Intestacy

Introduction

Many people die without making a will.  Depending on the size of their estate and which of their near relatives survive, dying intestate may have undesirable results.  A surviving spouse or civil partner may find they are sharing the estate with distant relatives of the deceased who are not only already well provided for, but may have had little contact with the deceased for some time.

Intestacy Rules

Where the deceased did not leave a will their estate is divided according to rules introduced in 1953.

A surviving spouse/civil partner will automatically acquire assets that are owned jointly with the deceased (perhaps the family home, its contents and a joint bank account), but any assets in the sole name of the deceased will be subject to the intestacy.

The effect of the Intestacy Rules on a surviving spouse/civil partner, children or remoter relatives is described in the attached table (see below).

Statutory Legacy

From 1st February 2009 the statutory legacy for a surviving spouse with children is increased from £125,000 to £250,000.  If there are no children, the amount the surviving spouse or civil partner will receive is increased from £200,000 to £450,000.  The table explains how the balance of the estate is distributed in each case, and also who will benefit in the event that there is no surviving spouse/civil partner or children.

Where there is a surviving spouse and children, it is possible for the spouse to elect to have her life interest in one half of the remainder of the estate redeemed.  That interest would have to be calculated by an actuary.  Once the life interest is redeemed, the children receive the remainder of the estate outright instead of waiting for their surviving parent to die.

Problem Areas

Inheritance (Provision for Family and Dependants) Act 1975

Under this legislation the following classes of people may make a claim for reasonable financial provision if they consider that the Intestacy Rules do not do so:

  • the surviving spouse/civil partner,
  • any former spouse/civil partner,
  • any child of the deceased,
  • any child who was being treated by the deceased as a child of the family,
  • any person with whom the deceased has co-habited for more than two years, or
  • any other person whom the deceased was maintaining wholly or partly immediately before the death.

Even if they have grounds for making a claim under the 1975 Act, an unmarried partner or cohabitee may only be able to make a small claim against the estate and therefore be in a far worse financial position than the deceased would have intended.

The Family Home

If the matrimonial home is in the deceased’s sole name, or the deceased owns a share as tenant in common, the home may have to be sold to satisfy family claims. This is a particular problem if the house or share is worth more than the spouse’s statutory legacy.

Inheritance Tax (IHT)

IHT may be due if the value of the estate passing to beneficiaries other than the surviving spouse/civil partner is in excess of £325,000 (2010/11 tax year).

Second Marriages

If a surviving spouse takes most of the estate as their statutory legacy, there may be nothing left for children of a previous marriage. They will then be reliant on the goodwill of their step-parent making a will in their favour or litigation.

Executors

The rules determine who will be responsible for administering your estate. It may not be in the best interests of the estate for this person to take control.

Guardians

The rules make no provision for the appointment of a guardian to look after children under 18.  It may therefore be necessary (and costly) to ask the court to decide who should fill this role.

Trusts for children

It may be prudent to protect children from the risk of receiving a large inheritance before they are mature enough, or a child may be disabled and liable to be disqualified from receiving state benefits if they inherit a large sum outright.  These concerns can be addressed by setting up a trust under a will.

Commercial interests

If you have business or farming interests there will be tax and administrative considerations which cannot be satisfactorily addressed without a will.

Solutions

By making a will you can distribute your estate in the most appropriate and tax-efficient way you want.

In the absence of a will and despite the potentially unwelcome effects of an intestacy, it may still be possible to  change the way an estate is divided under the Intestacy Rules.  If all the beneficiaries affected by the change agree to it, the effect of the Intestacy Rules can be changed by a Deed of Variation made within two years of the death.  However, where the deceased’s children will benefit under the Intestacy Rules, and are under 18, it will not be possible to enter into a Deed of Variation without the consent of the Court.  An application for such consent will be expensive.

Most importantly, in some cases a Deed of Variation can be used to take advantage of IHT opportunities that have been lost as a result of the intestacy.

The law and practice referred to in this article or webinar has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.

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