Fair Shares? - Wills & Probate

New Law Journal | 13 January 2012 | www.newlawjournal.co.uk

SPECIALIST LEGAL UPDATE

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Wills & probate

Fair shares?

Proposed reforms to intestacy law reflect the reality of modern families, says Joel Wolchover In Brief zzRecent Law Commission project reviews the law of intestacy & family provision claims on death, in an attempt to reflect the reality of modern families. zzProposed reforms will effect the law relating to spouses & cohabitants.

T

he Law Commission has recently completed a project to review the law of intestacy and family provision claims on death; and those of us working on the project have kept in mind the need to ensure that the law is clear and straightforward. But we have also attempted to develop reforms that reflect the reality of modern families and remove unnecessary or unduly technical obstacles in the way of bereaved family members and dependants with a claim to a share in the property of a person who has died.

Absence of a will Practitioners will know that, no matter how much clients are encouraged to make a will, many will fail to do so and others make wills that do not include reasonable provision for close family and dependants.

The distribution of property not included in a valid will is governed by the intestacy rules, which are largely contained in Pt IV of the Administration of Estates Act 1925. Whether or not there is a will, the distribution of the estate can be challenged by a “family provision” claim under the Inheritance (Provision for Family and Dependants) Act 1975 (I(PFD)A 1975), on the basis that reasonable financial provision was not made for the applicant (who must come within one of the limited categories of applicant).

The Law Commission has reviewed these

two areas of inheritance law in the light of the social context in which the law operates.

We have taken account of a wide range of evidence, including a large-scale survey of public attitudes to inheritance (which was funded by the Nuffield Foundation). We have considered the law in other countries, in particular those that share our legal traditions. We have also benefited from new information about the amount of property that people leave on death.

ss 31 and 32 of the Trustee Act 1925 (TA 1925). We received almost 150 consultation responses from members of the public, lawyers and other professionals and organisations—including law firms, charities and professional bodies. Our final report, Intestacy and Family Provision Claims on Death (2011) Law Com No 331, sets out a package of reforms to modify the current legislation to reflect modern social expectations and to remove arbitrary or unduly technical aspects, while leaving intact the fundamental structure of the English law of succession to property on death.

There are more than 30 recommendations in total—too many to detail here—so what follows is a brief discussion, first of the reforms that would affect the surviving spouse of a person who has died intestate, and then of our recommendations for unmarried couples.

Spouses The report’s principal recommendations relate to the entitlement under the intestacy rules of a surviving spouse, by which we mean the husband, wife or civil partner of a person who has died leaving assets not covered by a valid will. Consultation responses and the public attitude research confirmed our provisional view that the surviving spouse should remain the primary beneficiary.

One of the key pieces of research which informed the provisional proposals in our consultation paper was an analysis, by HM Revenue & Customs, of the net value of estates for which a grant of representation has been obtained. This is reproduced at Appendix D of the final report. The research shows that only around 10% of intestate estates are valued at more than £250,000 and 2% at above £450,000. These values are significant because they represent, for deaths from 1 February 2009, the levels of “statutory legacy” to which a surviving spouse is entitled under the intestacy rules (in addition to the deceased’s personal chattels) before having to share with any other beneficiary. Even these findings are likely to

“...a man’s dying is more the survivors’ affair than his own” Thomas Mann, The Magic Mountain Proposed reforms In October 2009, we set out our initial findings and provisional proposals for reform in a consultation paper. Further questions were asked in a supplementary consultation exercise in summer 2011, specifically about proposed changes to

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LEGAL UPDATE SPECIALIST

overstate the value of estates, as grants are only obtained for around half of all deaths and it is reasonable to assume that those estates for which a grant is not obtained are likely to be of lower value.

Spouses take the whole estate Where the deceased is not survived by any children or other direct descendants (grandchildren, great-grandchildren and so on), the statutory legacy is £450,000 but anything that remains in the estate must be shared with any living parent or full sibling of the deceased, or the living descendants of a full sibling who has died (the deceased’s nieces and nephews or greatnieces and great-nephews and so on). The Law Commission provisionally proposed that the spouse should take the whole estate in these cases. It can be seen from the research into estate size that this will affect very few estates. For some consultees this was a reason not to bother with reform.

But others considered the current law to be outdated and contrary to what most people would now expect. We agree and have recommended reform in the terms of the provisional proposal.

