In our Private Client update on 30 September 2014 we reported on the radical changes to the intestacy rules that came into effect on 1 October 2014. The changes were part of a number of measures contained in Inheritance and Trustees’ Powers Act 2014 (the Act) designed to modernise aspects of succession law and trustees’ powers to use trust money for young beneficiaries.
The Act implements the majority of the reforms recommended by the Law Commission following consultations in 2009 and 2011 which, in addition to revising the intestacy rules, included:
- protecting the inheritance of children who have lost their parents and are subsequently adopted
- increasing the rights of unmarried fathers if their children die intestate
- giving trustees greater flexibility to use income and capital for young beneficiaries
- updating the definition of ‘personal chattels’
- extending the category of people who can apply to court for financial provision from an estate.
References to marriage include civil partnerships.
A child who has been adopted is regarded as the legal child of his or her adopter parents only. Under the old law, this could mean that a child who was adopted following a parent’s death was at risk of losing out on an inheritance if they only had a contingent interest in their parent’s estate (i.e. if they were only entitled on reaching a certain age, such as 18, under the intestacy rules). The Act provides that they are now able to keep that interest.
The Act improves the position of unmarried fathers by removing a previous rule under which there was a rebuttable presumption that they had predeceased their child if the child had died intestate. This presumption is now disapplied if the father’s name is on the birth certificate.
Flexibility for trustees
For trusts created or arising after 1 October 2014:
Where trustees hold funds for a beneficiary who is a minor (under 18), under trust law they have the power to use the income from the funds for the minor’s maintenance, education or benefit.
The Act now incorporates a standard amendment to the statutory provisions which was included in most professionally drafted trusts to remove the requirement that trustees must have regard to certain specified factors and apply only a proportionate part of the funds available. The effect is to remove the burdensome statutory control and give trustees complete discretion to apply income for the benefit of minor beneficiaries.
Trustees also have a statutory power to give a beneficiary with an interest in capital (for example, one who will receive their inheritance on reaching 25) the benefit of that capital early (known as the ‘power of advancement’).
For trusts created or arising before 1 October 2014, trustees could only advance up to half the beneficiary’s share and so it was common for trust documents to expressly extend the power to enable the trustees to advance the whole. The Act extends the statutory power in this way.
These are essentially one’s personal possessions such as jewellery, cars, furniture, etc. In professionally drafted wills they are commonly defined, for certainty, by reference to a statutory definition (which also applies if a person dies intestate). Dating back to 1925, the old definition was in need of modernisation (listing items such as carriages and stable furniture).
The Act updates and simplifies the definition to mean “tangible moveable property” not including money or securities for money, property used solely or mainly for business purposes, or property held solely as an investment. While designed to bring clarity, the exclusion of property held as an ‘investment’ may give rise to disputes over whether valuable collectables such as wine or art are held for personal enjoyment or purely as an investment.
Claim for financial provision
Certain family members and people who were financially maintained by a deceased person can apply to the court to claim financial provision from their estate if, under the terms of their will (or under the intestacy rules), reasonable financial provision was not made for them. Recognising the way family relationships have evolved since the original rules were introduced, the Act extends the categories of people who can bring a claim to include:
- a person treated by the deceased as part of a family in which the deceased stood in the role of a parent to them (irrespective of whether the deceased was married).
- a person is now considered to have been ‘maintained by the deceased’, and so able to bring a claim, if the deceased made a “substantial contribution in money (or money’s worth) towards the reasonable needs of that person”. This removes the requirement to prove the deceased “assumed responsibility” for their maintenance or that they contributed more financially to the relationship than the applicant.
While the raft of reforms introduced by the Act brings important modernisations to the law of succession and trusts, there is no substitute for preparing a will to be certain that your family are provided for after your death in the way you would wish.