INHERITANCE DISPUTES: NO WILL? NEW INTESTACY RULES APPLY

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The Inheritance and Trustees’ Powers Act 2014

For anyone who dies without a Will after 1st October 2014, new rules apply. Up to two thirds of adults don’t have a Will, and thousands of people die “intestate” every year. The Inheritance and Trustees’ Powers Act 2014 (“ITPA 2014”) follows a six year investigation by the Law Commission.

Many people don’t get round to making a Will, are put off, or don’t know that key events in life like getting married or a civil partnership can revoke an existing Will. The intestacy rules then apply. These fix the distribution of a deceased’s estate once debts and liabilities, funeral expenses and costs of the administration of the estate have been paid

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KEY CHANGES

(References to “spouses” and “marriage” include same-sex spouses and civil partners respectively).

a/ If you are survived by a spouse and children

The spouse takes all the assets in joint names, all your personal possessions, the first £250,000 outright, and half the remainder. The other half of the remainder goes to the children equally at 18.

Previously, a surviving spouse would receive a statutory legacy of the first £250,000; any remaining amount would be split in two. Half went to the surviving spouse as a “life interest” reverting to the children on the surviving spouse’s death. The other half went to the surviving children immediately.

b/ If you are survived by a spouse but no children or grandchildren

The spouse takes the whole estate, even if your parents or brothers and sisters survive you. Extended family will no longer have an interest. Previously, the spouse had to share the remaining estate (after payment of a £450,000 legacy to the spouse) with the deceased’s parents (if living) or full siblings (and their descendants). Under ITPA 2014 the spouse receives the whole of the estate. Most would regard this as fairer to the spouse and usually what the deceased would have wished.

c/ If you don’t have a spouse but you do have children

The remaining rules are unchanged, so the children share the estate equally between them.

d/ If you don’t have a spouse and you don’t have children

Remaining family members inherit the whole estate (equally between them if there is more than one, e.g. you have two surviving parents) in the following order:

  1. parents
  2. brothers and sisters of the whole blood and the offspring of any predeceased
  3. brothers and sisters of the half blood and the offspring of any predeceased
  4. grandparents
  5. aunts and uncles of the whole blood and the offspring of any predeceased
  6. aunts and uncles of the half blood and the offspring of any predeceased and,
  7. finally, if there are none of the above then the estate goes to the Crown.

For someone whose parents were not married, if both names are on the birth certificate, then they are both parents for the purposes of inheritance.

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WINNERS & LOSERS

  • Children of wealthy families where a parent dies intestate will receive less under the new rules than before. Spouses are the main beneficiaries of an intestate’s estate under the new Act.
  • Where there are no children, other relatives of the intestate individual (like siblings, parents and cousins), will no longer automatically inherit part of their estate.

FAMILY PROVISION

Certain family members and dependents can apply to the court for a share (or larger share) of a deceased’s estate under the Inheritance (Provision for Family and Dependants) Act 1975 (“IPFD 1975”) where they can prove there is no “reasonable financial provision”.

Although making a Family Provision claim can make a difference, this depends on litigation, which can be expensive. It is preferable to consider any potential claims when making a Will because decisions taken then can stop such disputes arising once it’s too late.

The 2014 Act does make a number of amendments to IPFD 1975 permitting close family and dependants of the deceased to make a claim for provision from the estate where they have not been provided for.

Classes of claimant will be extended to include any person who was treated by the deceased as a child of the family, not only in relation to a marriage or civil partnership, but in relation to any family in which the deceased had a “parental role”.

Changes also apply where someone is treated as being “maintained” by the deceased. Previously, a person would be treated as being maintained by the deceased if the deceased was, otherwise than for full valuable consideration, making a substantial contribution towards that person’s reasonable needs. Now, the words

“otherwise than for full valuable consideration”

are deleted. This prevents a claim failing where there was some give and take economically in the household.

