Death and Taxes – Issues to consider after losing a spouse or partner

The loss of a spouse or partner can be an overwhelming experience. Alongside the acute sense of loss, there is the burden of practical issues: registering the death, arranging a funeral, notifying people. And sometimes, unfortunately, as everyone struggles to come to terms with their grief, dealing with family tensions and conflict.

With all this going on, there is often a temptation to leave aside dealing with the deceased spouse or partner’s estate, more especially since most people believe that probate and financial matters can wait until after the death of a second partner.

Unfortunately this can lead to expensive problems later on down the line.

While, in certain situations, for instance where all property is held jointly by a married couple, the advice may be that a grant of probate is not required at this stage, in many other cases, it would be far better to take steps now to avoid costs and frustrations for you and your family at a later time.

All things considered therefore, it’s always better to obtain legal advice on a loved-one’s estate promptly after their death.

Some of the most common misconceptions about your situation at this challenging time and the consequent problems that can arise are:

1. If my spouse dies without a will, I will always be entitled to all their property.

Wrong – if the deceased owned more than £250,000 (on top of personal possessions) other people such as children or more distant relatives may be entitled to a share of the property. Without your being aware, some of the deceased’s assets may be tied up in trusts under the intestacy rules*. Sometimes this is only realised later on, for instance when you come to sell a property. Finding out about this early on means that you keep more options on the table and are able to plan ahead.

* The Intestacy Rules set out who is entitled to inherit the assets of someone who dies without leaving a valid Will. See the following link for more information: https://www.gov.uk/inherits-someone-dies-without-will

2. If my spouse leaves a will, it will only become important after both of us have died.

Wrong – the will needs to be considered carefully on the death of the first spouse/partner, to check who has an entitlement. It is very common for there to be a “discretionary trust” covering part of the estate (typically the “Nil Rate Band” amount). If you get good legal advice promptly it may be possible to wind the trust up tax-efficiently. After two years, some of these options will no longer be available.

In other cases, someone who has been left a legacy may prefer to pass it onto another person. With prompt advice, this can often be achieved tax effectively. Again if it is left for more than two years after the person has died, some attractive options may no longer be available.

3. Inheritance tax is an issue only after both of us have died.

Again this needs to be checked. Although most married couples (and most couples in civil partnerships) are entitled to “spouse exemption” from Inheritance Tax on gifts they leave each other, there is no similar exemption for unmarried couples. (At least in England and Wales, the idea of a “common law marriage” is a myth that is not recognised by local law.) For an unmarried couple, Inheritance Tax could well be payable, if the deceased owned property over the Nil Rate Band (£325,000 at the time of writing). Even with married couples, care needs to be taken if there are large legacies to people other than the surviving spouse, if large lifetime gifts were made, or if a spouse has assets abroad or close associations with other countries.

There are strict time limits for making Inheritance Tax returns (where required) and for making payments of Inheritance Tax. If the deadlines are missed, there is a risk of penalties and interest being charged.

4. I’ve lost a long-term partner to whom I was not married, but I will still automatically inherit his/her property and be able to carry on living in the family house.

Again this is wrong. An unmarried partner does not currently have any rights to inherit under the intestacy rules (if your partner died without making a will). If the partner did make a will, you should get advice to check that this makes the provision for you that you need or expect.

In some circumstances, if your partner has not made “reasonable” provision for you on his/her death, you may be able to make a claim against his/her estate. However, again there are strict time limits for making such a claim – normally you can only do so within six months of the Probate Registry issuing a grant of representation in relation to the estate.

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More generally, if the estate of the first to die is ignored until the survivor of the couple dies, it may well be necessary to administer the estate of both spouses/partners after the second death. This can cause problems. Often it is difficult to find out what assets the partner who died first owned and how much they were worth. This in turn can cause more cost and delay. In one case dealt with by our private client team, the first spouse died 40 years ago. A lot of research and calculation was needed in order to piece together who was entitled to what and to provide satisfactory information to HM Revenue & Customs and to the Probate Registry.

Here at Gillhams, we always recommend getting some legal advice from an experienced practitioner, as soon as appropriate after a loved-one dies, to give you the best chance of arranging things as you would want, with the minimum of stress and cost for you and your family.

If you would like to discuss an issue raised in this article or if you have any questions or concerns about making or changing a Will, or dealing with a loved one’s estate, please don’t hesitate to contact a member of our private client team here, for a confidential discussion.