Wobbly will wording – common drafting errors and failure to update your will
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.
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 are married. Jack dies without a will and leaves an estate of £2,000,000.
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 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.
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 are married. They have one son, John. Jack dies without a will and leaves an estate of £2,000,000.
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.
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.
For further information on the issues raised in this blog, please contact a member of our private client team.
Since writing the above, the government has announced plans to modernise and strengthen the Lasting Power of Attorney (“LPA”) process, by which a person can appoint attorneys to manage their affairs in the event that they lose capacity, following last year’s consultation on modernising the system.
In summary, the major reforms will be:
A Lasting Power of Attorney (“LPA”) is a legal document which allows you to choose who should help you make decisions or make decisions on your behalf when you lose mental capacity and are no longer able to do so yourself. The person making the LPA is called the ‘donor’ and the person or persons given authority under the LPA are called ‘attorneys’. There are two types of LPA: one for ‘Financial Decisions’, for example paying bills or dealing with properties; and one for ‘Health and Care Decisions’ which can cover decisions from what type of care you receive to whether life sustaining treatment is given or not.
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Subject to any restrictions or conditions in the Lasting Power of Attorney (“LPA”), a property and affairs attorney can make gifts on the donor’s behalf to the donor’s friends, family members or acquaintances on customary occasions.
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