trustees;
3. Mrs Ramus’ daughter would not have the sole power to terminate her life interest; there would have to be unanimous agreement between the trustees before they could exercise that power; and
4. the court had no power to remove the trustees of an existing settlement under the Act and that reading such a power into the Act would undermine the law concerning the removal of trustees and other statutory provisions in the area.

This case may be of interest if you do not wish to provide for your spouse outright in your Will or if you are seeking to preserve your estate for future generations.  Whilst historically, spouses might expect absolute provision to be made for them, this case suggests that in certain circumstances, a life interest may be deemed reasonable provision.  Of course, cases are always decided on a fact specific basis and there are never any guarantees.  In this case, Mrs Ramus’ own assets were a key consideration of the court and it may have been decided differently if she had not been as financially self-sufficient.

The case also highlights the importance of choosing your trustees carefully, particularly when they are being given wide discretions regarding advancing the trust capital or terminating a beneficiary’s interest in the trust fund.  As was pointed out in this case, trustees must make decisions unanimously, so if there is ever any indication of family frictions, it may be worth considering appointing independent trustees, such as partners from our Wealth Preservation team, who can make decisions objectively and impartially.

If you would like to discuss any of the issues raised in this article, please contact your usual Wealth Preservation team member.