The number of intestacy-related enquiries made to the Citizens Advice service has more than doubled over the past five years. In 2011 the charity received 1,522 queries but the number rose to 3,747 in 2015.
What is Intestacy?
An intestacy arises when a person dies without a will, and also:
- When a person has made a will (often not a professionally drafted one) but it is deemed to be invalid (eg because it is not properly executed, or the person did not have sufficient mental capacity to make it.);
- A person has made a will but all or some of the residuary beneficiaries are dead and there is no default gift made to cover that scenario (again, this situation often arises where a will is not professionally drafted).
When an intestacy occurs, the estate (or part of the estate, if a partial intestacy) is subject to the intestacy rules. These rules set out in a strict order who should inherit the estate. Apart from a current spouse/civil partner or an adopted child, the only people who can inherit under the intestacy rules are blood relatives. This means for example that a cohabitee has no entitlement, and neither do friends.
The Intestacy Rules - Order of Priority
If the deceased has a current spouse or civil partner, then they have first priority and will receive the whole estate if the deceased had no children.
If the deceased did have children then the spouse/civil partner receives:
- All the deceased’s personal possessions;
- the first £250,000 of the estate; and
- half the residue (what is left once all the deceased’s liabilities, their funeral, and the estate’s administrative expenses are paid.)
The other half of the residue is divided between the surviving children in equal shares.
Many people assume that a surviving spouse or civil partner always receives the whole estate, but this is not the case where there are children. Where there are children and the estate is shared, financial matters can become very complicated, especially if £250,000 is not sufficient financial provision for the remaining spouse.
There are ways around this with use of a ‘deed of variation’, but only if all beneficiaries agree. If the children are minors, the approval of the court will be required.
Children include any biological children of the deceased, as well as any adopted children. Step children do not benefit unless they have been adopted. Any inheritance due to children is divided between them equally. As explained previously, if the deceased is married or in a civil partnership then the children only inherit if the estate is over £250,000 as any surviving spouse/civil partner receives the first £250,000.
Children can only receive their share immediately:
- if they are over 18 years old; or
- they are under this age but are married or in a civil partnership
Until they are able to receive their share, it is held on trust for their benefit.
If a child dies before the deceased leaving grandchildren of the deceased, these grandchildren will share their parent’s share of the estate equally between them.
Here are some examples to illustrate;
John is married to Wendy and died intestate in May 2016. He had 2 children, Max and Lily. His estate is worth £200,000. The estate will be divided as follows:
Wendy inherits the entire estate as it is worth less than £250,000
As example 1 above but John is a widow. His estate is worth £300,000. The estate will be divided as follows:
Max – 50% - £150,000
Lily – 50% - £150,000
As in example 2 above but Max died before John in a car accident in December 2015. Max has 2 children Archie and Lucy. The estate will be divided as follows:
Lily – 50% - £150,000
Archie – 25% - £75,000
Lucy – 25% - £75,000
John is survived by his wife Wendy and daughter Lily, but as above his son Max dies before him, but leaves no children. The estate is worth £600,000. The estate will be divided as follows:
Wendy - £250,000 plus 50% of the residue, £175,000 =£425,000
Lily – 50% of residue - £350,000
If the deceased was not married nor in a civil partnership when they died and had no children, then the estate passes to more distant relatives in the following order:
- Parents – divided equally between them if more than one surviving;
- brothers and sisters;
- brothers and sisters of the half-blood (where they have only one parent in common with the deceased);
- aunts and uncles; and
- aunts and uncles of the half blood (where they have only one parent in common with the deceased’s parent).
If there is one member of any class, that person inherits the whole estate. If there is more than one member of a class, the estate is divided equally between each member of the class. The estate is only passed down to the next category if there are no members of the preceding one. In the case of brothers and sisters, if there are more than one of them and one has predeceased leaving children (nephews and nieces), those nephews and nieces will share their parent’s share equally.
Peter dies intestate and is survived by his sisters Joan and Norma and their children, Martin and Ruth. His older sister, Rose, died last year. She is survived by her children Poppy and Fern.
Peter’s estate will be divided as follows:
Joan – 1/3
Norma – 1/3
Poppy & Fern – 1/3 shared equally between them. They inherit the share their mother would have been entitled to had she survived Peter.
David dies intestate and is survived by his partner Sarah whom he has lived with for the past 20 years, his elderly father who is currently in a care home suffering from dementia, and his two brothers Simon and Martin.
David’s father will inherit his entire estate
Ralph died intestate and is survived by his two Aunts, Polly and Beatrice, his two Uncles, Bob and Harry and numerous cousins. He is very close to his family. It is discovered after his death that he also has an older half-brother, Tim, who lives in Australia. Ralph never knew of Tim’s existence.
Tim would inherit Ralph’s entire estate.
Whilst some might argue that the intestacy rules will effectively distribute the estate to the people they wish to benefit on their death anyway, there is no accounting for an outcome as in example 3. When an intestacy arises it is important that full and thorough checks are made of the whole family tree to ensure that the right people under the rules do receive their inheritance. The administrators of the estate will be liable if they distribute in error and often it is wise for them to take out insurance to cover any potential risk, even when thorough checks have been made. Such checks could uncover a relative with priority that no one was aware of, least of all the deceased!
Example 2 demonstrates that unless you are married or in a civil partnership, a partner will not inherit under the intestacy rules. It seems unlikely that David would have wanted to leave everything to his father given his circumstances.
When there are no relatives
When there are no relatives the estate is “bona vacantia” which means that the property is ownerless and therefore passes to the crown. The ultimate payment of “inheritance tax” that most would seek to avoid!
Altering the effect of the intestacy rules
It is possible to vary the terms of an intestacy by way of a deed of variation. Every beneficiary who is affected by the variation however needs to be a party to the deed. This can cause problems where it is proposed to alter the entitlement of minor beneficiaries, perhaps to benefit a surviving partner who is not entitled under the intestacy rules. Such a variation is only possible with the approval of the court. Whilst this option is helpful therefore, it is hardly an ideal substitute for making a will.
An application for financial relief can also be made under the Inheritance (Provision for Family & Dependents) Act 1975 by a person who either does not qualify under the intestacy rules, for example a cohabitee, or does qualify, but feels they are not receiving sufficient financial provision under the rules. In order to make a claim a cohabitee needs to have lived with the deceased for the 2 years immediately before their death, or must be financially dependent on the deceased. Other categories of person who do not qualify to inherit under the intestacy rules but can apply for provision under the act include:
- Former spouses and civil partners who have not remarried;
- A person treated as a “child of the family”, although not a blood relative.
- Anyone who was financially dependent on the deceased.
Again whilst the ability for a claim for financial provision to be made can act as a safety net, it is far from ideal, and a well drafted will setting out clearly who should benefit on your death is definitely a better option. Also, whilst there is always the potential for the unscrupulous to make claims without merit against your estate, the prospect of this is likely to be diminished if you have taken the time to set out your wishes in a properly drafted will.
Whilst it is helpful to have an understanding of the intestacy rules, it is better not to need them. There is no substitute for a clear statement of who should receive your estate when you die, which is essentially what a will is. It may be that for good reasons you do not wish to leave your estate to family members and in this situation a will is essential.
To read more about the importance of writing a will, please click here.
Call the Tax and Estate Planning Team now on 0117 926 4121 or make a Free Online Enquiry.