WHAT IS NOT COVERED

  • The intestacy rules don’t recognise a deceased person’s step-children, only their natural, adopted or illegitimate children.
  • Whilst the rules give some protection to married couples and civil partners, both partners or co-habitees should have a Will to ensure that their wishes are carried out.
  • Entitlement under the Intestacy Rules only applies to couples who are married or in a civil partnership. Other couples who are co-habiting have no protection. Anyone who is co-habiting with a partner who wants to provide for them on death must make a Will. If not, your estate passes to your relatives or, failing that, to the Crown – unless your partner can make a claim for financial provision to be made on the ground that they were financially dependent on you.

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MAKING A WILL OVERRIDES THE INTESTACY RULES

  1. People should still always make a Will rather than rely on the Intestacy Rules. These are only a fall back where there is no valid Will, and are inevitably rough and ready, often very different to what the deceased may have wanted or assumed would happen.
  2. Making a Will not only ensures that your wishes are complied with, but it can also help to minimise the tax burden when you die. In addition, Administration in an Intestacy can be slower and more expensive.
  3. For unmarried and co-habitating couples, having a Will is equally, if not more important, as the rules for an unmarried surviving partner are unchanged; under the current and the revised intestacy rules, they are not automatically entitled to any of the estate.
  4. Often a Will saves surviving relatives an enormous amount of time, expense, uncertainty and possible disputes and litigation.

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Paul Sykes is a Contentious Trust and Probate Specialist registered with ACTAPS

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HASTINGS BASS: PROTECTION FOR TRUSTEES REDUCED

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The Court of Appeal handed down two decisions in July 2011 in favour of HMRC. The decisions substantially restrict protection for Trustees under the longstanding Rule in Re: Hastings Bass [1974] EWCA Civ 13.
The Court of Appeal heard both cases together, commenting that some of the case law evolving from Hastings Bass had been incorrect. HMRC’s Appeals against the application of the Rule was allowed in both Pitt v Holt and Futter v Futter [2011] EWCA Civ 197.

In both cases, the action taken by the Trustees/Fiduciaries had been as a result of professional advice, but there had been unexpected adverse tax consequences. Previously it was thought that where a Trustee or Fiduciary had exercised a discretion mistakenly which resulted in unintended consequences, especially where acting with professional advice the court would exercise discretion and interfere with the Trustees’ decision. This would arise by applying to the court to have their decision or act rendered void or voidable.

The Judiciary have over recent years expressed disapproval of the way that the Rule in re Hastings Bass was being so widely applied.

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The outcome is that it is less likely in future that Trustees will be able to avoid adverse consequences of the exercise of discretion by applying to the court for such problematic decisions to be set aside. Instead Trustees are more likely to be at risk of facing claims from Beneficiaries. In turn, the Trustees may have to face the more difficult prospect of considering a claim for professional negligence against their professional advisors.

The rationale is that in relying upon professional advice, Trustees are not in breach of their fiduciary duty if it turns out that the advice given to them was materially wrong. The Court of Appeal held that in such circumstances the Trustees’ decision taken in reliance on that advice is not void or voidable and cannot be interfered with or “corrected” by the court. As such, Trustees who follow advice in particular on tax from apparently competent advisors would not be regarded as being in breach of their duties.

Consideration was also given to the alternative ground of mistake, but it was held that the tests to qualify for the equitable remedy of mistake had not been fulfilled.

The result is that the Rule in Hastings Bass is restricted to pure Trust principles. Rather than Trustees applying to the court on an uncontested basis, in future it is likely to be for the Beneficiaries to challenge the Trustees’ actions if they wish to have them set aside.

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Trustees and professional advisors will note that in the leading Judgment of Lloyd LJ ( paragraph 220) he suggested that the Beneficiaries remedies

“….. lie not in the realms of equity, but by way of a claim for damages for professional negligence ….”.

It is understood that whilst the Court of Appeal refused the Trustees in Futter v Futter permission to appeal, permission may be sought from the Supreme Court.

J Paul Sykes LLB LLM
First Published July 2011