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When a person dies without leaving a valid Will, statute fills in the gap and their estate is distributed according to the intestacy rules. Those rules have been updated by the Inheritance and Trustees' Powers Act 2014 (the "Act") which mostly came into force on 1 October 2014.
Research suggests that up to two thirds of adults in England & Wales do not have a valid Will and thousands of people die intestate every year, yet many are surprised by the split of assets according to the intestacy rules.
The Act has been passed with the aim of ensuring that the intestacy rules (and certain related rules) reflect the expectations and needs of modern families. However, the increasing diversity of families and their needs means that this objective will not always succeed and the rules should be regarded as no more than a safety net.
Being unaware of the law can have disastrous consequences. Consider, for example, Derek and Susanna, an affluent couple living together as "common law" husband and wife in Derek's Westminster home. They considered putting Wills in place when their two young children were born but they decided against it on the (mistaken) assumption that everything would pass to the survivor on the first death and that, on the second death, their estates would be divided equally between the children.
1. Key Reforms to the intestacy rules
The first point to explain to Derek and Susanna is that the division of assets on intestacy is in fact quite complex. The Act aims to simplify things, and the key reforms (applied to Derek and Susanna's circumstances and some variations on them) are explained below. It should be noted that the Act, and indeed the previous rules, apply in exactly the same way to civil partners and same-sex spouses as they do to opposite-sex spouses; however, there is no such thing in English law as a "common-law marriage".
1.1 If Derek and Susanna were married and they had no children then, in the absence of a valid Will, on Derek's death his whole estate would now pass to Susanna outright. If Derek had died before the Act came into force then Susanna would not have received everything – instead, Derek's parents and/or his siblings would have received a share of the estate if it was worth more than £450,000 (Derek assures us that it is). Susanna's estate would be treated in the same way if she were the first to die.
1.2 If Derek and Susanna were married and they had children, then on Derek's death Susanna would now receive (a) Derek's personal chattels (as before); (b) a "statutory legacy" of £250,000 (as before, but to be index-linked in future); and (c) half of any residue of the estate outright. The children would take the remaining half (held for them until 18). The Act enhances Susanna's interest in the residue of the estate which was previously limited to a life interest in half of it (the right to receive income, or the use and enjoyment of assets, during her lifetime but under the control of trustees).
1.3 As we have said, Derek and Susanna are in fact not married and they do have children. The law has not changed: Susanna will have no entitlement whatsoever under the intestacy rules and Derek's estate will instead be held for the children. This is potentially catastrophic for Susanna and her only remedy after Derek's death would be to bring a claim against his estate for financial provision (see the section headed "Family Provision Claims" below). This would bring decidedly unwelcome cost and delay during what is sure to be an extremely difficult time for Susanna; and possibly unpleasantness as well, as she would be claiming against her children.
In examples 1.1 and 1.2 above, the new rules as introduced by the Act have operated to improve Susanna's position on intestacy. That said, the rules clearly have not prevented the disaster in example 1.3 in which Susanna receives nothing at all. In each of the examples it is unlikely that Derek and Susanna's wishes will have been reflected and the obvious conclusion for Derek, Susanna and their professional advisers is that it is crucial for clients to prepare their Wills at an early stage and to keep them under review.
It should also be noted that:
- The position of partners who had no formal legal relationship with the deceased was extensively debated by the Law Commission. It was recognised that it could be difficult to set out a test for distinguishing between long-term and temporary relationships. What has not changed is that partners (other than civil partners) and cohabitants – people in Derek and Susanna's position – have no entitlement at all under the intestacy rules.
- The Act includes changes which will ensure that children who are adopted after a parent's death do not lose their entitlement to share in that parent's estate as a result of the adoption. Rules which currently disadvantage unmarried fathers when their child dies intestate will also be amended.
2. Family Provision Claims
Although there is no "forced heirship" or compulsory succession in England & Wales, in certain circumstances family members and/or people who are financially dependent on the deceased (whether or not he/she left a Will) may bring a legal action to claim that financial provision should have been made for them. Such claims are governed by the Inheritance (Provision for Family and Dependants) Act 1975 and can only be made if the deceased was domiciled in England & Wales at the time of death.
Some key points to note now that the Act is in force are:
- It will now be possible to bring a claim before the grant of representation has been obtained (under current rules it must be made after the grant but no more than six months beyond).
- Some changes have been made to the test for whether the applicant was "maintained" by the deceased.
- Previously, a person who was treated by the deceased as a child of the family was permitted to bring a claim for family provision, if that treatment was in the context of a marriage or a civil partnership. The Act has removed that restriction.
- There was a proposal to extend the scope of the Act to cover claims against the estates of non-domiciliaries but this was withdrawn at a late stage. (The law of domicile is complex but in this context a person who is deemed domiciled for Inheritance Tax purposes may be non‑domiciled for succession purposes, with the result that the Act does not apply to their estate).
3. Other Changes
- The statutory powers of trustees to make distributions of income or capital to beneficiaries under a trust have been widened. Although most modern trust documents provide for this, the extension is helpful.
- A more modern definition of "personal chattels", used on intestacy, and often incorporated in Wills, has been introduced. Items held purely for investment purposes will not count as personal chattels; nor will assets which were used solely or mainly for business purposes.
The Act goes some way to making a number of important and overdue alterations to the law of intestacy and family provision. However, there is still no protection for cohabiting partners upon death and couples like Susanna and Derek and indeed their advisers should beware of the potential disasters this can cause. As such, the gulf between the present legal framework and the public's perception of a cohabitant's rights seems likely to remain in the medium term.
Although the changes introduced by the Act are certainly welcome, it remains the case that without a Will, you cannot make sure that your family will be provided for in the way you would wish. For example:
- you cannot choose your Executors, who will be responsible for all your financial affairs;
- if any of your children are minors, they will automatically become entitled to the whole of their inheritance at 18;
- families where there are children from more than one relationship may not be catered for;
- non-formalised relationships are not covered; and
- there is no scope to benefit charities.
It will also be extremely important to ensure that a person without children has made a Will where there is a high-value estate if he/she does not wish the entire estate to pass to the surviving spouse or civil partner.
Finally, in England and Wales (unlike many countries), marriage or civil partnership automatically revokes a Will unless it is made specifically in contemplation of the event. Therefore, many people who have married but have not updated their Wills are, probably unknowingly, without any valid Will.
If you require further information on anything covered in this briefing please contact Richard McDermott (firstname.lastname@example.org; 020 3375 7229) or your usual contact at the firm on 020 3375 7000. Further information can also be found on the Mental Capacity page of our website.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, January 2015
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