TECHTALK
This article originally appeared in JAN 15 edition of techtalk. Please visit www.scottishwidows.co.uk/techtalk for the latest issue.
STILL LEAVING IT TO
CHANCE?
AN UPDATE ON THE
RULES OF INTESTACY
Jeremy Branton
Inheritance and Trustees’ Powers Act 2014 simplifies the rules of intestacy in England
and Wales whilst also updating some restrictive trustee powers.
LEAVING IT TO CHANCE
Where a person dies without making a Will, the distribution
of their estate will become subject to the statutory rules
of intestacy which can lead to some unexpected and
unfortunate consequences. The people the deceased wanted
to benefit from their estate may be disinherited or left with a
substantially smaller proportion of the estate than intended.
Making a Will is the only way to indicate whom you want
to benefit from your estate. Failure to take action could
compromise the long term financial security of the family.
It is also the cornerstone for inheritance tax and estate
planning. Yet a recent study suggested that as many as 57%
of UK adults have not made a Will (Unbiased.co.uk ‘Write
a Will week’ August 2014). This inertia could be due to the
perceived expense of making a Will, an unwillingness to
accept that we are all mortal or a misunderstanding of the
law in this area. A common misconception might be that
writing a Will is unnecessary as everything will pass to the
spouse or civil partner on death. While this might be true
where the size of an estate is relatively modest, or property
is held as joint tenants, it will not always be the case.
And where a Will has been made, it’s important to regularly
review it to take account of changing circumstances.
Unmarried partners have no right to inherit under the
intestacy rules, nor do step-children who haven’t been
legally adopted by their step-parent. Given today’s
complicated and changing family arrangements, Wills are
often the only means of ensuring legacies for children of
EXAMPLE 1 – MARRIED OR CIVIL
PARTNER – NO CHILDREN
Phil dies in November 2014 without having made a Will,
leaving an estate valued at £750,000. Under the new
provisions, his widow, Ann, inherits his entire estate.
Recent changes to the intestacy rules covering England
Had Phil died after 31 January 2009 and before the
above legislation came into force the estate would have
been shared as follows:
and Wales which became effective on 1 October 2014
• The first £450,000 plus personal chattels to Ann
aim to simplify the distribution of an estate and could
• The next £150,000, half the remainder, to Ann
earlier relationships.
mean a surviving spouse or civil partner receives a
larger inheritance than under the previous rules. Further
references to ‘spouse’ throughout the article apply equally
to ‘civil partner’.
• The remaining £150,000 to Phil’s parents if alive,
otherwise to any brothers, sisters, nephews or
nieces and if none to Ann.
Where the deceased left an estate valued at more than
£250,000 and also left children or their issue, the position
is also improved for the surviving spouse:
INTESTACY IN NORTHERN IRELAND
The intestacy rules in Northern Ireland are contained in the
Administration of Estates Act (Northern Ireland) 1955 and
are broadly similar to those applying to England and Wales
EXAMPLE 2 – MARRIED OR CIVIL
PARTNER WITH CHILDREN
Tom dies intestate leaving an estate valued at
£750,000. He is survived by his wife, Mary and two
before 1 October 2014 except where the deceased was
survived by a spouse and children in which case the surviving
spouse’s entitlement is:
• The first £250,000 of the estate plus personal belongings.
children Sarah and Max. The main asset, the family
• An absolute entitlement to one half of the remaining
home, together with his other assets were held in Tom’s
estate where one child survives, or where there are no
sole name. Although Mary had expected to receive
surviving children, but the issue of just one child of the
Tom’s estate in full, the distribution of his estate was
intestate survives.
as follows:
• An absolute entitlement to one third of the remaining
estate where more than one child (or their issue)
Mary
All Tom’s personal
belongings
Sarah and Max
£250,000 split
equally between
them*
£500,000 (first £250,000
plus half remainder)
*If Sarah and Max are minors, their share of the
inheritance is held under a statutory trust until they
attain age 18.
Had Tom died before 1 October 2014, Mary would
still have received the first £250,000 plus personal
belongings, but she would only have held a lifetime
interest in half of the remaining amount (£250,000)
survives.