Children & direct descendants More complex is the question of a spouse’s entitlement where the deceased was also survived by children or other direct descendants. Current law gives a surviving spouse priority over any other relatives—he or she is entitled to the deceased’s personal chattels and a £250,000 statutory legacy— but then only a life interest in half of anything that is left. Consultees strongly approved our provisional view that it is inappropriate for the law to impose a trust arrangement in these circumstances.

We have therefore recommended that a surviving spouse should take the deceased’s personal chattels and a statutory legacy (as under the current law) but then receive half of any balance of the estate outright. That would simplify the law and eliminate the expense and complication of the life interest structure.

This reform would not reduce the entitlement of any surviving spouse, which was an important consideration for a number of consultees. But, where there is “enough to go around” (as one consultee put it), the deceased’s children and grandchildren will still be entitled to a share in the estate. This is particularly significant where these children are not also the children of the surviving spouse, typically where the deceased has remarried but has children from an earlier marriage. Some consultees urged us to

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go further and make special provision for children in these circumstances (though others wanted the whole estate to pass to the surviving spouse in all cases). These points are fully explored in our final report but we have concluded that it would be wrong to reduce a surviving spouse’s entitlement if the deceased had children from another relationship.

We have also decided against significant reforms to the rules governing the deceased’s personal chattels, but we do recommend a new statutory definition to replace the current antiquated wording. We also recommend new procedures for uprating the statutory legacy at least every five years to reflect increases in the retail prices index and to set a more realistic interest rate than the current 6% (and to clarify that interest should accrue on a simple not compound basis).

Our final report contains a draft Bill, the Inheritance and Trustees’ Powers Bill, which would give effect to these recommendations and a number of more technical recommendations for amendment of the intestacy rules, I(PFD)A 1975 and ss 31 and 32 of TA 1925.

Cohabitants The other significant area in which we recommend reform concerns the rights of those couples who live together without getting married or forming a civil partnership. We use the term “cohabitants” to distinguish couples who live together in intimate relationships from relatives who share a home or friends who live together for convenience. The law already recognises the inheritance claims of cohabitants; the survivor can claim family provision if he or she lived in the same household as the deceased and as the deceased’s husband, wife or civil partner for at least the whole of the two years preceding the death (see s 1(1) (ba) of I(PFD)A 1975, inserted by the Law Reform (Succession) Act 1995 following Law Commission recommendations).

As is well understood by lawyers—but less so among the general public—when one of the couple dies, the survivor has no automatic right under the intestacy rules to inherit any part of his or her partner’s estate. This is the case no matter how long they lived together and even if they had children together.

Five year requirement The consultation paper provisionally proposed reform so that, if a couple had lived together for the whole of the five years before the death or had a child together, the survivor would be treated in the same way as a surviving spouse under the intestacy rules.

We have refined that proposal in the light of consultation responses; we now recommend a five year duration requirement, reduced to two years if the couple had a child who is living with them at the date of death. It is important to note that this entitlement would accrue only where the deceased was not also married or in a civil partnership.

We also recommend that there should be no duration requirement under I(PFD)A 1975 for an applicant who had a child with the deceased (if the couple were cohabiting at the date of death).

We recognise that some would wish for cohabitants to qualify on intestacy after a shorter period or without any qualifying period where there is a child. For others, the idea of further reform for cohabitants (or indeed the protection that cohabitants enjoy under the current law) will always be unacceptable. But consultation responses, taken together with the findings of the Nuffield-funded public attitude survey and other research, have reassured us that our recommendations are an appropriate response to the growing prevalence and public acceptance of cohabitation. They would also bring English law into line with the law in other Commonwealth jurisdictions. It would still be open to cohabitants to make a will naming other beneficiaries (subject to making reasonable provision for those family members and dependants who may have a claim under I(PFD)A 1975).

Our recommendations are embodied in a separate draft Bill, the Inheritance (Cohabitants) Bill. We have taken this approach to ensure that the important debate around our recommendations for cohabitants can take place separately from discussion of our other recommendations for reform of inheritance law.

It is also important to stress that these recommendations are distinct from the recommendations in the Law Commission’s 2007 report on financial remedies for cohabitants who separate. Although the two sets of recommendations raise similar questions about the extent to which the law should recognise cohabitation as a status, we believe that the context is very different where the relationship is ended by the death of one of the parties rather than by a NLJ decision to separate.

Joel Wolchover is a team lawyer in the property, family & trust law team of the Law Commission & a door tenant at Ten Old Square, Lincoln’s Inn. E-mail: propertyandtrust@lawcommission.gsi.gov.uk Website: www.lawcom.gov.uk