DPPRC/13-14/47
Inheritance and Trustees’ Powers Bill [HL]
Memorandum by the Ministry of Justice
for the House of Lords
Delegated Powers and Regulatory Reform Committee
Introduction
This memorandum describes the purpose and content of the Inheritance and Trustees’
Powers Bill (“the Bill”). It identifies the general content of the Bill; every provision for
delegated legislation in the Bill with appropriate background information; explains the
purpose of the delegated power proposed; describes why the matter is to be dealt with
in delegated legislation; and explains the nature of and justification for any
parliamentary procedures which apply.
Background of the Bill
The Bill will give effect to the Law Commission’s legislative recommendations in
relation to intestacy, family provision claims on death and certain trustees’ powers (Law
Commission Report No. 331) subject to minor modifications. The Bill has been
introduced into Parliament under the House of Lords procedure for uncontroversial Law
Commission Bills.
The Bill makes a number of changes to the intestacy rules (ie the rules which govern
how a person’s property must be divided if they die without a valid will). Where the
intestate leaves a spouse1 but no children, then all the property to which the intestacy
rules apply will go to that spouse - instead of being shared between the spouse and the
intestate’s surviving parents or siblings as under the current law. Where a spouse and
children or other descendants are left, under the intestacy rules the spouse will take all
of the intestate’s personal chattels and a fixed net sum (the “statutory legacy”), as
under the present law, and the remainder of the estate will be divided as to one-half to
the spouse and one-half to the children. This reforms the current law under which the
remainder is divided so that the children take one-half and the spouse takes a life
interest in the other half, with the children entitled to the remaining capital of that share
on his or her death. Provision is also made for the regular review and updating of the
statutory legacy, and to modernise the definition of “personal chattels” for the purposes
of the intestacy rules.
The Bill also preserves contingent interests (those subject to a condition which must
be fulfilled before the beneficiary has an absolute entitlement; eg on intestacy a child’s
inheritance is held in trust until the beneficiary is eighteen) which under the current law
may be unjustly lost on the adoption of the beneficiary; and removes the presumption
of prior death in so far as it applies to an unmarried father who appears on the register
of births.
In relation to claims for family provision various amendments are made to the
Inheritance (Provision for Family and Dependants) Act 1975 to refine and improve the
operation of that Act. Among other things, where under the current law a claim for
family provision can only be made when the deceased is domiciled in England and
Wales, the Bill will also allow a claim for family provision to be made where the
1
For these purposes “spouse” should be taken to include civil partner.
claimant is habitually resident in England and Wales regardless of the domicile of the
deceased.
Finally the Bill makes changes to two statutory powers of trustees – the power to apply
income for the maintenance, education or benefit of a beneficiary, and the power to
make payments of capital for the advancement of a beneficiary. These changes are, in
general terms, intended to clarify the law and reflect current practice.
Of the delegated powers under the Bill, all but the commencement provision relate to
the statutory legacy. It is therefore worth considering that subject further here.
Where an intestate is survived by a spouse and either children or descendants or at
least one parent or full sibling, the intestacy rules provide that (in addition to the spouse
receiving the personal chattels):
… the residuary estate of the intestate (other than the personal chattels) shall stand
charged with the payment of a fixed net sum, free of death duties and costs, to the
spouse or civil partner with interest thereon from the date of death at such rate as
the Lord Chancellor may specify by order until paid or appropriated … .2
The fixed net sums referred to are specified by statutory instrument under section 1 of
the Family Provision Act 1966: currently £250,000 where there are children or other
descendants, and £450,000 where there is only a parent or sibling of the deceased
(although note that the higher level will no longer be relevant following the reforms in
the Bill). 3
Provision is made in the Bill to enable the Lord Chancellor to alter the rate at which
interest accrues on an unpaid statutory legacy, and to ensure that the value of the
statutory legacy is kept under regular review and is updated automatically to keep pace
with inflation.
More detailed information about the purpose and effect of the Bill and the background
to the proposals can be found in the Explanatory Notes published with the Bill.
