The risks of not writing a Will are well documented, from family disputes arising after death to estates not being passed on as wished. Perhaps the greatest of these risks, however, is that any estate left behind will be distributed in line with the Rules of Intestacy, rather than in a way that reflects the intentions of the deceased and the dynamics of the specific family.
If no Will has been written, then the deceased will have died ‘intestate’. However, the Rules of Intestacy which govern exactly how the estate is divided are due to be changed on 26 July 2023 to alter the amount that a spouse or civil partner can expect to receive, and this could result in many more spouses and civil partners faring far better through intestacy than they may have done previously.
So, what do you need to know about the ‘Intestate Statutory Legacy’ increase?
What does it mean to have died ‘intestate’?
In simple terms, if you die without a Will you die ‘intestate’. If you die and have only a spouse or civil partner and no children, then the entirety of your estate will pass to them.
Particularly given the rising number of people in the UK choosing to cohabit rather than formalise their relationship, the same does not apply to so-called ‘common law’ partners. In fact, ‘common law partner’ is not recognised in English and Welsh law. The last set of census figures published by the Office For National Statistics (ONS) showed that the percentage of UK couples cohabiting in this manner, without recourse to marriage or civil partnership, had increased from 20.6% in 2011 to 24.3% in 2021, meaning that almost a quarter of all couples are now living together in this manner.
Intestacy notwithstanding, if one of a cohabiting couple dies then the other could find themselves with only those parts of the estate which are held jointly, such as joint bank accounts and properties owned as joint tenants. Everything else will be divided between blood relatives.
The Inheritance (Provision for Family and Dependants) Act 1975 is the saving grace in cases where there is a failure to provide adequate financial support for a specific group of people connected to the deceased. This Act allows these individuals to seek recourse if they can prove that the provision made (even if it was none at all) is inadequate. However, the court can only order provision that is reasonably necessary for the applicant’s maintenance.
It would make no difference to the operation of the Rules of Intestacy if the deceased had been estranged from their children for a period or had lived with their non-marital partner for more than a decade, for example.
While being married makes some difference to the operation of the Rules of Intestacy, those laws would still apply, impacting hugely on the division of the estate and, possibly, on issues such as Inheritance Tax.
The key lesson to take from any consideration of the laws of intestacy is that it makes overwhelming sense to have a Will written, working with legal professionals to do so or at least having the finished document checked by them.
Consider that according to the latest figures, from a Which survey carried out by Populus in 2018, 61% of British adults actually don’t have a Will. This means that any change in the laws of intestacy is likely to have an impact on a sizeable number of people.
But the law is changing. And from 26 July 2023, the amount of what is known as the ‘statutory legacy’ will be increased.
What is Statutory Legacy?
The statutory legacy is also referred to as the ‘fixed net sum’. It is the amount which the spouse or civil partner of a person who dies intestate is entitled to receive from the estate before the rest of that estate is shared in line with the law.
Prior to the latest change, the statutory legacy was set at £270,000, and providing the value of the estate was more than that, a spouse or civil partner could expect to automatically receive this amount from the estate before the rest of any estate worth over and above £270k is distributed equally between the spouse or civil partner and any surviving children of the deceased.
One thing which is worth noting is that the figure of £270,000 is lower than the average UK house price which, in March 2023, was £285,000, according to figures published by the ONS.
Given that anomaly, there is a chance that someone having to separate an initial £270,000 of the value of the estate of a deceased who died intestate will find themselves having to sell the family home (if it was owned solely in the name of the deceased), in order to do so.
Under the new rules, the statutory legacy is increased to £322,000, meaning that a house around the average UK price could be passed to the surviving spouse without any issue arising.
The reasoning behind the rise in the statutory legacy was set out by the Ministry of Justice in an explanatory note which explained the following:
“The statutory legacy was introduced in 1925, with the intention of protecting the interests of any surviving spouse as well as the interests of any children of the deceased.“
“In 2014 [in the Inheritance and Trustees’ Powers Act 2014] the Government accepted a number of recommendations set out in the Law Commission report – Intestacy and Family Provision Claims on Death, which was published in December 2011. The reforms in question were intended to simplify the laws around intestacy, with the intention of making the laws fairer and more comprehensible, and thus the administration of estates faster and simpler.”
One of the issues dealt with by the 2014 Act was a concern that a set statutory legacy could be eroded over time by inflation. The 2014 Act introduced a requirement for reviews to take place to take account of inflation over fixed periods of time.
The maximum period set by the 2014 Act was 5 years, at which point specific options set out in the 2014 Act for assessing the inflation rate and applying it to the calculation of a new statutory legacy are to be utilised.
The 2014 Act also states that any inflation rate of 15% or more, measuring from the base rate at the date on which the statutory legacy was last set, irrespective of the amount of time that has passed, will trigger one of two things:
- A Statutory Instrument will be made to increase the statutory legacy to reflect the higher inflation rate.
- The Lord Chancellor will determine a new rate.
In the latest case, the inflation trigger was reached in December 2022, when the Consumer Price Index (CPI) for November showed an increase of 15.023% over the base month, that is the month in which the statutory legacy was last set.
Volatility in the CPI in January and February of 2023 meant that the change triggered by the 2014 Act was ultimately calculated working from the base month to May 2023. Using these figures, rounded up to the nearest multiple of £1000, it was calculated that the rise in CPI over the relevant period had been 19%. This figure meant that the existing statutory legacy of £270,000 was increased by £52,000 to £322,000.
It is this figure, £322,000, which now needs to be taken into account (for deaths after 26 July 2023) by anyone dealing with the estate of a person who dies without having written a Will.
Whilst this certainly improves the situation for the spouses or civil partners of those who die intestate, it is by no means a substitute for outlining your wishes in your own Will, as that is truly the best way you can ensure as far as possible, the right funds are directed to the right people.
