The Make a Will week revealed that about 60 per cent of adults in the UK have so far failed to make a will. This can have dire and unexpected consequences — particularly if you are not married to your partner. Even if you are married, if your spouse dies intestate (that is without making a will) the survivor does not necessarily inherit everything. Indeed, they may end up with a lot less than they were expecting.
“I feel quite passionate about this because my parents died 69 days apart when I was in my early twenties and they had no wills and no life-assurance protection either,” explains independent adviser Tony Shields of Shields Financial Solutions. “My brother and I had to deal with probate court, and this is not what you should need to do at that time.”
Angela Cornish (not her real name), one of Shields’s clients, must wish she had seen him sooner. She has two children by her partner who was killed in an accident in July this year. “We were not married and after Tom died I discovered that he hadn’t made a will.
“The house was in his name and was, therefore, inherited by his two grown-up children by his first wife. I would have had to make a claim on the estate for maintenance for myself and the children if it hadn’t been for the fact that Tom’s children were prepared to let me remain living in the house.”
Shields has now arranged for her to make a will and also to take out life-assurance protection and appoint guardians for her children — absolutely essential for single parents with a young family.
Many people believe that their husband, wife, civil partner or unmarried partner will automatically inherit everything if they die without a making a will. This is not the case. Contrary to popular belief, there is no such thing as a “common law” wife.
Avoid the worst
In a worst-possible scenario, the surviving partner of a cohabiting couple may get nothing. If there are children, or they were financially dependent on the partner and had lived with them for years, they could be forced to apply through the courts to their deceased partner’s estate for support for themselves and/or the children. Even where a couple are married or in a civil partnership, if one partner dies intestate the survivor may be left in a difficult position.
The rules of intestacy are long overdue for reform and are scheduled to be updated in February so that the surviving partner of a marriage or civil partnership inherits more of the estate automatically. But since none of us knows when we might die, that is no reason to delay making a will.
“This increase will give extra protection to married couples and civil partners whose spouse or civil partner dies without making a will,” says Justice Minister Bridget Prentice. “But it also highlights how important it is for both men and women to make arrangements for their loved ones in the event of their deaths.”
The changing rules
For anyone dying before 1 February 2009 when the new rules come into effect, the old ones — which are totally inadequate — still apply.
This means that if the deceased person had children, a spouse or civil partner will receive their personal possessions, the first £125,000 of the estate and a life interest (the use of the assets but not their ownership) in half of the rest of the estate.
The balance is shared equally between the children. Where the assets of the estate are cash or investments, the “life interest” means an income from the assets for the surviving spouse, with the capital going to the children on the death of the second partner.
Given that the average two-bedroom flat now costs about £250,000, the limit of £125,000 can cause immediate problems unless the property was owned jointly.
If the couple were “joint tenants” in the property, the survivor automatically inherits the deceased person’s share.
Tenants in common
Many individuals have children from a previous marriage or relationship, so it is quite usual for couples to be “tenants in common”, or even for one partner to own the family home outright — as in Angela’s case.
In this situation, the rules of intestacy apply to the property owned by the deceased person — commonly a half-share in the home — if they haven’t made a will. This may mean that the property has to be sold and the surviving spouse receives outright only £125,000 of the proceeds.
If the deceased did not have children but had a surviving parent, sibling, nephew or niece, a spouse or civil partner will receive the deceased’s personal possessions, the first £200,000 of the estate and a life interest (the use of the assets but not their ownership) in half the balance.
Increase in inheritance
From 1 February there will be an increase in the amounts that are received automatically if a person dies without making a will. If the deceased had children, a spouse or civil partner will receive the deceased’s personal possessions, the first £250,000 of the estate (up from £125,000) and a life interest in half of the rest of the estate. The children receive the balance.
If the deceased did not have children but had a surviving parent, sibling or nephew or niece, a spouse or civil partner will receive the deceased’s personal possessions, the first £450,000 of the estate and a life interest in half the balance.
Even if you have already made a will, it is essential to keep it up to date. Circumstances change and modern relationships can create unexpected problems. It is also important to understand that marriage or divorce invalidates any will unless it stipulates that it was made “in expectation” of marriage or divorce. In spite of what they tell you, not all solicitors are up to speed on the latest inheritance tax (IHT) rules.
You can find a solicitor who specialises in this area from The Society of Trust and Estate Practitioners (STEP). Members include accountants and trust experts as well as lawyers, and all are experts in estate planning. For more information, visit www.step.org.uk.
If your estate is simple and valued at less than £624,000 (if you are, or have been, married) or £312,000 if you are single and have no former spouse to pass on unused IHT allowances, you will probably not be liable to IHT.
Any good firm of family solicitors will be able to make a simple will. Visit www.resolution.org.uk (formerly the Solicitors Family Law Association). On the site you will find a list of all its members.
Intestacy rules before 1 February 2009 for married couples and civil partners
* If there is a husband, wife or civil partner, and children: the spouse/partner gets the personal chattels, the first £125,000 and a life interest in half of what is left. The children of the deceased, including illegitimate and adopted children, share between them half of what is left straightaway, if they are 18 or over, and the other half when the surviving parent dies.
* If there is a husband, wife or civil partner and relatives but no children: the husband or wife gets the personal chattels, the first £200,000 and half of what is left. The parents of the dead person, or if they have died, the brothers and sisters or their descendants, share the other half of what is left.
* If there is a surviving husband, wife or civil partner, but no other relatives: the surviving spouse/partner gets everything.
* If there are children, but no living husband, wife or civil partner: the children share everything equally.
* If there is no husband, wife, civil partner or children: everything will pass to the next available group of relatives.
* If there are no available relatives: everything goes to the state.
Intestacy rules after 1 February 2009
From that date the statutory legacy will increase to £250,000 (from £125,000) where there is a surviving spouse or civil partner and children, and to £450,000 (from £200,000) where there is a surviving spouse or civil partner and parents or siblings but no children.
* Northern Ireland has already updated its rules, and Scotland has a different system.
These rules apply only to married couples and those in civil partnerships. Unmarried partners and cohabitees are not necessarily entitled to anything from their deceased partner’s estate and may have to apply to the courts and make a claim under the Inheritance (Provision for Family and Dependants) Act 1975.