X.C. v R.T. (Succession: Proper provision)

• Jurisdiction: Ireland
• Judge: Mr. Justice Kearns
• Judgment Date: 02 April 2003
• Neutral Citation: [2003] IEHC 6
• Court: High Court
• Docket Number: [1996 No. 624SP]
• Date: 02 April 2003

[2003] IEHC 6

THE HIGH COURT

C (X) & C (Y) & C (Z) v. T (R) & ORS; C (AB) (DECEASED), IN RE

IN THE ESTATE OF ABC deceased

BETWEEN

XC, YC AND ZC

PLAINTIFFS

AND

RT,KU AND JL

DEFENDANTS

Citations:

SUCCESSION ACT 1965 S117

SUCCESSION ACT 1965 S23

ALLHUSEN V WHITTELL 1867 4 EQUITY 295

HOWE V EARL OF DARTMOUTH 1802 7 VES 137

SPENCER V KINSELLA 1996 2 ILRM 401

SUCCESSION ACT 1965 S10

SUCCESSION ACT 1965 S60

GOODS OF JH DECEASED, RE 1984 IR 599

F (M) V T (AM) 1972 106 ILTR 82

L V L 1978 IR 288

DEB (J) V DEB (HE) 1991 2 IR 105

C (C) V C (W) 1990 2 IR 143

E (B) V S (S) 1988 2 ILRM 141

MCDONALD V NORRIS 1999 4 IR 301

D (MP) & ORS V D (M) 1981 ILRM 179

SUCCESSION ACT 1965 S60(8)(E)

Synopsis:

SUCCESSION

Testator

Moral duty - Testator - Application to claim share in testator's estate - Section 117 - Challenge to will - Discretionary trust established by testator for benefit of plaintiffs - Trustees also beneficiaries under will - Whether testator failed in moral duty to provide for children - Whether proper provision made for children of deceased - Criteria to be applied - Succession Act, 1965, section 117 (1996/624SP - Kearns J - 2/4/2003)

In the Estate of ABC deceased - [2003] 2 IR 250 - [2003] 2 ILRM 340

the plaintiffs applied under section 117 of the Succession Act, 1965 for an order that proper provision be made for them out of their father's estate. They complained, inter alia, that the trustees of a discretionary trust established by the testator for the benefit of the plaintiffs were also the executors and beneficiaries under the will and that a clear conflict of interest arose in those circumstances.

Held by Kearns J in refusing the plaintiffs' claims that the court, in applications under section 117 of the Act of 1965, must consider the moral duty towards his children as of the date of the testator's death and whether he had failed in that duty. The following criteria applied when making that decision: the duty under section 117 is not to make adequate provision but to provide proper provision in accordance with the testator's means; a just parent must take into account not just his moral obligations to his children and to his wife, but all his moral obligations, for example to aged and infirm parents, and; before a court could intervene there must be clear circumstances and a positive failure in moral duty must be established.

In the circumstances, the duty owed to the plaintiffs was discharged by the creation of a discretionary trust for their benefit and the court, in a section 117 application, must avoid the temptation to enter into the arena of adjudicating on the manner in which executors discharge their obligations in the administration of the estate and how trustees discharge their obligations to the beneficiaries of a trust.

1 Mr. Justice Kearns delivered the 2nd day of April 2003. by of

2 This is an application brought under Section 117 of the Succession Act, 1965by the three children of ABC, a retired businessman who died on the 10 ^th August 1994 at the age of 64 years.

3 Section 117 of the Succession Act, 1965, provides:-

4 2 "(1) Where, on application by or on behalf of a child of a testator, the court is of opinion that the testator has failed in his moral duty to make proper provision for the child in accordance with his means, whether by his will or otherwise, the court may order that such provision shall be made for the child out of the estate as the court thinks just.

5 (2) The court shall consider the application from the point of view of a prudent and just parent, taking into account the position of each of the children of the testator and any otherwise circumstances which the court may consider of assistance in arriving at a decision that will be as fair as possible to the child to whom the application relates and to the other children.

6 (3) An order under this section shall not affect the legal right of a surviving spouse or, if the surviving spouse is the mother or father of the child, any devise or bequest to the spouse or any share to which the spouse is entitled on intestacy"

7 The deceased had married LS in January 1954. He separated from her in December 1971, following which there was a separation agreement and subsequent divorce. Some years thereafter he met and remarried to RT in December 1977. His first wife LS remarried in April 1990 and no issue of any sort exists in relation to LS for whom there is adequate provision. RT was born in 1936 and is now 67.

