The Inheritance and Trustees’ Powers Act 2014 comes into force on 1 October 2014, and while there has been very little publicity, it makes some significant changes in the administration of estates. The act focuses on three main areas:
1. Updating the intestacy rules.
2. Amending some issues which have come out of the Inheritance (Provision for Families and Dependants) Act 1975.
3. Reforming the statutory provisions for Trustees relating to the payment of income and capital to beneficiaries.
It is estimated that around two-thirds of the adult population does not have a will. In these circumstances the intestacy rules apply and provide strict provision for certain beneficiaries. The act introduces the first comprehensive change to the rules in over twenty years.
They do represent a significant improvement but they are not perfect. For example, the Law Commission’s recommendations to give rights to certain categories of unmarried couples have not been implemented.
If a person dies with a spouse (or civil partner) and children then the spouse will now receive the following:
• Personal chattels
• £250,000 statutory legacy
• Half of the residue outright
The children will receive the other half of the residue subject to them reaching eighteen.
This provides the spouse with a larger outright share of the estate (previously they were only entitled to a life interest in half of the residue) but it does reduce what the children receive, which may be a particular issue if there are children from more than one marriage.
If a person dies with a spouse but no children then the spouse inherits the entire estate. Currently, parents or siblings would have inherited if the estate was over £450,000.
The statutory legacy will now increase at least every five years in line with the Consumer Price Index and the increase will be rounded up to the nearest £1,000.
The definition of personal chattels has been amended and no longer includes property held solely as an investment. This might mean that valuable art, stamp collections or wine cellars may no longer pass automatically to the spouse and instead be shared with the children.
Another out of date provision is removed in the case of children dying before their parents. Currently if a child (including an adult child) dies before his parents and they were not married at his birth then the father is presumed to have died first. This was probably introduced for convenience at a time when the father of a child born out of wedlock was unknown. However, provided that the father is named on the birth certificate or equivalent official birth record then the presumption no longer applies.
The Inheritance (Provision for Families and Dependants) Act 1975 enables a person to make a claim against an estate (whether or not there is a will) if they consider that reasonable financial provision has not been made for them by the deceased.
The act makes a number of small changes which may assist those who are involved in such a claim. In circumstances where the deceased and the claimant were mutually dependent upon one another, it is no longer necessary to carry out a balance sheet test.
Instead, it will be sufficient to show that the deceased was making a substantial contribution to the claimant’s needs. It will also not be necessary to show that the deceased had formally assumed responsibility for the claimant.
There is a significant change to two statutory provisions which have been in place since 1925. One requires trustees to take into account the age and requirements of a beneficiary before income is paid to them and the other allows the trustees only to pay out up to half of the capital to a beneficiary before they become entitled to the capital outright, for example, because they have to reach a specified age.
Most professionally drafted wills amend these provisions but if not, the statutory provisions can be very inconvenient.
In relation to income, all trustees will, from 1 October, be able to pay make payments to beneficiaries without taking into account the age and requirements of the beneficiary.
As regards capital, it will be possible for trustees to pay out up to all of the capital before a beneficiary reaches the age of absolute entitlement. However, except in trusts where this provision has already been extended, it will only apply to trusts created on or after 1 October 2014.
Both of these changes are overdue but the provisions extending the power to pay out capital will only have limited effect as they only relate to new trusts and most of these will have the extended powers already included.
While these changes are welcome they still do not reflect modern life. Unmarried partners must still rely on making a claim if their deceased partner died without making a will. The changes to the intestacy rules will simplify some estates and make better provision for the surviving spouse, but they are no substitute for a will
Jacqueline Almond is a partner and head of the wills, trusts and probate team at IBB Solicitors