Delegated Powers
The Bill contains four delegated powers:
- the Lord Chancellor may by order amend the definition of “Bank of England rate” for
the purposes of section 46(5) of the Administration of Estates Act 1925 (“the 1925 Act”)
(added by clause 1(4) of the Bill) (section 46(6) of the 1925 Act (added by clause
1(4)));
- the Lord Chancellor may by order amend section 46(1A) of the 1925 Act (added by
clause 1(3) of the Bill) so as to substitute a different interest rate (however specified or
identified) for the interest rate provided by that subsection, and to make consequential
amendments or repeals (section 46(7) of the 1925 Act (added by clause 1(4)));
- the Lord Chancellor may by order from time to time specify the amount of the
statutory legacy, and must make such an order updating the statutory legacy in line
with the consumer prices index (or such other rate as the Lord Chancellor determines
2
3
Administration of Estates Act 1925 s 46.
Family Provision (Intestate Succession) Order 2009, SI 2009 No 135
2
by order) every five years (paragraphs 3 to 7 of schedule 1A to the 1925 Act (added by
schedule 1 of the Bill)).
- the Lord Chancellor may bring the Bill into force by commencement order (clause
12(2), (3)).
Clause 1(4) – Power to amend the definition of “Bank of England rate” for the
purposes of the statutory legacy (Administration of Estates Act 1925 section
46(6)); and power to alter the interest rate for those purposes (Administration of
Estates Act 1925 section 46(7))
Background
When a person dies there is an inevitable, and in some cases considerable, delay
between death and the distribution of his or her assets. In order that it retains its value,
the statutory legacy therefore accrues interest between the date of death and payment.
Under the current law, a surviving spouse of an intestate is entitled to interest on the
statutory legacy “at such rate as the Lord Chancellor may specify by order”. The
current rate of 6% per annum has not changed since 1983.4 It now appears very high
compared with a Bank of England base interest rate that has remained at 0.5% since
March 2009.
The Bill clarifies that the statutory legacy accrues interest from the date of death
calculated on a simple as opposed to a compound basis, and provides for that interest
to be calculated at the Bank of England rate which had effect at the end of the day on
which the intestate died.
For the purposes of the Bill “Bank of England rate” is defined as being either the rate
announced by the Monetary Policy Committee of the Bank of England as the official
bank rate, or any equivalent rate determined by the Treasury in exercise of its
emergency powers under section 19 of the Bank of England Act 1998 to give the Bank
directions with respect to monetary policy.
Amending the definition of “Bank of England rate”
THE DELEGATED POWER
The Bill gives the Lord Chancellor power to amend the definition of “Bank of England
rate” which the Bill inserts into the 1925 Act.
THE REASON FOR THE POWER
The power to amend the definition reflects the fact that “Bank of England rate” is a
concept which may be subject to a change either of sense or expression which could
alter the meaning of the Bill or render the current definition meaningless. If, for
example, the Bank of England ceases to publish a rate using the term “official bank
rate” this change would need to be reflected in the definition.
PROCEDURE
Any order made by the Lord Chancellor under section 46(6) of the 1925 Act must be
made by statutory instrument (section 46(6)) and is subject to annulment by a
resolution of either House of Parliament (section 46(8)).
This negative resolution procedure is appropriate as the power is limited to altering the
definition of “Bank of England rate” and its effect will therefore be restricted. It is,
4
Intestate Succession (Interest and Capitalisation) Order 1977 (Amendment) 1983, SI 1983 No 1374.
3
moreover similar to, although less extensive than, the Lord Chancellor’s existing
delegated power in section 46(1) of the Administration of Estates Act 1925, which has
a negative resolution procedure (see section 46(1A)).
Amending the rate of interest
THE DELEGATED POWER
The Bill gives the Lord Chancellor power to substitute a different interest rate for the
prevailing rate and to make any consequential amendments to the relevant section of
the 1925 Act.
THE REASON FOR THE POWER
The power to substitute a different interest rate is necessary because it allows the Lord
Chancellor flexibility in the unlikely event that the Bank of England rate proves to be
administratively unworkable, or if a change in policy makes a higher or lower rate
appropriate. That the rate should be set by statutory instrument is desirable because it
should allow practitioners to discover the appropriate rate with relative ease and
certainty.
As noted above, this new power replaces an existing delegated power; under section
46(1A) of the 1925 Act the Lord Chancellor may specify by order such interest rate as
he considers appropriate.
