Outdated inheritance rules set to change

Posted on July 14, 2014 in Wills & Probate
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The rules governing intestacy and inheritance are set to change. It’s been a long time coming, with the last review of the intestacy laws occurring more than 20 years ago, and the family provision rules even longer. In that time modern values have changed with cohabitation and second families becoming increasingly common.

The Law Commission, (the statutory independent body created to keep the law under review and to recommend reform when it is need) has taken that on board in their review, noting that some aspects of the current law were ‘outdated, disproportionately complex and no longer in accordance with modern expectations’. They set out to simplify the law, reduce the administrative burden on those administering estates and above all to try to ensure that the transfer of wealth on death better matched public expectations and current family structures.

The resulting legislation is The Inheritance and Trustees Powers Act 2014 ("the 2014 Act"), which received the Royal Assent on 14th May 2014 and is likely to come into force on 1st October 2014.

The 2014 Act will make substantial changes to the Inheritance (Provision for Family and Dependants) Act 1975 (‘the 1975 Act’), the law of intestacy and trustees powers.

This article focuses on the key changes to The Inheritance (Provision for Family & Dependants) Act 1975.

The 1975 Act allows certain categories of people to claim against the estate of the deceased person and apply for a share or an increased share of the estate, whether or not the person left a valid will. Although claims under the 1975 Act have increased significantly in recent years, the legislation does not reflect modern society and contains some significant pitfalls, which has left many potential Claimants unable to claim.

The 2014 Act aims to address some of those issues and to bring the Act back in line with the way we now live. This sees some positive changes to the current legislation which should increase the number of eligible Claimants, their ability to bring a claim and the amount they can recover. The key changes are set out below:-

Child of the Family

The category of eligible claimant is extended to include any person treated as a child of the family, not just in relation to a marriage or civil partnership, but also in relation to any other family in which the deceased had a parental role.

Under section 1(1)(d) of the 1975 Act, a person treated by the deceased as a child of the family is permitted to bring a claim for family provision, but only if that treatment was in the context of a marriage or a civil partnership. This means that it discriminates against those children who have suffered the loss of a person who had taken on the role of parent in their life but who was not married or in a civil partnership.

The changes will remove those obstacles, allowing anyone who was treated by the deceased as a child of his or her family to bring a claim. Given that the Office for National Statistics recorded that 47.5% of children in the UK were born out of wedlock in 2013 (up from around 11% in 1979) this seems an entirely proper amendment to reflect the changing social environment.

Maintenance of Dependants

Certain hurdles to claims by dependants who were being maintained by the deceased immediately before death are removed.

At present Section 1(1)(e) of the 1975 Act allows a person to apply for family provision if he or she was being maintained by the deceased immediately before the death. However, no such claim will be possible if the applicant cannot show that the deceased both contributed more to the relationship than the applicant did and assumed responsibility for that maintenance.

The changes recognise that many households now comprise two or more breadwinners each of whom affords a degree of mutual support to the other(s) and allow claims to be brought in those cases.

Jointly owned property

The Court now has discretion to allow claims in respect of jointly owned property beyond the six month time limit and to decide the appropriate value of the property to be taken into account.

Section 9 of the 1975 Act, which deals with jointly owned property, allows a claimant to bring the deceased’s share of any such property into account. That share is currently determined by the court with the value applied being the value ‘immediately before the deceased’s death’. However, a claim under s.9 can only be brought within 6 months of the grant of representation and at present the court has no discretion to allow a claim to be brought beyond this time limit.

Under the Act the Court will have discretion to allow a claim brought beyond the six month time limit in limited circumstances.

In addition the value of the deceased’s severable share of any jointly owned property will be such value as the court considers appropriate, rather than at the value immediately before the deceased’s death. This allows the court to take into account any fluctuation in the value of the property since the date of death and the reasons for such change.

Time limits

The Act confirms that it is possible to permit an application under the 1975 Act before a Grant of Representation.

Section 4 of the 1975 Act sets a strict time limit of 6 months from the date of a grant of representation within which to bring a claim. No such claim can be brought outside of this limit without permission from the court. The generally accepted position amongst lawyers was that an application could only be brought after a grant of representation had been made in the estate.

The Act confirms that nothing prevents the making of an application before such representation is first taken out.

Domicile

The ability to make a claim against an estate is to be extended to estates where the deceased was non-domiciled but ‘habitually resident’ in the UK.

Currently under s1(1) of the 1975 Act, a claim for financial provision can only be made where the deceased died domiciled in England and Wales. If the deceased was not domiciled in England and Wales at the date of death but leftfamily and dependants here, those family and dependants are currently not able to make a 1975 Act claim, even if the deceased left property that is otherwise subject to English succession law.

The ability to make a claim against an estate is to be extended to estates where the deceased was non-domiciled but ‘habitually resident’ (ie living in the UK for a settled purpose as part of the regular order of his or her life) in the UK. This may be controversial, as it will mean that the UK courts will have power to make orders over overseas assets which may or may not be enforceable in the country concerned.

While this article focuses on the 1975 Act, it is also appropriate to briefly mention some of the other significant changes implemented by the 2014 Act which affect the intestacy provisions and adopted children.

Intestacy

Under the current Intestacy Rules, where the deceased leaves a surviving spouse and children, the spouse receives the first £250,000 of the estate and one half of the remainder on a life interest trust. Under the 2014 Act the spouse will be entitled to their half of the remaining estate outright, not under trust.

Where the deceased dies without children, the spouse at present must share the residuary estate with the deceased's parents or full siblings (and their descendants). Under the new Act the spouse will receive the whole of the estate.

Adoption

Children who are adopted after the death of a parent do not lose their entitlement to share in that deceased person’s estate because of the adoption.

Section 69 of the Adoption & Children Act 2002 is amended to ensure that children who are adopted after the death of a parent do not lose their entitlement to share in that deceased person’s estate because of the adoption – a factor which is often apparently overlooked in the adoption process and has historically denied many children from benefitting from their blood parent’s estates.

While it has been possible to apply to the Courts to preserve a child’s interest it has often been overlooked by professionals who may be unaware of this technical legal issue and failed to make an application in time.

Summary

The 2014 Act, when it comes into force on 1 October 2014, will represent a significant step in updating the current law and bringing it more in line with modern social expectations.

The changes to the entitlements on intestacy will simplify the administration of an estate. While this article focuses on changes to the 1975 Inheritance Act, we anticipate that some parents and siblings of an intestate deceased may be disgruntled about the changes to the intestacy rules if the duration of the marriage is short, there are no children but significant assets which will pass automatically to the surviving spouse or civil partner. The need to make a will to accurately record your wishes is all the more important in the light of this.

The changes will enable inevitably open the gates to more eligible Claimants and make it easier to bring a claim for reasonable financial provision and so it is likely that we will see a marked rise in such claims in the future. You should be alert to this and address this with your legal adviser when making your will.

Wolferstans are experienced in dealing with all types of inheritance disputes. We can offer a range of funding options to suit your personal circumstances and a free 30 minute initial appointment to discuss matters without any obligation to proceed further. For more information please contact Nicola Mitchell-Rodd on 01752 292278.