The number of people dying without a will, that is to say “intestate”, remains alarmingly high. Yet, leaving things to chance can cause unnecessary stress and heartache for loved ones left behind. The intestacy rules, which determine who inherits your estate if you have not made a will, date back almost a century, and despite recent reforms, these rules have been unable to keep up with complex modern family life in England and Wales.
Who inherits where there is no will?
The pecking order of entitlement under the intestacy rules depends on the deceased’s:
- marital status;
- children; and
- surviving relatives.
Unmarried partners continue to have no automatic claim to their late partner’s estate, despite being the fastest growing family unit in the UK. Whilst provision may be made for a cohabiting partner under the Inheritance (Provision for Family and Dependants) Act 1975, that partner will first need to prove to a court that they are financially dependent on the deceased, and, even then, a claim can only be brought for reasonable ‘maintenance’, and not for a ‘deserved’ slice of the estate. In contrast, a spouse or civil partner could claim financial provision on what is reasonable in all the circumstances for them to receive, whether or not for their maintenance. The costs involved with bringing claims will deplete the estate, causing less to be available for distribution amongst family members and possibly hardship for those members.
Equally, step children, in-laws, friends, or carers will not automatically receive any entitlement to any part of the estate, whilst an estranged spouse may inherit everything, in the absence of a final divorce order.
What do they inherit?
The intestacy rules only apply to property that can be left by a will; bank accounts or other property held as ‘joint tenants’ between two or more people (which is the default position in the absence of an express declaration) do not pass in accordance with the intestacy rules. Assets held as ‘joint tenants’ should be distinguished from assets held as ‘tenants in common’ between two or more people, where the deceased’s share in the asset does not automatically pass to the persons with whom the deceased held the asset, rather it passes under the intestacy rules.
How do the rules work in practice?
If there are no children, the spouse will receive the entirety of the net estate. In the absence of both a spouse and children, the estate will pass to the closest surviving relative in an order of priority, and in the absence of any remoter descendants, the estate will end up in the hands of the Crown.Where the deceased leaves behind a spouse and children, the spouse will receive the first £250,000 of the net estate (the gross estate after tax and liabilities are deducted) and all personal possessions, as well as half of the remaining estate, with any children receiving the other half automatically, at the age of 18 years. This means that if the family home falls into the net estate, the children could end up owning a share of the home, and could prevent or push for a sale, leading to a family dispute. Furthermore, if the children are under 18 years and unmarried, their shares in the estate will be held on statutory trusts, which are rigid and cumbersome and can require court involvement to be varied.
For many, 18 years old may not be considered an appropriate age to inherit large sums of money. Unfortunately, the intestacy rules disregard a child’s level of maturity and do not take into consideration any personal circumstances, even where vulnerability is an issue.
The intestacy rules make no provision for the appointment of guardians for those children under the age of 18 years, which can be achieved in a will. Where there is no will, after death, it will be necessary to seek the court’s assistance in deciding who should assume the day-to-day care of any minor children, adding stress and cost to an already emotive issue.
Inheritance Tax (IHT) Planning
Whatever you own at the date of your death will, potentially, be subject to IHT. Whilst the intestacy rules are intended to ensure that children inherit at least part of their parent’s estate, the rules do little to secure any tax advantage for them as non-tax-exempt beneficiaries.
A will is also the opportunity to decide who should administer your estate. Otherwise, certain rules determine the order for who is entitled. This can often lead to family contentions with those in control of the administration potentially not being suitable or qualified to undertake the role. If there are trusts created under the intestacy rules, this means that people the law appoints to administer the estate could potentially be in control of the deceased’s money for a number of years.
Planning for death is not high on everyone’s agenda, but for the sake of your loved ones, or even to ensure that monies do not go to those you would not wish, it is highly advisable to take estate planning and tax advice and make a will.
For further information, please contact a member of the Private Wealth team (or your usual Brecher contact).