Modernising intestacy rules

Spouses and civil partners are set to benefit from changes in the rules of intestacy. Jane Netting explains the practical implications of dying without a will.

Recent changes to intestacy rules do not go as far as some reformers were hoping but there are some benefits for spouses and civil partners who inherit if someone dies without a valid will. The changes apply to deaths on or after 1 October 2014 and are contained in the new Inheritance and Trustees Powers Act 2014. In summary, the new rules say that: where the deceased leaves a surviving spouse but no children all the estate passes to the spouse or civil partner; and where the deceased leaves a spouse and children, the spouse or civil partner receives a statutory legacy of £250,000 (with interest) and personal chattels. Additional assets are divided so that half of the residuary estate passes to the surviving spouse or civil partner with the remaining half being divided equally among the deceased’s children.

Some may be surprised to learn that the old rules distributed differently, setting up a continuing trust for the spouse.

The statutory legacy of £250,000 is paid free of tax and costs but with simple interest added. The interest accrues from date of death until the legacy is paid. The amount of the statutory legacy will be reviewed at least every five years.

It is worth noting that the following people cannot inherit under the intestacy rules: unmarried partners; same sex partners not married or in a civil partnership; anyone related to the deceased by marriage; friends; and carers. Sometimes the rules of intestacy just don’t fit family circumstances. Bear in mind that if all of the beneficiaries under the intestacy are aged 18 years or over, and in agreement, then the intestacy rules can usually be altered by a deed of variation, which must be put in place within two years of the date of death.

What happens in practice?

Scenario 1 

George dies intestate, survived by widow, Betty, and their three adult children. His estate is valued at £1m.

Under the new rules:

Betty receives: personal chattels; £250,000; and half of the residuary estate.

The children receive: half of the residuary estate, divided equally between them.

It is important to note the inheritance tax position. The gifts to Betty are exempt. The gifts to the children are not. George’s nil rate band would be used, so inheritance tax would be payable on his death, as well as on Betty’s, whereas no inheritance tax would be payable if the estate passed entirely to Betty or into a trust for Betty’s benefit. The family could consider a deed of variation.

Under the old rules:

Betty receives: personal chattels; £250,000; and a life interest in half of the residuary estate.

The children receive: The other half of the residuary estate, divided equally between them. After Betty has died, any assets held in the trust would be divided equally between them.

Scenario 2

Colin dies intestate leaving his widow, Marjorie. They have no children. Colin is survived by his father and his brother, Doug.

Under the new rules:

Marjorie receives: All of Colin’s residuary estate.

Under the old rules:

Marjorie receives: £450,000; personal belongings; and half of the residuary estate.

Other family members receive: The other half of the residuary estate will pass to Colin’s father.

However, if the father were to have already died then the half share would pass to Colin’s brother.