“OUR GUIDE ‘WHAT
HAPPENS OF YOU DIE
WITHOUT A WILL?’
PROVIDES FULLER
DETAILS”
with the capital element passing to the children on
Mary’s death. In the meantime, she would have been
entitled to any income from this share or to occupy a
property if relevant, but could not have accessed the
capital.
INTESTACY IN SCOTLAND
The intestacy rules in Scotland are contained in the
Succession (Scotland) Act 1964. These state that certain
rights must be satisfied before the balance of the estate
In the above example the situation could have been
can be distributed. Legal rights can also be claimed by any
made worse where the share of estate passing to the
surviving spouse, civil partner, child or grandchild even
children exceeded Tom’s available nil rate band –
currently £325,000 less the value of any non-exempt
gifts made in the previous seven years – as inheritance
where the deceased left a valid Will.
Prior rights
tax would have been payable. Although it would be
The surviving spouse is entitled to:
possible to alter the distribution of Tom’s estate by
• The deceased’s interest in the family home. The value
executing a deed of variation, this would only be
of this interest increased to £473,000 from its previous
possible where all of the beneficiaries consented.
level of £300,000 on 1 February 2012 to reflect the
And if the children were minors, this would require an
increase in property values since it was last increased
application to the court with the associated costs and
in 2005. Where the value of the property exceeds this
delays.
figure, the surviving spouse is entitled to a lump sum of
The fact that the family home was held solely in Tom’s
name isn’t a problem – Mary can ask the personal
representatives to appropriate the matrimonial home
in or towards satisfying her entitlement under the
intestacy.
£473,000 in place of the property.
• The right to furniture and moveable household goods up
to £29,000 (£24,000 before 1 February 2012).
• A legacy of either £50,000 where there are surviving
children or £89,000 otherwise (£42,000 and £75,000
previously).
Legal rights
Section 32
The surviving spouse is entitled to a share of the deceased’s
remaining moveable estate – for example cash, shares and
jewellery, after any prior rights and creditors have been
paid:
The previous restriction that trustees may only advance
• One third of the moveable estate where there are
surviving children
• One half of the moveable estate where the deceased left
no surviving children.
up to half of a beneficiary’s presumptive share is removed
meaning that the whole share could be advanced before the
beneficiary becomes entitled – unless expressly prohibited
by the trust wording. Again this applies to trusts created or
arising after 1 October 2014, unless an interest is created
after that date. The new Act also allows the advancement
to be made by transferring assets rather than cash and this
provision applies whenever the trust was established.
Our guide ‘What happens if you die without a Will?’ provides
fuller details of the intestacy provisions applying across the
UK. The guide is available from the Scottish Widows Adviser
Extranet: www.scottishwidows.co.uk/Extranet/Literature/
Doc/47498
AMENDMENTS TO TRUSTEE POWERS
Inheritance and Trustees’ Powers Act 2014 also amends
and modernises sections 31 and 32 of the Trustee Act 1925.
These sections create statutory trust provisions that apply
by default to beneficiaries who are not yet absolutely
entitled to their share of a trust fund. This could be
because they are still a minor or they haven’t reached the
age – such as 21 or 25 – at which their entitlement vests.
The provisions are almost always modified when trusts
are being drafted to provide the trustees with greater
flexibility when providing for the beneficiary’s financial
needs. However, sections 31 and 32 of Trustee Act 1925
always apply to the statutory trusts created for minors
when someone dies intestate.
Section 31
This enables trustees to apply income for the maintenance,
education or benefit of a beneficiary. The proviso that the
trustees must consider certain requirements including the
age of the beneficiary and any other sources of income
before making payment is removed by the amended
legislation. Instead the trustees are free to use their
discretion to make payment as they see fit. This will affect
trusts created or arising on or after 1 October 2014 but
could also apply to trusts created before that date where
a trust interest is created by exercising a power, after the
above date.
Every care has been taken to ensure that this information is correct and in accordance with our understanding of the law and HM Revenue & Customs practice, which may change.
However, independent confirmation should be obtained before acting or refraining from acting in reliance upon the information given.
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