Inheritance and Trustee Powers Act 2014 – Change to the intestacy rules

The Inheritance and Trustee Powers Act 2014 (ITPA 2014) has changed the rules relating to intestacy as of today (1st October 2014) resulting in a more favourable distribution to spouses and civil partners.

INTESTACY

A person dies intestate if they die without leaving a valid will which distributes their entire estate. Intestacy can take many forms such as: •Lack of a will •Presence of a will which has not been executed properly and is therefore invalid •Presence of a will which has been executed properly, but has been revoked by an action of the deceased such as marriage or divorce •Presence of a will which does not deal with all of the deceased’s assets (partial intestacy)

In circumstances where an individual dies intestate, their estate will pass in accordance with the intestacy rules. Under the intestacy rules, certain members of the deceased’s family will take a share in his or her estate.

CHANGES TO THE RULES

The ITPA 2014 comes into force today and makes the following changes to the intestacy rules:

Deceased dies leaving a surviving spouse or civil partner but no children: Before the ITPA 2014 a surviving spouse or civil partner was entitled to a “statutory legacy” of £450,000 inheritance tax free. The rest of the estate would then be divided between other members of the deceased’s family such as parents or siblings.

Under the new rules a surviving spouse or civil partner will inherit the entirety of their deceased partner’s estate where there are no surviving children.

Deceased dies leaving a surviving spouse and children: Under the old rules a surviving spouse or civil partner was entitled to a statutory legacy of £250,000 and was entitled to receive the income from one half of the remainder of the deceased’s estate. The deceased’s children were entitled to the other half of the remainder of the deceased’s estate absolutely (on reaching the age of eighteen).

Under the new rules, a deceased’s surviving spouse or civil partner will receive a statutory legacy of £250,000 inheritance tax free in addition to one half of the remainder of the deceased’s estate absolutely (as opposed to just the income from half of the estate), and the children are entitled to the other half of the deceased’s remaining estate on trust until they are eighteen.

The statutory legacy of £250,000 will now also increase at least every 5 years in accordance with consumer price index. Previously there have been only been sporadic increases in the statutory legacy.

IS THIS A POSITIVE CHANGE?

The opinion on this change is varied.

By allowing surviving spouses or civil partners access to only the income of one half of the deceased’s estate under the old rules, a trust was created. There was therefore no access to the capital in the trust until the second spouse had died. The trust created by the old rules may also lead to spouses needing to sue their children in order to keep their marital home. It is clear then that the new rules are effective in simplifying the intestacy process.

The new rules obviously favour the surviving spouse or civil partner and many think this is a positive change. As professionals involved with drafting wills we very often see spouses and civil partners leave their entire estates to one another. It could therefore be argued that the new rules still do not make enough provision for surviving spouses or civil partners.

Alternatively, it has been argued that the new rules put too much emphasis on the rights of surviving spouses and civil partners and not enough focus on children, who stand to lose out as a result of the ITPA 2014. This feeling of injustice for children is often exacerbated when the spouse due to benefit under the new rules is the result of the deceased’s second or third marriage.

The ITPA 2014 also makes no provision at all for common law couples.

Whether you think the changes are positive or negative, they cannot suit everybody. The intestacy rules exist for when things go wrong, and should not be relied upon to make provision for your family. By executing a valid will you are able to distribute your estate in any way you wish and need not concern yourself with the adequacy of intestacy rules set out by the Government.