Till Death us do part? The importance of having a Will, especially during a Divorce
It is not uncommon for divorcing couples to become embroiled in lengthy discussions, negotiations and, in some cases, litigation, in relation to how their assets are to be divided between them. Frequently, it seems, though, little thought is given to what would happen if one of the parties were to pass away, and many people do not have a valid Will in place, before, during, or after a divorce. In those circumstances, the intestacy rules determine how a person’s estate will be distributed – and many might be surprised by the consequences of this, especially following recent changes to the law in this area.
The rules have been criticised in the past for their complexity, and the Law Commission launched a consultation into this issue in 2009. Following this, many of the Law Commission’s recommendations were incorporated into the Inheritance and Trustees’ Powers Bill, which received Royal Assent on 14 May 2014. Changes to the operation of the intestacy rules brought about by the Act came into effect on 1 October 2014.
What the Rules say
The rules dictate the order in which beneficiaries will inherit, as follows:
Spouse/Civil Partner
Children or their descendants
Parents
Siblings or their descendants
Half siblings or their descendants
Grandparents
Uncles and/or aunts and their descendants
Half uncles and/or aunts and their descendants
Whole estate passes to the Crown
Old Rules
Under the old rules, if a person died leaving a spouse/civil partner and children, their estate would be distributed as follows:
Spouse/civil Partner – A statutory legacy of £250,000 plus all personal chattels and a life interest in half of the remaining estate
Children – remaining half of the residuary estate at 18 and the capital underlying the spouse/civil partner’s life interest on the death of the surviving spouse/civil partner.
If a person died leaving a spouse/civil partner but no children, the rules operated as follows:
Spouse/civil partner would receive a statutory legacy of £450,000 plus personal chattels and half of the residual estate outright
If the deceased had parents surviving, the parents would receive re remaining half of the residue equally
If the deceased had no surviving parents, the residue would be divided equally between surviving siblings or their children/descendants
If there were no surviving parents or siblings, the estate would pass to the next category on the list, half- siblings or their descendants, and so on, until the list is exhausted. If the deceased died with no living relatives, then the estate passes to the crown.
New Rules
The new rules are designed to simplify the operation of the rules of intestacy and remove the complexity of a trust structure where there is a surviving spouse and children. They do, however, leave a larger proportion of the estate to the surviving spouse, as explained below.
A person dying without a Will, leaving a spouse/civil partner and children would mean:
Spouse/civil partner receives a statutory legacy of £250,000 as well as the deceased’s personal chattels and would be entitled to half of the remaining estate outright.
The children surviving the deceased would be entitled to half the remaining estate at the age of 18.
If a person dies with a spouse/civil partner but no children the spouse would receive the entire estate with parents or siblings not receiving anything.
If a person dies without a spouse/civil partner or children, the estate would pass to the next category on the list above: parents, siblings or their descendants, half- siblings or their descendants, and so on, until the list is exhausted. As under the old rules, if the deceased died with no living relatives, then the estate passes to the crown.
An example
Steve and Mary got married in 1974. Mary moved into Steve’s house, and they never worried about transferring the property into joint names. The house is now worth £1 million. Mary and Steve have two children, Michael and Jessica, who are now aged 21 and 15. Steve frequently mentions that he and Mary ought to make a Will, but they never quite get round to it. Unfortunately, Steve suffers a heart attack and dies suddenly.
Steve’s main asset was the house, and he had some limited savings and premium bonds. After his debts and administrative expenses, his estate is worth £975,000. Because Steve never made a Will, the rules of intestacy apply to his estate.
This means that:
Mary receives a statutory legacy of £250,000 and all of his personal belongings.
The remaining £725,000 must be divided between Mary, Michael and Jessica, with Mary receiving 50% of the remainder (£362,500) and the other 50% being divided between Michael and Jessica (£181,250).
Of course, the monies inherited by the children are subject to inheritance tax, and no one has the funds to cover these costs.
Because all of Steve’s estate is comprised of the house, in order for Michael and Jessica to receive their share of their father’s estate, and pay the inheritance due, the house, where Mary has lived throughout the marriage, must be sold.
If Steve had made a Will, he could, for example, have provided that his entire estate passed to Mary. This would have attracted a full-exemption to inheritance tax on his death, and allowed Mary to remain in the house indefinitely.
In many cases, the operation of the new rules may well reflect what the deceased would have chosen had he or she made a Will, although, as the example illustrates – there may still be problems with the operation of the rules. However, for couples who are separated and/or divorcing, the operation of the rules may mean that the estate is distributed in a way which is contrary to what they would have wished. A divorcing couple might be quite distressed to contemplate their soon to be ex-spouse inheriting £250,000 plus half of their estate and their children receiving significantly less, especially if there are a number of siblings amongst whom the estate much be shared or there are children from a previous marriage, for example.
Although there have been many calls for a change in the law to provide for couples who are cohabiting, the changes do not affect the position of couples who are unmarried or not in a civil partnership. Estates of those dying without a valid Will continue to be dealt with in accordance with the rules set out above – meaning that a cohabiting partner would receive nothing.
It is therefore important for anyone in an unmarried relationship and couples who are separated or divorcing to ensure that they have a valid Will dealing with the distribution of their estate to ensure that their loved-ones inherit in accordance with their wishes and are not left without adequate provision in the event of their death.
If you have any queries about this article please contact jonesnickolds on 0203 405 2300 or contact@jonesnickolds.co.uk