No Will - No Worries?

These anxious times have caused many of us to reflect on the need to make or review our Will.  I, myself, double checked recently that my own Will was in the cabinet at home where I expected to find it and that it was up-to-date. Our anxiety to put a Will, or new Will, in place may be heightened by the difficulties in executing a Will in the presence of two witnesses at a time of social distancing and isolation.
 

I’ve spent my career as a Private Client lawyer properly advising on the need to have a considered and effective Will. But for some of us who are, more than ever, alert to the reality of our own mortality, would dying without a Will really  be a complete disaster for our assets and our family – or would things work out okay?

They might...

There are three issues to grapple with here. The first two apply where there’s no valid Will:

• The “intestacy rules” as to the division of an estate where there’s no Will;
• The fact that some assets pass effectively on death independent of any Will or of the intestacy rules

The third applies where we have a Will but it no longer reflects our wishes:

• The law and impact of revoking a Will

What happens under intestacy?

Under intestacy, if you’re married but have no children, everything passes to your surviving  wife/husband/civil partner.

If you have children, then your wife/husband/civil partner takes your personal belongings, the next £270,000 in value, and half of what’s left. The other half passes to your children (at the age of 18 if they’re under that age when you die). If there’s less than £270,000  in the estate (ignoring the personal belongings), then the surviving wife/husband/civil partner inherits everything.

If you’re not married  but leave children, those children take everything.

If you’re unmarried and have no children, then your estate passes to your parent(s)  if alive, otherwise in accordance with a pecking order depending on what relatives you leave.

The most common misconceptions about the intestacy rules are:

• Everything passes to your wife/husband /civil partner. - It won’t if your estate is more than £270,000 and you have children.
• A “common law” spouse ( i.e. a partner to whom you’re not married) is treated the same as if you were married. - They won’t be. They’re not recognised under the intestacy rules – they may need to bring a claim under the Inheritance (Provision for Family and Dependents Act) 1975 for a reasonable share of your estate – which may mean they need to sue their own children.

The intestacy rules only apply to the division of your “estate”- i.e. assets you own in your name that don’t pass on your death by other means.

Which assets pass on death independent of the will or intestacy?

• A property, perhaps the family home, held by a married couple as “joint tenants” will pass automatically to the survivor on death;
• A joint bank account passes to the surviving account-holder  automatically;
• A Self Invested Personal Pension (S.I.P.P) is applied on at the discretion of the managers of the fund - normally in accordance with an expression of wishes form; 
• The proceeds of a life insurance policy sensibly  written “in trust” for the surviving spouse/family members. Useful for inheritance tax purposes and also allowing access to the funds promptly on death.

It’s possible, thus, that a person with substantial wealth in a jointly owned property and pension but with modest other  personal assets  can be assured that their spouse will see that value on their death, rather than an upset to the smooth transition of family finance through a  share of the estate  passing to the children under the intestacy rules.

Nevertheless, and generally, the persons most “at risk” from an undesirable  application of the intestacy rules are married couples with children under 18. Most couples would wish to see everything pass to the survivor on the first death and for the children to take the estate on the second death.

This is efficient from an inheritance tax perspective. There’s no tax on the first death; tax is deferred until both parties to the marriage have died.

If a sizeable proportion of the estate passes to the children on the first death under the intestacy rules then any balance passing to the children  over the nil rate band of £325,000 (or £500,000 if the additional “Residence nil rate band” is available) will  bear tax at 40%. If the bulk of the value in the estate is represented by the family home, then a widow/widower may need to sell the house to pay the tax.

If the children are over 18, they may agree that the estate should pass in its entirety to their surviving parent and enter into a deed of variation to that effect (which will defer the tax). But, of course, they might equally choose not to do so, and if the children are under 18 then such deed of variation isn’t possible.

Intestacy - a One size fits all solution?

The intestacy rules are, by necessity, a “one size fits all” solution that  may not fit many family circumstances very well. This is particularly so in the absence of a coherent legal regime for established but  unmarried couples. Further, while the intestacy rules (by accident, rather than design) might address the desire of couples on a second marriage to divide their estate between the new spouse and the children of the first marriage, they don’t reflect the desire of most married couples with children to leave everything to the survivor on the first death.

But for some, say a widow or widower with children, the intestacy rules most often achieve exactly the result desired - to leave all to the children equally.  I’ve had a number of conversations recently, where I’ve been able to put a mind at rest by advising that while we’d meet up to fine tune a Will once lockdown is over, the intestacy rules will meanwhile, produce the desired end result.

Where an existing Will is out of date and no longer reflects one’s family circumstance and attendant wishes, then, clearly, a new Will or codicil is needed. If executing a new Will at the present time isn’t practically possible, then, no, a “letter of wishes“ as an interim measure doesn’t work.  It has no legal effect – though the beneficiaries in your out-of-date Will might, possibly,  feel morally (if not legally), bound  to put those wishes into effect (even to their own detriment). But it’s not something that might be taken as a given.

If the intestacy rules produce a result much preferred to the terms of the existing Will, then revocation of the Will means that the rules apply until a new Will is made. (In passing, I may say it’s a common misconception that revocation of an existing Will revives an older Will.)

Revocation can be affected simply by destroying the existing Will (by tearing it up or burning it) with the intention of revoking it. Therefore, leaving written evidence or telling the appropriate persons that you’ve revoked the Will is useful so there’s no doubt over your “intention”.

This article is in no way intended to suggest that, for many, Wills are unnecessary. Anyone who has assets and cares about what happens to those assets on death should properly and sensibly make a Will. Wills do more than direct who gets what - they deal with the appointment of chosen executors, guardians for the children should parents die before they’re 18, an expression of funeral wishes, where the burden of inheritance tax should fall and so on.

But in these challenging times, the first steps in reflection about what might happen on one’s death might be to establish:

1. Which assets do I have that will/won’t pass under my Will or intestacy? How is our home held, is my pension / nomination form up to date, are my life insurances written in trust?;
2. How would assets within my “estate” pass under my existing Will or on intestacy?

If in doubt, and in the interests of peace of mind, please do contact Jim Sawer, James Ward or the Private Client team.

About the Author

Jim Sawer is a partner in our private client team. He has a broad private client practice and has advised families in the UK and overseas, including those with commercial and landed interests, for over 30 years.  Clients appreciate his ability to identify the true crux of a matter promptly and his results-orientated approach to resolving private client issues in the family context.