Research conducted in 2018 found that some 54% of adults living in the UK did not have a Will in place and nearly 60% of UK parents did not have a valid Will. A Will covers important decisions such as the choice of executors, the distribution of assets and the guardianship of minor children. But what happens if you die without a valid Will?
Under the laws of England and Wales, the “intestacy rules” govern how a person’s estate is distributed on death in the absence of a valid Will. When a person is married with no children, their spouse will inherit the entire estate. However, if the deceased had children, the rules dictate that the surviving spouse would receive (i) a legacy, known as the “statutory legacy” (of currently £250,000), (ii) all the deceased’s personal chattels and (iii) half of the remainder of the deceased’s estate with the remaining half passing to the deceased’s children.
The Government has just announced that, from 6th February 2020, the statutory legacy will be increasing from £250,000 to £270,000 which is in line (albeit 4 month’s late) with the Government’s promise to raise the statutory legacy in line with the consumer price index, at least every five years.
Although this increase is to be welcomed, it also further highlights the risks of not having a valid Will:
1. Unmarried cohabitees still do not receive anything from a deceased’s estate under the intestacy rules. Therefore, if you wish to provide for a cohabitee, a close friend or anyone else for that matter, you would need to make such provision in a valid Will.
2. A common misconception, and often an incorrect justification for not having a Will, is that a spouse will automatically inherit everything. As you will have seen above, where the deceased dies leaving children, the deceased’s spouse will not necessarily inherit the entire estate. This could be problematic for a surviving spouse and could lead to important assets, such as the family home, being divided or co-owned by the surviving spouse and the children.
3. Under the intestacy rules, the children of a marriage stand to inherit their share at 18. For many parents this may be seen as “too much, too soon”. Therefore, it is essential to have a Will in place to provide mechanisms to protect a child’s inheritance.
4. Although in general no inheritance tax (IHT) would be payable on assets passing to a surviving spouse, due to the spouse exemption from IHT, IHT would be chargeable on the share inherited by the deceased’s children at a rate of 40% on any value above the deceased’s available nil rate band. This IHT bill will no doubt be an unwelcome shock to those surviving spouses who expected to inherit the entire estate IHT free.
Despite the welcome recent legislative change, it is still, in most cases, of vital importance to take appropriate advice and to get a valid Will in place.
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