Dying without a will means you are “intestate” and the situation is called an “intestacy”. Two thirds of the people who die in England and Wales each year are intestate and to avoid complete limbo, the law imposes rules on the division of your assets. These rules are rigid, impersonal and inflexible.
Unless assets are held jointly in such a way that your co-owner inherits automatically, the rules may mean that your nearest and dearest inherit less than you intended, as well as unnecessarily paying more tax. Significant changes have recently been made to the intestacy rules and these apply to all deaths after 1 October 2014.
WHO GETS WHAT?
This all depends on the family members you leave behind. If you are married or in a civil partnership and you have children, then your immediate family will inherit your assets but not necessarily in the proportions you would like. This note explores how the new intestacy rules work in variety of situations and the new rules are summarised in a flow chart at the end.
WHAT HAPPENS IF YOU ARE MARRIED OR ARE IN A CIVIL PARTNERSHIP AND HAVE NO CHILDREN?
If you die without a will then your husband, wife or civil partner (referred to in this note as your spouse) will inherit all of your assets. This only applies if you die without any children or direct descendants (i.e. grandchildren or great-grandchildren).
This is a major change from the old rules. Previously if you left assets in excess of £450,000, then the assets above £450,000 would have been split as to 50 per cent to your spouse and the other 50 per cent would go to your parents. If your parents had died before you, then this 50 per cent share would be parcelled out amongst your brothers or sisters and then their children if they had died before you.
WHAT HAPPENS IF YOU ARE MARRIED OR IN A CIVIL PARTNERSHIP AND HAVE CHILDREN?
In this scenario, your children may end up with significantly more assets than you would like and at an age which you may think is too young.
Your spouse would take:
- your personal chattels (jewellery, furniture, cars, paintings etc) but not items which are used solely or mainly in a business;
- a statutory legacy of £250,000; and
- 50 per cent of any other assets. The other 50 per cent would go to your children.
From your spouse’s position, this is a significant improvement on the old rules. Previously your spouse only had the right to receive the income from “their” 50 per cent share for their lifetime.
Under the old and new intestacy rules, children become entitled to their inheritance at the age of 18 or earlier if they have married. Therefore your children may not only inherit assets which your spouse may need for his or her own financial security, but may have done so at a relatively young age. You may well have preferred to delay their inheritance to say 21 or 25 (tax considerations permitting). You might equally have preferred them not to inherit outright, rather for assets to be held in trust, and to delay their entitlement until they are a little older and settled in life.
WHAT HAPPENS IF YOU ARE NOT MARRIED OR IN A CIVIL PARTNERSHIP?
If you aren’t married or in a civil partnership, either because you have never married or you are widowed or divorced, then your assets will go to any children you have. Your children will inherit outright at the age of 18 or earlier if they are married.
If any of your children have died before you, then your child’s share will go to their children (if they have any). Again, you might not want them to inherit so early or outright.
If you don’t have any direct descendants (children, grandchildren etc), then it’s a matter of finding your closest relative in accordance with a set list. Once you’ve found a living relative then he or she, together with any other relative in the same class, will inherit your assets. This means that the person you may be living with, or a close friend, will not be entitled to anything under the intestacy rules. If you have been supporting them financially they may need to bring a claim against your estate if they are still in need of this support.
The order of entitlement is as follows:
- Brothers and sisters, failing whom any children or grandchildren they may have (i.e. your nieces and nephews)
- Half-brothers and sisters, failing whom to any children or grandchildren they may have
- Uncles and aunts, failing whom to their children or grandchildren
- Half-uncles and aunts, failing whom to their children or grandchildren, failing all of which
- The Crown, the Duchy of Lancaster or the Duke of Cornwall.
WHAT HAPPENS TO MY UNMARRIED PARTNER?
The intestacy rules only provide for spouses, civil partners and close, usually blood relatives. Despite the common misconception to the contrary, a partner to whom you are not married (and who is not your “civil partner”) is not treated like a spouse or a civil partner, and doesn’t benefit under the rules.
If your partner needs financial help and can’t come to an agreement with the family members who are in line to take your assets under the rules, then your partner would have to apply to the court for provision from your estate under the Inheritance (Provision for Family and Dependants) Act 1975.
This is a complicated and uncertain process. The court has to weigh up a number of factors, such as your partner’s financial needs and your moral obligations to them – the sort of things you would take into account far more simply and cheaply in making a will. It also sets your partner against the rest of your family who would otherwise get your assets. Making a will would avoid much of this unpleasantness and also the inevitable expense.
WHAT ARE THE TAX CONSEQUENCES OF DYING INTESTATE?
Broadly speaking, on death your assets are taxed at 40 per cent unless some relief or exemption applies. The two main allowances and exemptions being:
- the tax free exemption on all assets passing to your spouse; and
- the nil rate band allowance which is currently £325,000 (and since 9 October 2007 can increase to £650,000 (on current rates) if there is a transferable nil rate band allowance from a spouse who died before you).
If you are married or are in a civil partnership it makes sense from a tax perspective to leave assets to your spouse so there is no inheritance tax to pay on the first death. The survivor could then decide to make gifts down to a younger generation and, broadly speaking, if they survive for a further seven years there will be no inheritance tax to pay.
However, the intestacy rules do not take this into account. For example, if you have a large estate, you may find that a significant proportion of your assets will pass outright to your children at the age of 18 and so incur an equally significant inheritance tax bill.
The whole situation was even worse under the old rules because it was not possible for a surviving spouse to receive all of the assets unless all of your parents, siblings and their children or grandchildren had also died before you. At least under the new rules, if you are married or in a civil partnership and have no children, then all of your assets will pass to your spouse and the tax free exemption can be claimed.
AM I INTESTATE?
You are intestate if you do not have a valid will which applies to all of your property. Broadly speaking, you can make a will to cover all of your assets other than those which may be held in trust for you or assets which you own jointly with another person as “joint tenants”. If you co-own assets as joint tenants, then your share will pass automatically to the surviving co-owner but if you co-own property as “tenants in common”, then your share will either pass under your will or if you don’t have one, the intestacy rules.
Intestacy can arise not only where you simply haven’t got around to making a will but also where you have tried to make a will but it is invalid for some reason or it does not deal with all of your assets. This could happen if you didn’t comply with the formalities of signing your will e.g. it wasn’t signed in the presence of two independent witness or you have got married since making your will.
If you make a will then you can leave your assets to the people you want to receive them rather than risk your assets being inherited by a long lost relative (whom you may never have actually met). It also allows you to decide when is an appropriate age for your children to inherit and you can choose the people who are best suited to act as your executors. These are people who take control of your assets when you die and administer your estate.
A competent adviser will ensure when drawing up your will that full account is taken of inheritance tax which could be payable on your death and that this is kept as low as possible.
In order to avoid dying intestate, we strongly recommend that you:
- make a will;
- follow exactly the instructions you are given for signing and dating the will; and
- keep it under review at regular interviews, say every five years, so that it does not become out of date or let intestacy in “by the back door”.
NOTE: This note is based on the assumption that you are domiciled in England and Wales at the time of your death. Different rules may apply if you are domiciled outside of England and Wales and specific advice should be sought on your own personal situation.