PROCEDURE
Any order made by the Lord Chancellor under section 46(7) of the 1925 Act must be
made by statutory instrument (section 46(7)) and must be approved by a positive
resolution of each House of Parliament (section 46(9)).
This positive resolution procedure is appropriate because the power will allow the Lord
Chancellor to make substantive changes to the operation of the Act. Such changes will
require Parliamentary approval.
Schedule 1 – Power to determine the statutory legacy (Administration of Estates
Act 1925 schedule 1A)
Background
As noted above, the amount of the statutory legacy is currently set by the Lord
Chancellor by order under section 1 of the Family Provision Act 1966; it stands at
£250,000 where there are children or descendants and £450,000 where there are
surviving parents or full siblings of the deceased (the higher level will no longer be
relevant when the Bill comes into force). There is no statutory requirement on the Lord
Chancellor to review the level of statutory legacy at any particular interval or at all.
Between 1966 and 1993, the power was exercised at intervals of between four and
seven years. There was then, however, a 16-year interval between 1993 and the most
recent update, which took effect for deaths from 1 February 2009. The current levels of
statutory legacy were chosen following a lengthy process which included public
consultation by the Ministry of Justice.
The delegated power
The Bill reproduces the Lord Chancellor’s power to set the level of the statutory legacy
by order. However, in contrast to the previous power, the Bill requires the Lord
Chancellor to make an order setting the fixed net sum at least every five years, and,
unless the Lord Chancellor otherwise determines, the statutory legacy will be indexlinked to the consumer prices index (CPI) measure of economic inflation. Which is to
4
say, at least once every five years, the statutory legacy will be increased by an amount
that reflects the increase in CPI. The Lord Chancellor has a further power, under
paragraph 7(1) of Schedule 1A, to substitute for references to CPI references to
another index, and make amendments consequential on that substitution. This power
must be exercised by order made by statutory instrument.
The reason for the power
Although the power restates an existing power, it is also designed to effect a default
procedure by virtue of which the statutory legacy will be kept updated in line with
inflation. Using a statutory instrument in this way will ensure that the new statutory
legacy is discoverable by practitioners and other interested parties with ease and
certainty.
It is important that the Lord Chancellor retains his underlying discretion, however, to
allow for policy changes in the future – if for example, the consumer prices index
becomes administratively unworkable, or shifting social attitudes require the statutory
legacy to be set at a different level.
Procedure
Any order made by the Lord Chancellor under paragraph 3(1) of schedule 1A to the
1925 Act must be made by statutory instrument (schedule 1A para 3(1)) and is, in
general, subject to annulment by a resolution of either House of Parliament (schedule
1A para 3(4)).
This negative resolution procedure is appropriate where the power is limited to
updating the statutory legacy in accordance with the CPI.
However, where the Lord Chancellor specifies by order an amount other than that
dictated by reference to CPI, or substitutes for CPI another index, such an order may
not be made unless a draft of the instrument has been laid before and approved by a
resolution of each House of Parliament (schedule 1A paras 5(3), 7(2)). The Lord
Chancellor must also lay a report before Parliament stating the reasons for the
determination (schedule 1A para 5(2), (4)). It is appropriate that where the Lord
Chancellor elects to make a different order, or to change the index by reference to
which the statutory legacy is updated, it should be subject to more acute Parliamentary
oversight.
Clause 12(2), (3) - Commencement
The delegated power
Clause 12(2) enables the Lord Chancellor to bring the provisions of the Bill (other than
clause 12 which comes into force on the day the Act is passed) into force on such day
or days as he may appoint by order. Clause 12(3) allows the Lord Chancellor to
appoint different days for different purposes under clause 12(2).
Why the power is necessary and procedure
The clause 12(2) power is a standard power exercisable by statutory instrument and is
not subject to any resolution procedure. It will enable adequate time for those affected
to make the necessary preparations. It may be the case that the provisions of the
different clauses are brought into force at different times.
Territorial Extent
5
The Bill extends to England and Wales only. The Bill deals with one provision, relating
to the adoption of children, which is within the legislative competence of the National
Assembly for Wales. The consent of the National Assembly will be sought for this
provision and any future amendments which fall within their competence.
Ministry of Justice
June 2013
6