Intestacy, and reasons for avoiding it
06/02/2009
This article is prompted by the coming into force on 1st February 2009 of The Family Provision (Intestate Succession) Order 2008.
The purpose of this Order is to increase the amount of the "statutory legacy", i.e. the fixed sum payable to a surviving spouse (including a registered civil partner) from the estate of a person dying intestate, or without leaving a valid Will, in relation to persons dying on or after 1st February 2009.
In the case of a person leaving children or issue, the statutory legacy is increased from £125,000 to £250,000. Where there are no children or issue, but the deceased leaves parents or siblings of the whole blood, the increase is from £200,000 to £450,000. These amounts were last increased in 1993.
All other existing rules of intestate succession are unaffected by the 2008 Order.
There follows a brief summary of the current rules of intestate succession with effect from 1st February 2009:-
1. Surviving spouse and issue
The spouse takes the personal chattels, a statutory legacy of £250,000, with interest, and a life interest in half the remainder. The other half, and the reversionary interest in the first half on the death of the surviving spouse, are taken by the issue of the intestate upon the statutory trusts.
"The statutory trusts" means in trust, in equal shares if more than one, for the children of the intestate living at his or her death who attain 18 or marry under that age. If any child predeceases the intestate then his or her share would pass in equal shares per stirpes to their issue who attain the age of 18 or marry under it.
2. Children or issue, but no surviving spouse
The children or issue take the entire estate upon the statutory trusts
3. Surviving spouse and parents or siblings of the whole blood, but no issue
The spouse takes the personal chattels, a statutory legacy of £450,000, plus interest, and an absolute interest in half the remainder. The other half is taken, in equal shares if more than one, by the parents, or if both have predeceased is held on the statutory trusts for any surviving brother or sister of the whole blood or the issue of any deceased sibling of the whole blood.
Under both 1 and 3 above:-
(a) The spouse must survive the intestate for 28 days in order to qualify; and
(b) Where the estate includes an interest in the family home then the surviving spouse may require this to be appropriated in or towards satisfaction of any absolute interest that he or she may have in the estate.
Furthermore in the case of 1 above the surviving spouse may require the personal representatives to buy out his or her life interest by the payment of an appropriate capital sum.
4. Surviving spouse, but no issue, parents or siblings of the whole blood
The surviving spouse takes the entire estate absolutely.
5. No surviving spouse, issue, parents or siblings of the whole blood
The estate passes to the following persons living at the intestate's death and in the following order and manner:-
(1) Siblings of the half-blood on trusts corresponding to the statutory trusts.
(2) Grandparents.
(3) Uncles and aunts of the whole blood or their issue on trusts corresponding to the statutory trusts.
(4) Uncles and aunts of the half blood or their issue, again on trusts corresponding to the statutory trusts.
It is hoped that the above summary will enable readers of this article who have not made Wills to identify with ease the persons who would take their estate if they were to die while still intestate.
It is likely that in many cases it will be found that distribution in accordance with the intestacy rules would not accord with the expectations or wishes of the individuals concerned.
For example, many parties to an existing marriage or civil partnership undoubtedly believe that if they were to die intestate their entire estate would pass to their surviving spouse or civil partner.
As can be seen, this will not universally be the case as, depending on the value of the estate and the relevant family circumstances, a substantial share may pass to children (including children by previous marriages or relationships) or even to parents or siblings.
It should however be mentioned that if the family home is held in joint names as beneficial joint tenants (but not as beneficial tenants in common) then it will pass automatically by survivorship and not be treated as part of the estate of the first spouse to die.
Based on various Government statistics it has been estimated that, where the previous upper limit of £200,000 operated because there were no children or issue, up to 1,600 spouses or civil partners would not receive the whole of the estate and that, of these, 640 might be at risk of losing the family home. This could obviously still happen, albeit in a reduced number of cases, notwithstanding the increase to £450,000 of the upper level of the statutory legacy.
If it can be shown that the operation of the intestacy rules does not result in reasonable provision being made for the surviving spouse out of the intestate's estate then a claim under the Inheritance (Provision for Family and Dependants) Act 1975 may be successful. However it is obviously not desirable that for want of a Will a surviving spouse should be compelled to resort to litigation.
Since 9th October 2007 any nil-rate band allowance not used on the death of the first spouse to die can be transferred to the estate of the surviving spouse (please refer to our website article on this subject).
Anything passing on the first death otherwise than to the surviving spouse will have the effect of reducing the proportion of the nil-rate band transferable to the survivor's estate.
Thus if a person were to die intestate on or after 1st February 2009 but before 6th April 2009 worth £1million, leaving a surviving spouse and parents, but no children or issue, then (disregarding the value of any personal chattels) the spouse would take £450,000 plus half the remainder, i.e. £275,000, making a total of £725,000, and the remaining £275,000 would pass to the parents. On the death of the surviving spouse only 11.858% of the nil-rate band applicable to the estate of the first spouse to die would be transferable to the survivor's estate.
This is an obvious case where the failure to make a Will could result, not only in part of the estate passing in an unintended and unwished-for manner, but also in adverse tax consequences.
Instructing us to deal with the preparation of a straightforward Will is not a very expensive process. Nevertheless some of our clients persist in remaining intestate. The ability to face the fact of one's own eventual mortality is a skill which we all have in varying degrees. However, once you have executed a valid Will which gives effect to your current wishes, you will have leapt the hurdle and can put the matter behind you … except that your Will will need to be kept under review in the light of any changes of circumstance, and in any event every 5 years!
In order to start the ball rolling please write to or call your usual contact at Stafford Young Jones or, if you have not previously instructed us, contact Hanan Aly on 020 7623 9490 or by email at alyh@s-yj.co.uk.
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