When someone dies without leaving a valid Will, the law steps in to define who is entitled to their property and how it will be divided up. We refer to these laws as the Intestacy Rules.
Dying intestate – without a Will – can create real difficulties for family members left behind. The Intestacy Rules are intended to fill the hole where the Will would have stood – deciding on what should be inherited by who – thus, at least in theory, reducing any potential issues arising from a lack of clarity over how the deceased might have wanted to share out his/her estate. However, while it was intended that the Intestacy Rules offer clarity and fairness, because every situation is different, and inevitably one size does not fit all, the Rules sometimes led to an unfair result. Consequently, there have been occasional attempts to update the Intestacy Rules. Most recently, new legislation came into force in October 2014 that has substantially amended these rules, seeking to make them simpler and “fairer”.
Probably of greatest interest to most of us, are the amendments to the Rules that relate to what happens to surviving spouses (and civil partners). Before the changes came into force on October 1st, the Intestacy Rules could frequently have the effect of forcing a surviving spouse to share their inheritance with quite distant relatives or could create complex trusts over assets, even when the person who died would have wanted something completely different.
The new Intestacy Rules seek to address these issues and simplify the division of property for people who die without a Will.
So how could the new Intestacy Rules apply to my situation?
Under the new Intestacy Rules, the estate of someone who dies (the deceased) without a Will is now shared out as follows:
- Where the deceased is survived by a spouse and children (and/or grandchildren), the spouse receives the deceased’s “personal chattels” (in general terms, their personal possessions) together with a legacy currently set at £250,000. If there is anything left over, the surviving spouse receives half of the remaining estate but the other half goes to the deceased’s children and/or grandchildren (which will be held on trust for them, if necessary, until they reach 18) in accordance with detailed rules.
- Where the deceased dies leaving a spouse but leaving neither children nor grandchildren, under the new Intestacy Rules the spouse inherits everything.
- In the situation where the deceased is not survived by a spouse, then the Rules set out which relatives are entitled to inherit. If no ’qualifying’ relative exists to inherit under the Intestacy Rules, all the property passes to the Crown (or, in some cases, to the Duchies of Cornwall or Lancaster) as, what is called, “bona vacantia”.
Will the new Intestacy Rules ensure that my estate is divided up as I would want?
When compared with the old Rules, our view is that the new Intestacy Rules are likely to be closer to what the deceased would have wanted in many cases, but clearly, and significantly, not in all cases.
Three fictional scenarios illustrate some of the problems that may still arise if a person dies intestate:
Scenario 1: Mr and Mrs Smith lived in their house together for 40 years. It was a happy marriage. Mr Smith was the sole owner of the house, although Mrs Smith contributed to the bills through the years with a part-time job and stayed at home for a number of years to raise their three children. By January 2015, there was no mortgage on the house. The couple held various insurance policies and a substantial amount in a savings account. Sadly, in February 2015 Mr Smith died of a heart attack before finalising his Will, leaving his widow, three adult sons and 5 grand-children.
The house is subsequently valued at £450,000 and Mr Smith’s total estate is worth £800,000. In this scenario, under the New Intestacy Rules, Mrs Smith will receive all her husband’s personal possessions plus a legacy of £250,000 plus half of the remaining estate – ie: half of £550,000, which amounts to £275,000, making her total legacy £525,000. Consequently Mrs Smith does not have to be concerned about her living situation as she can elect to take the house as part of her inheritance from her spouse.
In Scenario 2, we again take the Smiths as our case study, but this time we note that Mr Smith’s estate is valued at £500,000, rather than £800,000. In this case, Mrs Smith’s total share of her husband’s estate will be £375,000. As she has no savings in her own name with which she could top up her entitlement, Mrs Smith will not be able to elect to take the house, valued at £450,000, as her inheritance outright.
In this instance, according to the new Intestacy Rules, her three sons will also have a share in the property, and could if they so choose, try to force a sale of the house in order to realise their interests. However, in Scenario 2, sense prevails. Mrs Smith has a close relationship with all her children and their spouses/partners and so the family readily agrees that Mum should be able to carry on living in the home she’s known for 40 years. In this situation the family are willing to resolve this dilemma amicably. Nevertheless, the three sons (and Mrs Smith) should still seek legal advice to consider whether any steps should be taken to secure or to vary their entitlement, in the interests of making the outcome as fair, convenient and tax efficient as possible.
Scenario 3 below, however, demonstrates when problems can arise if the Intestacy Rules need to be applied in the absence of a professionally-drafted and legally-binding Will.
As in Scenario 2, Mr Smith dies intestate (without a Will) leaving a house, in his sole name, valued at £450,000 and a total estate worth £500,000. Under the new Intestacy Rules, Mrs Smith is entitled to £375,000, but she does not have funds to make up the balance of the value of the house. So again, as in Scenario 2, she cannot take the whole value of the house as her inheritance outright. However, unlike Scenario 2, this time Mrs Smith has three sons, who unfortunately don’t see eye to eye either with their Mum or between themselves. In addition one son has run up substantial gambling debts and another’s spouse is pregnant and about to leave a high-paying job.
Again the three sons all have a share in their mother’s home, but this time because of the breakdown in familial relationships and financial pressures, in accordance with the new Intestacy Rules, the siblings decide to try and realise their shares in the property by forcing a sale of their mother’s home. In an attempt to stay living in her home, Mrs Smith then makes a claim against her husband’s estate and the dispute ends up in Court - bringing with it significant costs, and further damaging the family relationships. Surely, this is the last thing most clients want or need after a bereavement.
Clearly – as Scenario 3 demonstrates - relying on the Intestacy Rules does not guarantee that the outcome will be what the deceased intended.
Further, in the case of unmarried couples, an unmarried partner will still have no entitlement under the new Intestacy Rules, even if they lived with the deceased for many years (although they may have a potential claim against the estate), nor will valued/close friends or favourite charities supported during the deceased’s life time.
In conclusion - though the new Intestacy Rules are in some ways simpler (and more generous to surviving spouses) than the rules that used to apply when someone died without a Will, we think that ultimately - as Mrs Smith will attest to in our Scenario 3 above - the best way to be confident that your estate will pass, on your death, to the person/people that you want, is to make a carefully considered, valid Will, with the benefit of professional advice.
If you would like us to provide you with legal advice following the death of a relative or if you would like assistance with making a Will, please contact a member of our private client team who will be happy to assist you.
N.B. This article is intended to give only a general outline of the recent changes in Intestacy laws (and should not be taken as legal advice). In addition we are only referring to cases where the deceased dies domiciled in England and Wales and where all their property is located in England & Wales.