8 There were three children of the first marriage, the plaintiffs herein, namely:-

9 2 • X, a son, born in April 1957

10 3 • Y, a daughter, born in December 1959

11 4 • Z, also a daughter, born in May 1962.

12 The deceased during his lifetime had been successful in business and he was the majority shareholder in a family enterprise in which the second named defendant, a brother of the deceased, also participated. This business, however, ran into difficulties at the end of the 1980's. In 1986 it was the subject matter of a management buy out. Having regard to the indebtedness of the business at the time, the consideration received by the deceased was fairly meagre. He was offered a life insurance policy which paid him a monthly income of £1,200 per month until death, but which did not provide for any widow's pension. In addition, it was agreed at the time of the buy out that the deceased should be paid a monthly sum of £610 over a four year period.

13 Over the last few years of his life, the deceased was in poor health, suffering from breathing difficulties which were related to a childhood condition of tuberculosis. His death, however, occurred quite suddenly at the home in which he lived with the first named defendant.

14 The deceased left a small amount of cash, amounting to just over £14,000, in a bank account deposit, a car and some prize bonds. There were debts to be paid, including funeral expenses of about £3,000 and probate tax of £10,500.

15 The deceased's main assets were the joint share which he held with the first named defendant in their house, which is currently valued at about €3 million, and which passed to the first defendant by survivorship.

16 In addition, the deceased held shares in a company ME Limited. It in turn held no assets other than a shareholding in TI Limited. It had in turn had no assets other than a shareholding in WE Limited.

17 At the date of death of the deceased, WE Limited owned five residential properties in Blackrock and a unit in Cookstown Industrial Estate. These assets were valued at £462,600 for probate tax purposes.

18 The five residential properties were Section 23 properties purchased between 1988 and 1990. They were both an investment and at the same time a means of reducing the tax on rental income. The company structure was put in place to delay the payment of surcharge on undistributed dividends. None of the Section 23 properties could have been sold at the time of death without incurring substantial charges by way of claw-back of tax. At the date of death of the deceased, there were substantial borrowings of approximately £300,000 in WE Limited, which were being serviced via an interest-only loan. In this way, WE Limited could earn a net income from the rental of the various properties which it would then have to distribute within 18 months to avoid the surcharge. Once TI Limited received the dividend from WE Limited, it in turn would have to distribute it within 18 months to avoid surcharge. The same applied in ME Limited. This structure, which had been put in place as a result of professional advice, enabled the deceased as shareholder in ME Limited, to receive income by way of dividend in respect of which the tax charge had been deferred.

19 Accordingly, the "liquid" means of the deceased at the date of death in reality amounted to an entitlement to a dividend from ME Limited amounting to about £60,000 per annum gross. It is of some significance that at both the time the deceased made his will, and indeed at the time of his death, it would not have been possible to collapse the company structure and liquidate the assets without exposing the companies and beneficiaries to very substantial tax charges.

20 The deceased made his last will and testament on the 19 ^thMarch, 1993 wherein he appointed the defendants to be executors of his will and trustees of his estate. Probate of the said will was granted to the defendants on the 20 ^th of December, 1995. The first named defendant has opted not to claim her legal right.

21 By his said will, the deceased set up a discretionary trust. Having directed certain specific payments, including payment of debts and funeral expenses and that the trustees make provision for the deceased's mother during her lifetime, the deceased thereafter directed the trustees-

"to pay out of the residue of the capital and any income arising from it to any one or more of my wife R, my children, my grandchildren, the spouses of my children and my brother K and his wife M in such shares and at such times as my trustees in their sole discretion shall think fit without obligation to make any payment to or for the benefit of my beneficiaries listed above or any of my children or to require equality among them and on the 20 ^th anniversary of the death of the last surviving descendant ofEamon de Valera former President of Ireland such descendant having being alive at the time of my death to divide what remains of the capital and accrued income equally among my wife R, children then living without regard to payments already made to my said wife R children or grandchildren. All income received after my death shall be treated as income of my estate regardless of the period to which it relates and the statutory rules concerning apportionment and the rules in Howe v. Dartmouth and Allhausen v. Whittell shall not be applied.rdquo;"

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