Winners and Losers in New Inheritance Regulations
The new Inheritance and Trustees’ Powers Act 2014, which comes into force on 1st October 2014, makes some key changes to the current law that will have an impact on both the administration of estates and claims brought against estates for financial provision. Andrew Hasnip, a partner in the Private Client Department and Mark Terrar, an associate solicitor in the Contentious Probate Department at Wilkes LLP discuss some of the changes.
This act makes some key changes to both the Intestacy Rules – which apply when a person dies without leaving a valid Will – and what claims can brought against the estate for financial provision. These go some way to reflecting the increasingly diverse nature of 21ST century family arrangements.
There are two major changes to the Intestacy Rules (the rules which govern the distribution of an estate when there is no Will):-
- In circumstances where a person dies leaving a surviving spouse but no children the surviving spouse will now always inherit the whole of the estate. Previously, the surviving spouse would have received the first £450,000 of the estate with any excess to be split between the surviving spouse and any surviving parents or siblings.
- In circumstances where a person dies with a surviving spouse and children the surviving spouse will continue to receive a statutory legacy, which is currently set at £250,000. However, for deaths after 1 October 2014 the spouse will now also take an outright share in 50% of the balance remaining in the estate. The position before was that the surviving spouse would receive the first £250,000 of the estate and then only have right to receive the income from 50% of the balance remaining in the estate.
Andrew comments “These are a welcome update to the Intestacy Provisions and remove the need for any part of the entitlement to a surviving spouse/civil partner to be held on trust for them. However, there is still no substitute for having a professionally drawn Will to determine how your estate will pass rather than relying on the Rules of Intestacy. A Will not only enables you to identify specific assets to be left to named individuals or to divide the estate in a manner of your choosing rather than that of the law but also allows for substitute provisions choice of executors and guardians (particularly important for those with minor children) and for significant amounts of Inheritance Tax to be saved through proper Inheritance Tax Planning. A Will can also allow for gifts to be made to non-family members such as a co-habitee or long-term partner whereas the Intestacy Provisions still make no attempt to benefit anyone other than spouses or blood relations. Those in a second marriage but with children from a previous relationship also risk those children losing out under the new provisions. Gifts to charity are also excluded in the Intestacy Provisions.”
The Act also makes changes to the Inheritance (Provision for Family and Dependants) Act 1975. This act allows claims to be brought against estates for financial provision.
The major change is to extend the definition of who can bring a claim to any person who is treated as a child of the deceased.
According to Mark: “This change to the legislation will mean, for example, that a child of a single parent may be able to claim against the estate of their parent’s co-habiting or long term partner. Previously an applicant had to show that they were treated as a child of the deceased within a marriage or civil partnership. Now, it will only be necessary for the application to demonstrate they were treated as a child of the deceased. The co-habiting partner would need to have made a substantial contribution to that child’s reasonable needs for a claim to be successful. This change may well increase the number of claims that will be advanced.”
Mark goes on to explain: “Another change likely to result in more claims being successfully advanced is that it is now no longer necessary for a dependant to show that the deceased contributed more to the relationship than the applicant did. For example, within the context of a co-habiting relationship it is traditionally difficult for the surviving partner who made a greater financial contribution to the relationship to advance a successful claim. This is because the Court often blocked claims in cases of mutual dependency.”
The Contentious Probate department at Wilkes advises on all manner of disputes involving estates. For detailed advice on all of the changes brought about by the new legislation or for advice about bringing or defending a claim for financial provision please contact Mark Terrar on 0121 233 4333.
For advice on estate planning and drafting your Will please contact Andrew Hasnip or any member of the private client department on 0121 233 4333 (Birmingham Office) or 0121 733 8000 (Solihull Office).