In May 2014, the UK Parliament signed into existence an Act that promised to revolutionise intestacy law. This article examines some of the potential problems that remain - or which may have got worse.
James Ward, private client partner at Seddons, the law firm, examines recent sweeping changes to the laws of inheritance in England and Wales. (Scotland operates under its own legal system.) As always, this publication welcomes readers to send in their views.
In May 2014, Parliament signed into existence an Act that promised to revolutionise intestacy law. Anomalies would be swept away, process modernised and individuals protected. The reforms have been hailed as a long-awaited and much-needed upgrade of a law created almost 40 years ago, and they have removed several legal complexities, but not everyone will benefit. It is now more important than ever for wills to be made and updated regularly, if individuals want to retain control of their estate and protect their assets.
The Inheritance and Trustees Act (2014), which came into force on 1 October, makes some significant changes to the law surrounding how an individual’s estate will be divided if he/she dies without leaving a will. Most notably it removes the life interest trust over the spouse’s half share of the remainder of the estate after the statutory legacy. Furthermore, it prioritises the spouse over other family members if the deceased had no children.
Positively, numerous archaic anomalies have been removed, including several surrounding who is entitled to inherit the estate. Children who are adopted after the death of their parents will no longer lose their claim to inheritance, and children who are not blood-relatives but have been “treated as a child of the family” will also be taken into account when dividing up the estate. Crucially, the law detailing which assets are captured in the legal parameter of someone’s estate has been amended. The definition of “personal chattels” – an individual’s personal belongings – has been limited to exclude some movable items which could now be considered an investment. Wills should therefore be updated to ensure that personal belongings are left directly to the relevant individuals.
These attempts to modernise the intestacy laws in order to better deal with the complexities of contemporary family life should absolutely be welcomed. However, the reforms do not significantly protect cohabiting partners, children from previous marriages or wider family members.
The changes are perhaps less satisfactory for individuals who have children from a previous marriage. Under the new laws, the first £250,000 ($402,030) plus half of the remainder of the assets will be left automatically to the current spouse. The rest will go to the deceased’s children in equal shares. This sees the abolition of the life interest for the spouse, which would have traditionally ring fenced half of the remainder of the estate for the children of the deceased. This means that now the assets falling into the current spouse’s half share may never go back to the children of the first marriage.
An untimely death may, consequently, see the second spouse take much more than might have been envisioned. Furthermore, the reforms apply also to estranged spouses. It is therefore vital that individuals with children from a previous marriage make – and update – their will to ensure all their dependents are protected. Without taking the necessary steps to plan ahead, families affected by this aspect of the new legislation may risk being caught out.
Weighting of the inheritance towards the current spouse is even more pronounced if there are no children involved. Previously, after a statutory legacy of £450,000 passed to direct dependents, half of all an individual’s assets would have gone to the parents or siblings. Now, if a married individual dies leaving no children, all assets will pass automatically to the spouse. This may seem fair, but having the spouse take everything may not have been the intention of the deceased, especially if there had been gifting from the deceased’s parents or if it was a relatively new marriage.
The new Act does allow trustees to apply income and capital with more discretion than was previously possible under the Trustee Act of 1925, but individual circumstances will always mean that blanket laws can never offer as much protection as a prepared and thought-out legal alternative. The updated intestacy laws do not take into account formal affiliations, external responsibilities or personal wishes – all things that will be identified and included in a properly drafted will.
Another unaddressed concern surrounds the rights of unmarried, cohabiting partners. This grey area is significant and complex, and is one that modern law has, so far, been slow to adapt to. This new Act is a prime example of law’s inability to respond quickly to changing social circumstances, as unmarried, cohabiting partners still have no legal intestacy rights. The Law Commission recommended that Parliament pass a specific cohabitation bill to recognise the changing needs of individuals and families and to offer more adequate legal protection. The proposed bill would have given unmarried partners who had lived together for more than five years (reducing to two years, if the couple had a child together) substantial legal rights and protection; unfortunately, this suggestion has so far been ignored by law makers.
Overall, the Inheritance and Trustees’ Powers Act (2014) does streamline the intestacy process and remove some obvious anomalies. However, I would argue that it gives too much priority and importance to the remaining spouse or partner. It is impossible for intestacy laws to work for every situation, given the increasing complexity of modern family life. The only way to truly protect your assets and guarantee your inheritance is by drafting a will to represent your wishes.