What are the rules when it comes to inheritance, family trusts and children born out of wedlock?

The recent story reported on in the press about UK actress Liz Hurley’s son reportedly being ‘cut out’ of his late father’s family fortune raises some interesting questions about the rules relating to family trusts and children born out of wedlock.

According to media reports, Damian Hurley has been left nothing following the death of his father Steve Bing, a wealthy financier, who died in June 2020 at the age of 55. The Los Angeles County Medical Examiner-Coroner’s Office listed Bing’s cause of death as a suicide.

Steve Bing reportedly died leaving a very modest estate, his fortune having been spent on funding his lifestyle, a number of generous charitable gifts, debts and expensive court cases.  Steve came however from a wealthy family.  In 1980, his own father, Peter, set up six trusts for the future grandchildren.  The trusts were due to pay out funds to the children of Steve and his sister in 2020.

According to media reports, in 2019, Steve’s father issued a court application alleging that the term “grandchild” was ambiguous and does not include children born out of wedlock.  Steve opposed his father’s application and won the court battle.  He is reported to have died safe in his mind that his son and daughter, both born to different mothers and from relationships that were never sealed with a formal marriage, were provided for.  This is not however so.  Steve’s father, Peter, appealed the decision of the court and in a rather surprising turn of events, was successful in cutting out Steve’s two illegitimate children, from the family fortune.

The decision of the American court has sparked some controversy and discussion.  Many of my personal friends have asked me how it may be right or legal, especially in our current, modern society, in which non martial relationships and patchwork families are no longer unusual or stigmatised, for children born out of wedlock to be treated differently?

I cannot comment on the decision of the American court.  I know however how things are being dealt with here, in England.

The family law reforms from 1969 and 1987 effectively abolished the status of illegitimacy.  In relation to all wills or trusts created after 1 January 1970 children born in and outside of marriage are treated exactly the same.  The reforms did not however assist with trust instruments created before 1970, which families of HNW and UHNW individuals still operate.

In 2019, in the case concerning a trust created in 1959 (Re Druce Settlement 1959 [2019] EWHC 3701 (Ch)) our English court held that illegitimate descendants, in that particular case, should be included in the class of beneficiaries by virtue of application of the Human Rights Act 1998.  The decision in this case is not however a binding authority for a proposition that the Human Rights Act 1998 somehow fixed for us the potential unfairness of legal concepts operating in the 1960s and before.  What allowed the court to make the finding in the cases concerning the Druce Settlement was the fact that none of the beneficiaries who were clearly entitled to take a benefit from the settlement opposed distribution to those of their relatives who were born out of wedlock.  The court was therefore able to approve the trustees’ decision as to distributions to all descendants, regardless of whether they were born in marital or non-martial relationships, without having to make a controversial decisions about the thorny issue of applicability of the Human Rights Act 1998 retrospectively.

If the Bing Family Trust was an English trust, Damian and his half-sister would be treated just as their cousins born in wedlock, as the structure in question was created in 1980.  Laws are therefore clearly different in America.  That said, perhaps, if Damian’s aunt did not oppose the distribution out of the trust to her brother’s children born out of wedlock, the result of the appeal would have been different?

Clearly, what we learn from this lesson is that a simple word “child” means something else depending on whether you consider it in the context of pre or post 1970.  If therefore in any doubt, seek advice.  If I or a member of my team can be of any help, please get in touch.