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The estate of things to come

Tax Planning by Tony Wickenden, Techncial Connection

Most financial advisers will be aware that, in all likelihood, too many of their clients do not have a will and many of those that do may not have reviewed it for some considerable time. If any of the first group die without addressing this lack of a will they will die intestate and their estate will pass in accordance with the provisions laid down by the law. The second group will not be intestate but the destination of their estate, as determined by their will, may not reflect their intent at the point of death.

Both sets of circumstances are to be avoided and advisers, through collaboration with solicitors, can make a big improvement to the overall financial wellbeing of the families of their clients by being the catalyst for action to put this right.

An effective collaboration between a client’s legal adviser and financial adviser can really do some good here. By combining legal and financial skills, the client really will be treated fairly. Advisers who have a broad understanding of how the laws of succession and intestacy work will, understandably, have a better chance of “connecting” with the solicitors with whom they seek to do business.

In regard to intestacy, there has been the recent publication of a consultation paper on changing the law. This stems from a Government consultation in 2005 which concluded that a wide-ranging review of intestacy and family provision was needed in both England and Wales and in Scotland. A separate report on succession was published by the Scottish Law Commission.

Given that the law regarding intestate succession dates back to 1925 and the rules allowing certain individuals to claim provision on death date back to 1975 (under the Inheritance (Provision for Family and Dependants) Act 1975), unsurprisingly, the Law Commission’s view is that the inheritance law needs to be brought up to date to meet the needs and expectations of modern families.

Despite the fact that, under English law, individuals are free to leave their estate as they wish under their will (there are no forced heirship rules such as those which apply in certain European countries as well as in Scotland), every year tens of thousands of people die without a will.

i: Intestacy

The key proposals with regards to intestacy are as follows:-

It is provisionally proposed that where a person dies intestate survived by a spouse but no descendants, the whole estate should pass to the spouse, whether or not there are other family members still living. This would mean the surviving spouse would no longer have to share the estate with parents or brothers and sisters of the deceased. Where there are also surviving children or other descendants, the commission recognises that the position is more complex.

However, given the current limits (that is, the surviving spouse being entitled to everything up to maximum of £250,000 with the amount over this figure divided and shared with the children), in practice apparently at least nine out of 10 surviving spouses inherit the whole of the estate and it is only in the wealthiest 10 per cent of estates that children are likely to inherit anything.

In view of this, one reform option that is suggested is to give the surviving spouse the whole estate in every case. However, when similar reform was recommended in 1989, it was not implemented because of concerns that some children would be disinherited, particularly where a parent had remarried.

The Commission recognises that there are valid concerns about children inheriting and therefore they suggest a number of options for reform on which they want to consult. The options are:

– no change to the current law;

– reform to eliminate the need for the expense and complexity of life interest trusts; and

– a reform that takes account of whether the surviving spouse owned the family home jointly with the deceased.

ii: Cohabitants

The next set of proposals concerns cohabitants. At the moment, where a couple live together without getting married or forming a civil partnership and one of them dies, the survivor has no automatic right under the current intestacy rules to inherit any part of the deceased’s estate. This is the case no matter how long they have lived together and even if they had children together. In some circumstances a surviving cohabitant can go to court to challenge distribution of a deceased partner’s estate under the family provision legislation.

The commission recognises that having to go to court will often be emotionally and financially draining. They therefore propose to reform the intestacy rules so that, in some circumstances, a surviving cohabitant can share in a partner’s estate without having to go to court.

The commission poses the questions which cohabitants should qualify for inclusion under the proposed rules and what they should receive. The provisional proposal is that couples who have had a child together, or have lived continuously as a couple for more than five years, should have the same rights on intestacy as spouses.

The next proposal considers childless relationships of less than five years. The provisional proposal is that where a couple have lived together for more than two but less than five years, the survivor should be entitled to half of the share of the estate that the surviving spouse would have received.

Other areas highlighted for potential reform include:-

trusts for children on intestacy and the effect of adoption on the child’s entitlement

family provision claims by adult children

the distinction made in the intestacy rules between full brothers and sisters and half brothers and sisters

the criteria to be met by dependants applying for family provision, and

family provision claims where the deceased did not have his permanent home in England or Wales.

The Law Commission seeks responses to the consultation paper by 28 February 2010.  I will remind you of the current position in my next article.

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  1. Despite being “Properly Married ” myself I am concerned over the suggestion that short term co-habitees without joint children should be given rights under law.
    Who will determine whether a person sharing a roof is a co-habitee or merely a lodger ? Would a single “Intimate moment” legally convert a lodger or even a housekeeper into a co-habitee with legal rights ? Bear in mind that the argument would only arise after the death of the homeowner, who would not be there to refute any claims that a co-resident was a co-habitee.

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