New intestacy rules – who gets what when you tie the knot?
Death benefits were very much in the spotlight last week. Hot on the heels of the announcement on the changes to pension death benefits came a revamp of the intestacy laws in England & Wales. While this will see spouses and civil partners potentially getting more than before, it may not match your client’s intentions. Both sets of changes highlight the importance of letting people know how you intend for your death benefits to be distributed.
This means making sure wills and pension death benefit instructions are in place and regularly reviewed. And with greater inheritability of pension wealth on the horizon, this could considerably change the size and destination of gifts your clients might want to leave through their Will.
The intestacy rules determine how a deceased’s estate is divided if they don’t have a valid Will. And how certain investments are set up can dictate how they’re passed on. Remember that although jointly held investments will typically form part of the estate for IHT, they’ll pass automatically to the survivor outside the terms of the Will or intestacy.
It’s only married couples and civil partners who’ll see any benefit from the intestacy changes. There are still no statutory rules that would give the growing number of cohabiting couples a right to a deceased loved one’s estate.
The purpose of the changes is to simplify and improve the rights of married couples and civil partners, both with and without children.
Married couples/civil partners without children
From 1 October 2014, if someone dies intestate with no children, the estate will be inherited entirely by the surviving spouse or civil partner.
Before the changes, a share of the estate could have gone to parents or siblings – leaving less for the spouse or civil partner.
Married couples/civil partners with children
The position for those with children has been simplified too. If someone dies intestate and leaves a spouse/civil partner and children, the spouse/civil partner will inherit three elements from the estate:
- All “personal chattels” i.e. moveable property such as jewellery, furniture and cars.
- £250,000 (or the whole of the estate, if its value is less than this).
- One half of any balance left over.
The remaining half share still goes to the deceased’s children. And if those children are still minors, their share is held on Bereaved Minor’s Trust until they reach age 18.
So, the rights under 1 and 2 remain unaltered. But the right to one half of the balance has changed. Previously, a spouse or civil partner would have only been entitled to a right to income from one half of the balance left over, with the other half ultimately passing to the children. But now they’ll receive their half share outright without creating a statutory life interest trust.
While the changes strengthen the rights for surviving spouses and civil partners, it won’t be to everyone’s liking. For example, some would like more of their wealth preserved for their children should their spouse remarry. Others may not want anything to go to their children initially, and would prefer that children only inherited once both parents were gone. And the only way to deal with specific wishes such as these is by making a Will.
What about cohabitees?
There’s less ‘inheritance protection’ for cohabiting couples. Calls for them to be given similar rights to married couples and civil partners continue to go unanswered. And if marriage vows are not for them, they should at least vow to make a Will. Otherwise, their estate could end up passing to parents or siblings rather than their partner. Or it could pass directly to their children and skip the partner completely.
But it’s possible for a cohabiting partner to make a claim on the estate of the deceased in England and Wales. The Inheritance (Provision for Family and Dependants) Act 1975 allows someone to challenge the distribution of an estate if they feel they haven’t been adequately provided for under the Will or intestacy. This remains a complex area which is best avoided by making a Will whereby the partner benefits, removing any uncertainty about who gets what. Without one, the surviving partner could face the prospect of having to go through the courts to get a slice of the estate, which is a stressful and costly thing to have to do at an extremely difficult time.
The new intestacy rules are a fall back provision which give improved results for some, but it’s always advisable to control exactly who gets what by making a Will and keeping it reviewed. And it’s the same for pension death benefits, making sure that death benefit instructions continue to reflect a client’s wishes – especially following last week’s announcements.