Will the changes in the Law affect you?

The Inheritance and Trustees’ Powers Act 2014 (referred to in this article as “the Act”) came into force on 1 October 2014.  Helen Tavroges, a partner in our Private Wealth team, explains the changes to the law and the impact that these may have upon you.

The Act changes the law relating to:

  • the rules that govern how a deceased person’s estate will be distributed if they don’t leave a valid Will (known as the intestacy rules); and
  • the rules relating to claims under the Inheritance (Provision for Family and Dependants) Act 1975 (referred to in this article as “the 1975 Act”) under which regardless of what a person may say in their Will, certain family members and dependants can apply to the Court if they believe that the deceased person did not make reasonable provision for them.

Example 1: Peter and Ruth

Peter is 60 and his wife Myra is 55.  Peter has been married before and has two grown up children from his first marriage.  Myra has no children.  Because it is a second marriage Peter has always kept most of his assets in his own name, including the marital home worth £300,000, some family paintings belonging to his first wife’s family and savings and investments worth £500,000.  He plans to make a Will giving his children the paintings belonging to their late mother and Myra the right to live in the house and to have the income from his savings and investments so that his children can inherit them when she dies.  Unfortunately, he dies before making a Will.

Under the pre 1 October 2014 rules Myra would have received Peter’s personal chattels (in effect the contents of his house, including his first wife’s paintings, his personal items such as his watch and his car) a cash sum or assets to the value of £250,000 and the right to receive the income from half the rest of his estate (“the Trust Share”).  His children would receive the other half of the rest of his estate and the capital of the Trust Share on Myra’s death.

Under the new rules, the position is the same except that Myra receives the Trust Share outright.  So the outcome both prior to 1 October and subsequent to it is far from what Peter would have wanted and after 1 October it is even more so!

Example 2: John and Lesley

John is 40 and Lesley 35.  They have no children. Lesley inherited assets worth £600,000 on the death of her parents who died in a car crash and has kept them in her own name.  She intends to make a Will giving these assets to her two brothers, but before she does so she dies.

Under the pre 1 October 2014 rules John would receive Lesley’s personal chattels, a cash sum or assets to the value of £450,000 and half the rest of her estate, with the other half passing to her brothers.  Under the new rules, however, John will inherit all of Lesley’s estate, which is totally against her wishes.

Example 3: Tony and Marie

Tony is married to Marie.  He has two grown up children by his first marriage and has brought up Marie’s daughter Danielle as his own.  Unfortunately, when Tony died he and Marie had separated after many years of unhappiness.  Tony makes a Will providing for his adult children, with no provision for Marie and Danielle, not realising that she will be able to make a claim for both of them under the 1975 Act.

Marie takes advice and makes a claim against Tony’s estate:

Marie’s Claim – it has always been the case that the Court when considering Marie’s claim should have regard to what likely award would be made in divorce proceedings.  The 2014 Act now makes it clear that this divorce cross check is not to be regarded as setting either a lower or upper limit on the level of any award made by the 1975 Act.  The divorce cross check should be considered as only one of many factors, such as the duration of the marriage/civil partnership, when deciding upon the award to make to a spouse or civil partner.

Danielle’s Claim – under the pre 1 October 2014 rules a claim could be made by Marie on behalf of Danielle because she is treated as a child of the family by virtue of Tony’s marriage to her mother.  The new rules go further than this by allowing the claim to be brought by a person who was treated as a child of the deceased person regardless of whether that relationship had arisen because of the marriage of any person in the unit, for example if Tony and Marie had not been married or even if Tony had brought up Danielle on his own.

Conclusion

Whilst many will welcome the increased inheritance rights afforded to spouses under the revision of the intestacy rules, unmarried couples are not covered by the rules.  The Law Commission in December 2011 recommended that the intestacy rules be changed to allow for cohabitees subject to certain conditions about the length of cohabitation, but those changes have not been enacted, which means that a cohabitee will still be faced with making an expensive claim under the 1975 Act under which entitlement is by no means guaranteed.

Dying intestate can cause enormous expense and delays and the intestacy rules are seldom likely to produce a result that will reflect your wishes as to the division of your assets on your death; nor be the most tax efficient manner for your estate to be administered. A well drafted Will can provide protection against the unexpected, for example the divorce or bankruptcy of one of your chosen beneficiaries. It is therefore very important to make sure that you have a valid Will in place, and that you review it regularly as your circumstances change, so that your assets pass to the people and in the amounts that you would want them.

Moreover, when making a Will it is very important to consider any potential claims under the 1975 Act.  If you make insufficient provision for your spouse, civil partner or a person who is financially dependent upon you the result is likely to be an expensive Court battle which can have a devastating long term consequences for your loved ones.