The intestacy rules determine who is entitled to a person's estate when they die without a valid will. Dating back to 1925, with only minor changes since then, the current rules are outdated and do not meet the needs and expectations of modern families.
Important changes come into effect this October to modernise the rules but there are still gaps. For example, cohabitants do not inherit any share of their partner's estate and the rules can have unexpected and unwanted consequences for people in second marriages/civil partnerships or who have children under 18.
WHAT ARE THE CHANGES?
The rules depend on the size of a person's estate and which family members survive them.
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DO THE RULES WORK FOR YOU?
The rights of spouses/civil partners are increased but they do not necessarily inherit all of the estate and could find themselves co-owning assets with the deceased's children.
Children have access to potentially large amounts of capital outright at 18 when they may still be in education or do not have sufficient maturity to handle it responsibly. As the Inheritance Tax spouse/civil partner exemption is not available on the children’s inheritance, the estate could face a large tax bill.
Would someone always want their spouse/civil partner to inherit so large a part of their estate outright? With second marriages/civil partnerships, there may be children from previous relationships and the couple may have kept keep their finances separate. A smaller legacy or a life interest may be more appropriate.
So called 'common law' partners may be shocked to learn they do not inherit any of their partner's estate - irrespective of the length of time they were together, whether they lived together or have children. The bereaved partner may have to bring a claim through the courts to receive part of the estate.
Relying on those who inherit under the intestacy rules to make the gifts that the deceased would have wished is not advisable. The beneficiary may not be able or have the means to do so in the future and it may carry adverse tax implications for them and their estate.
The new rules also revamp the definition of 'personal chattels'. It now excludes assets held for investment purposes, which may lead to family disputes over whether items such as wine, classic cars and other collectibles (possibly of considerable value) pass to the spouse/civil partner or go into residue.
NO SUBSTITUTE FOR A WILL
In a society where cohabitation, second families and single-parenting means that family structures and dynamics are becoming more varied, the intestacy rules may not cater for how a person would wish to leave their estate. There is simply no substitute for preparing a will to be certain that your family are provided for after your death in the way you would wish. Opportunities for tax planning may also be missed by not taking professional advice.
Remember, the absence of a will is not the only occasion when the intestacy rules may apply. Marriage/civil partnership and divorce/dissolution will affect a person's existing will and so it is important to revisit yours each time your family circumstances change.