The UK government has confirmed that the amount a surviving spouse or civil partner is entitled to receive in England and Wales where a person dies intestate (without a valid will) and leaving children will be increased.
The statutory legacy will be increased by £20,000 from £250,000 to £270,000. The changes will come into force on 6 February 2020.
What happens on intestacy?
Under the rules of intestacy, the estate of the deceased is distributed in a particular way depending on who survives, how they are related to the deceased and how many individuals there are.
The rules are complicated and in general there is a “pecking order” of who inherits: spouse, children, parents, siblings, grandparents, aunts/uncles. The rules tend not to take into account modern relationships and make no provisions for cohabitees, step-children, or close friends.
Three examples of what can happen in an intestacy situation are:
Jack and Jill (married)
Jack and Jill are married. Jack dies without a will and leaves an estate of £2,000,000.
What happens?
Since there are no children, Jill (the spouse) will inherit the whole estate ie £2,000,000. Due to the spouse exemption, no inheritance tax will be payable.
Jack and Jill (unmarried)
Jack and Jill have been cohabiting for a number of years but are not married. Jack always said he would leave his estate to Jill, but he dies without a will. His estate is worth £2,000,000.
What happens?
Jill would not be entitled to anything! If Jack’s parents were still alive, they would inherit the estate (equal distribution if both were alive), and if not, the estate would be distributed between Jack’s brothers and sisters.
Jack and Jill and their son John
Jack and Jill are married. They have one son, John. Jack dies without a will and leaves an estate of £2,000,000.
What happens?
The spouse would be entitled to all of the deceased’s personal property, the first £270,000 of the estate, and 50% per cent of the remainder (leaving 50% to be divided equally between the children).
In this particular situation, the spouse exemption cannot be applied on the entirety of the estate because it is not all being left to Jill. After the application of the nil rate tax free allowance of £325,000 which Jack is entitled to, and on the basis that no other exemptions or nil rate bands could be used, inheritance tax of £670,000 would be due on the estate.
This would mean that Jill would end up with £800,000 and John would end up with £530,000. If the estate included a property, the property may need to be sold.
The way the intestacy rules work mean that in this situation inheritance tax was payable on Jack’s death, which is something which could have been delayed if Jack had made a will.
If Jack and Jill had been unmarried, then John would inherit the entire estate (subject to inheritance tax). The only way that Jill would have benefited would be to consider a claim against the estate for reasonable provision under the Inheritance (Provision for Family and Dependants) Act 1975.
Why not to rely on the intestacy rules…
Whilst the increase in the fixed statutory legacy is welcomed, this should not stop you from making a will and/or reviewing your current will regularly.
As you can see from the examples above, the intestacy provisions do provide for family but this may not be in the way you intend and may result in inheritance tax being paid, claims against the estate and disgruntled beneficiaries.
In addition to placing additional stress on your loved ones at a time of grief, relying on the intestacy rules may mean that those who you wish to benefit on your death will not do so in the way you intend (ie unmarried couples or friends) and it may even mean that those who you may not necessarily want to benefit will do so (for example, estranged siblings or parents).
The best way of combating the intestacy provisions is by making a will and choosing who you want to benefit and how.
Further information
For further information on the issues raised in this blog, please contact a member of our private client team.
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Capacity to make a Will (“Testamentary Capacity”)
For a Will to be valid, amongst other things, the person making the Will (known as the “testator”) must be of “sound mind”.
Capacity to marry and make a prenuptial agreement
The test for capacity to enter a prenuptial agreement is the same as the normal test for capacity (mentioned in Blog 1) and the individual must be capable of understanding their assets and the nature and effects of the contract they are entering into.
Capacity to act as an executor
An executor/executrix is a person named in a Will who is responsible for carrying out the instructions in a person's Will and administering their estate. Executors can have a number of responsibilities following someone’s death, including: securing, insuring and clearing the deceased’s property, collecting in all the deceased’s assets, paying outstanding bills, distributing the estate, arranging the funeral and applying for probate.
Capacity to act as a trustee
When a trust is created, the person setting-up the trust (known as the “settlor”) usually appoints trustees who become the legal owners of the assets in the trust, which they hold for the benefit of others (known as the “beneficiaries”). For example, when a person dies, a trustee may distribute capital and income from the deceased’s assets that are held in a Will trust, to the people named as beneficiaries in the deceased’s Will.
Capacity to litigate
Capacity to litigate involves an adult who is a party (or intended party) to proceedings in court.
Capacity to make a Lasting Power of Attorney
A Lasting Power of Attorney (“LPA”) is a formal document that, once registered by the Office of the Public Guardian (“OPG”) authorises others, known as “attorneys”, to act on behalf of another who is unable to make decisions for themselves.
Capacity to make a gift
A gift can be anything of value, such as cash, personal possessions and property. If a person chooses to dispose of an asset for less than it is worth this is also considered to be a fit. The act of giving a gift is typically done to express care, appreciation, celebration or goodwill. Gifts are often exchanged during special occasions such as birthdays, weddings, anniversaries and customary occasions, but they can also be given spontaneously as a gesture of kindness or generosity.
Capacity to manage property and financial affairs
An assessment to determine whether an individual has capacity to manage their property and financial affairs is required when an individual’s capacity is in doubt and they need to make decisions relating to their property and finances. For example, they may want to sell or purchase a property, need to manage an award of damages or need to manage their overall affairs.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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