On 1 October 2014, the Inheritance And Trustees’ Powers Act 2014 (IATPA) came into force. It makes changes to a number of areas; this article looks at the new rules on how an estate is divided when someone dies intestate ie, without a valid will.
The changes come in two areas – firstly, when someone dies survived by a spouse or civil partner, but with no children or grandchildren; and, secondly, when someone dies with a spouse or civil partner, and surviving children. There is no change to the current rule that, if you die with no surviving spouse but with surviving children, the children inherit your entire estate.
Looking at the first situation, prior to 1 October the surviving spouse received the personal belongings of the deceased, the first £450,000 and half of any remaining assets. The other half would go to the deceased’s parents or, if they were not alive, any siblings and their children.
So if you had been married for 20 years but had no children, and had an estate worth £1 million, under the old rules your spouse would have received £725,000. Now your spouse will take the entire estate. This accords with what most people would believe is a fair and appropriate split, and indeed many people would be surprised to learn that this has not always been the case.
As for when a spouse and children survive, previously the spouse would have received personal items, the “statutory legacy” (a fixed sum, currently £250,000) and half the remainder on “life interest trusts” (meaning they were entitled to the income from that amount for life, although there were provisions allowing that interest to be capitalised). The children would take the remaining half, plus the capital of the spouse’s half once the spouse died.
Under the new rules the spouse will receive the statutory legacy, and half the remaining estate outright. The remaining half goes to the children. Using the same example (and ignoring inheritance tax), previously the spouse would take £250,000 plus the right to receive the income generated by £375,000. The children would receive £375,000 plus £375,000 on the spouse’s death. Now the spouse will get £625,000, and the children £375,000, outright.
Again this change is positive in simplifying what many people would regard as an unnecessarily complicated system. However, it is important to realise what has not changed: the intestacy rules still do not make any provision for unmarried partners, or step-children, or many others who may think they should have some entitlement to a share of the deceased’s estate. The only option for these people will be to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975, if they are eligible to do so.
Likewise, while the new rules are simpler and better in some respects, they remain a blunt instrument, imposing on all estates a generic division of assets. That division will take no account of the subtleties and circumstances of real families, and may lead some spouses or children to make a claim under the 1975 Act.
In light of this, the best advice remains as it has ever been – make a will!