The world is going Taylor Swift dizzy. It would therefore be remiss not to get some inspiration from the global pop and country music icon. And with that, we look at a cheery guide to disinheriting your family. In Scotland, that means considering the effects of legal rights among other things. As we shall also see, disinheritance is not all about ‘hate’ (very harsh word) and can be about managing an inheritance in a more prudent fashion.
Key message on disinheritance: need to be ‘lightnin’ on my feet‘ and take action
If you wish to have control of an estate and potentially disinherit family members, you must take action during life. A will is not enough in Scotland. You need to, erm, ‘shake off‘ some rules (especially ‘legal rights’).
Here’s the ‘sick beat‘ on steps that need to be considered:-
- Make a will. It might not be enough but it is the starting point
- Update any pension nominations
- Update any death in service expression of wish forms
- Give away ‘moveable’ assets (see more below on ‘moveable’)
- Gifts can be to individuals or trust (check values and capital gains)
- Turn ‘moveable’ assets into land and buildings
- Put life policies in trust
- Consider the effects of any joint accounts
- Check title deeds
- Move abroad (extreme and might be frying pan into the fire)
- Depending on the value, put assets in a trust for yourself
Who is entitled to legal rights?
The definition does not say ‘liars and the dirty, dirty cheats of the world‘. Instead, legal rights are available to spouses/civil partners and children. They apply to the estate of a deceased who was domiciled in Scotland. We have looked at domicile before (via another music icon… Rod Stewart).
What assets form a legal rights entitlement?
Legal rights relate to a share of the ‘moveable’ estate.
The moveable estate is broadly all assets in the deceased’s personal name apart from land and buildings. So, cash, investments, premium bonds and private company shareholdings are all examples of moveable assets.
Your home, commercial property or country estate are not moveable and not part of a legal rights entitlement. It should be noted that a property owned via a company becomes part of legal rights as the asset is the shareholding not the actual property. Property held in a partnership raises further points including ways to seek to avoid the effects of legal rights on that property.
What matters is the net moveable estate. That is the moveable estate after the settlement of applicable debts and other obligations. Debts might be clear. “Other obligations” opens up considerations to manage and reduce a legal rights entitlement. That is principally owing to the effect of contracts that are enforceable against the estate. Such contracts could form an agreement as to where an asset must go on death and trumps both legal rights and the will. Possible food for thought as we will return to later.
The entitlements: the shares of moveable estate under legal rights
A spouse/civil partner is entitled to one-third of the net moveable estate if there is a surviving child. Similarly, children, as a group, are entitled to one-third, if there is a surviving spouse. Where there is more than one child, they each get a proportionate share of the one-third.
If there was no surviving spouse/civil partner, then children, as a group, would be entitled to one-half of the net moveable estate. The same applies for a spouse/civil partner if no surviving children.
“But I want to disinherit my son!”
If you want to disinherit a spouse/civil partner or child some thought is required. We should say that not all attempts at disinheritance follow from a family feud. There may be situations where one wants to restrict what someone inherits in order to actually provide for a beneficiary but in a more appropriate way to their individual circumstances. Classic examples of this tend to relate to providing for disabled or incapable family members as well as younger children. More on such things here (wills and trusts) and here (trusts for vulnerable beneficiaries).
A will cannot limit legal rights in the estate of the person who made the will (we will return to this). Action must be taken during life to alter the net moveable estate. That will involve either changing moveable assets into land etc, funding wealth outwith the personal estate such as pensions, gifting assets, putting assets in trust, entering into certain contractual obligations and even creating debt. On the transfer of assets, it might be ‘can’t stop, won’t stop movin” those assets to disinherit. But it must be a real transfer… ‘and the fakers gonna fake, fake, fake, fake, fake‘ and the courts have struck those down.
As action needs to be taken during life, there are aspect’s of this that mean on death the result is ‘what they don’t see‘… and that’s what matters. The assets have been moved away from being a target for legal rights. The assets are no longer in the estate of the deceased.
The important point is these steps must be taken before death. At date of death, the legal rights entitlement crystallises. It is then an entitlement that needs to be settled (if it is taken) before then distributing the estate under the terms of the will. Those entitled to legal rights take their entitlement in preference to the beneficiaries under the will. It is as if the legal rights is a debt to be settled.
With that preference, the ‘track listing’ in the division of an estate is as follows:-
- Tax
- Funeral expenses
- Secured debts
- Other debts and obligations
- Legal rights
- Beneficiaries under the will
The right kind of will can reduce legal rights in another’s estate
We said we would return to the role of wills in reducing legal tights. We said a will cannot solve the legal rights problem for the estate of the person who made the will. However, the right kind of will can prevent the legal rights situation in someone else’s estate being made worse. If, for example, husband and wife wish to restrict the inheritance of a child, the right kind of will by the first spouse to pass away can help reduce or avoid the effects of legal rights in the surviving spouse’s estate.
For some, don’t make a will… shock news!
In some cases, by not making a will legal rights can be avoided. This applies where there is a surviving spouse/ civil partner. A surviving spouse/civil partner where there is no will (i.e. interests estate) has additional rights called prior rights. These relate to the house (up to £473,000), cash and furniture in the house. So, if there is no will, the spouse will take up to £50,000 cash and up to £29,000 in furniture before then turning to legal rights. Prior rights sit above legal rights in the hierarchy. But this only applies where there no will. The strategy of having no will depends on the value of the estate and the assets in the estate. If prior rights exhaust the estate, then great as far as knocking out the child’s legal rights! Get the values wrong with no will and there is a sting the tail. After prior rights there is legal rights and then the rest of the estate after that would be inherited by children.
Care needs to be taken before embarking on the intestate/ no will strategy. Even with new rules, instestacy is to be avoided.
Happy families… usually no legal rights are taken
When legal rights is an issue, it is a big issue. But for most estates it passes as an academic exercise. Children have legal rights but they do not accept them and the estate passes in terms of the will.
An aside on European succession and European versions of legal rights (so, you can enjoy these thoughts on the continental legs of the Eras tour)
Other countries have versions of legal rights (under the general banner of ‘forced heirship’). England does not (but has a court based system for some disappointed beneficiaries).
For Scottish people, overseas legal rights issues are a possibility where that other country applies some form of legal rights to land and buildings situated in that country.
If e.g. the Spanish equivalent of legal rights might cause your estate an issue because you own a Spanish holiday villa and don’t want a child to inherit part of it, when making your will arrangements in Scotland and Spanish, consideration should be given to the EU Succession Regulation. And that is still the case post-Brexit. You may be able to elect out of the the effects of the Spanish rules.
The international effects of forced heirship needs careful consideration. Especially as some countries (e.g. France and Germany) try to make it difficult to opt out of their forced heirship rules.
Key takeaways
- Legal rights exist for Scottish estates
- They apply to spouses/civil partners and children
- The value of the net moveable estate is critical
- One can manage or even avoid legal rights with action taken during life
- Not all about Scotland- consider any foreign versions of legal rights
So, if disinheritance is something you need to consider, take action and get advice. If you do:-
‘It’s like I got this music in my mind
Sayin’ it’s gonna be alright‘
For help and advice on succession matters (including legal rights, disinheritance and being a disappointed beneficiary), get in touch with Alan Eccles: alaneccles@bkf.co.uk / 07359001038.
“Alan is a caring and empathetic private client solicitor who is dedicated to providing the best outcomes for clients. He has the technical knowledge and professionalism to meet client needs.” “Alan is a very articulate individual who is clearly an expert in his field.” Chambers High Net Worth 2023 directory
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