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The Intestacy Rules

Friday, 6 November 2009

What Happens to an Estate if a person dies without a valid Will?
The intestacy rules govern the distribution of a person's estate if they die in England & Wales without a valid Will. The rules changed on 1st February 2009 - but what do the changes actually mean in practice? Here we summarise the key changes.
For those who are not married or in a civil partnership, there is no change. Creating a Will remains the only means of assuring that your partner is financially provided for.
However, there has been a significant change affecting those who are married or in a civil partnership.
We have set out below a series of scenarios, to demonstrate how the rules may affect you.
Paul and Pauline
Paul, a bachelor, owns a house worth £500,000, with a life insurance policy to cover the mortgage. He then met Pauline, who had two young children. They fell in love and she and the children moved in. Paul and Pauline never married and he had never made a Will in order to provide for Pauline. However, Paul intended for Pauline and the children to stay in what was now their home, should anything ever happen to him. Paul's parents, on the other hand did not like Pauline or her children. Paul died suddenly with an estate worth £600,000, including £10,000 personal effects.
In summary
If you were married to the deceased, but he/she had no children, then you will now receive:
  • £450,000 (formerly £200,000), and
  • The deceased's personal effects, and
• Half of whatever is left.
If you were married to the deceased, and he/she did have children (whether or not they are also yours) your entitlement will now be:
  • £250,000 (formerly just £125,000), and
  • The deceased's personal effects, and
• The right to income from half of whatever is left.
The children will receive the remainder.
What rights does Pauline have?
As Paul and Pauline were not married, Pauline has no rights in the property, nor any rights under the intestacy rules either. Neither do her children.
Paul's life insurance policy paid off the mortgage, and his parents inherit his estate in full, although they are required to pay £115,200 inheritance tax.

Paul's parents can give Pauline and her children immediate notice to move out, so that they can sell the property.
What if they were married, although Paul had still not made a Will?
Prior to 1st February 2009
Pauline would have received £395,000 in total and the personal effects. The rest would have gone to Paul's parents. Pauline's children would have received nothing (unless Paul had legally adopted them). Since £395,000 is less than the value of the house, Pauline would still have had to move out.
However, under the new rules:
Pauline's situation is significantly improved. Although her children still get nothing, Paul can now keep the house, since the £520,000 she is now eligible for (plus the personal effects of £10,000) is more than the value of the house. Paul's parents would receive £70,000.
What if they were not married, but Paul had his own children?
In this scenario, Paul's children would be the beneficiaries of his estate. Tax of £115,200 would have to be paid.
This would leave Jane without any direct provision, and therefore entirely reliant on the children's goodwill once they reach the age of 18.
What if they were not married, but Paul had added Pauline's name to the property?
As a joint tenant, Pauline may be able to keep the property, but the position with the mortgage and insurance would have to be considered carefully. If the matter was not dealt with properly at the time, Pauline could end up with a property subject to a mortgage and no means to pay it. In these circumstances, the bank could look to Paul's parents (as heirs of his estate) for payment of the mortgage as an alternative to repossession.
If Paul had added Pauline's name to the property title less than seven years before his death, the gift to Pauline would be brought into account, and there would still be a charge to inheritance tax of £115,200. The insurance policy proceeds and £90,000 cash assets are the only readily available funds with which to discharge the mortgage and pay this tax.
The change in the intestacy rules gives Pauline no help, and this is the most awkward situation of all. If Paul wanted to assist Pauline he should have made a Will.
What if Paul and Pauline were not married, but Paul had created a Will leaving everything to Pauline?
The existence of a Will would put the entire matter beyond doubt. Pauline would receive the entire estate, subject to paying the £115,200 inheritance tax. If they were married as well, then there would be no tax to pay.
The Importance of a Will?
  • Unmarried partners still get nothing under intestacy rules, regardless of the length of time they have been together, or the number of children. There is no such thing as a 'common-law spouse'.
  • Even if you are married, step children of the deceased will receive nothing under the intestacy rules.
  • Unintended intestacies (potentially resulting in more tax) will arise if you have not remade your Will after marriage.
  • A Will allows you to appoint a guardian for your children.
  • Wills can save your heirs significant amounts of tax.
  • Making a Will allows you to include charities, friends, relatives etc and even exclude people if appropriate. In contrast, the intestacy rules are inflexible.
It is true that Pauline may have a right to claim some or all of the estate from Paul's parents in court under the 1975 Inheritance Act. However, such a claim would not only take time to come to court it would be costly, with no guarantee of success for Pauline . It would clearly have been cheaper and easier for Paul to have made a Will.
In summary
In the absence of a Will, the changes to the intestacy rules do offer married couples, and those in a civil partnership, more security.
However, the changes still offer no benefit for cohabitees who have not married or entered into a civil partnership. The fixed nature of the intestacy rules mean that the outcome of distribution will continue to depend very much on relationships and individual circumstances.
It is clear that it would be foolish to leave the financial provision of your loved ones down to chance and that a professionally drawn Will would greatly assist.

For further assistance please contact Head of our Private Client Department on 020 7611 4848 to arrange a consultation
The law and practice referred to in this article are those in force on 19th February 2009.
This Article is written as a general guide and is not a substitute for professional advice.
You are strongly recommended to obtain specific professional advice before you take any action.