The Trusts and Succession (Scotland) Act 2024 received Royal Assent yesterday. Three months from then, we will have a change to the intestate succession rules. The Act makes one quite significant change to the laws of intestacy. A positive and sensible change in our view. But a change that still leaves intestacy as an unattractive option in managing and governing succession to an estate.
What is the change to the intestacy rules? Where the deceased has no children, the surviving spouse or civil partner will inherit the estate.
The current rules of intestacy state that after certain provision for the spouse (the house up to a value of £473,000, a cash entitlement of £89,000 and furniture in the house up to £29,000 and then one-half of the deceased’s moveable estate) the remainder of the estate will pass to the deceased’s surviving siblings and parents.
The remainder not passing to the spouse/civil partner could be fairly disastrous in some situations. This is particularly the case where the deceased has a larger moveable estate – that could be from investments or a private business. It can be bad for a business if it is then effectively split between e.g. siblings/parents and a spouse. Siblings/parents and a spouse who might not get on with each other at all.
So, with the change in the Trusts and Succession Act, is the law of intestacy going to be fit for purpose in regulating succession to an estate? Do we still really need wills? We suggest the answers are ‘no’ and ‘yes’.
Why the laws of intestacy are still often bad?
For a start, you don’t really get to choose what happens. The law, rather than you, decides. Unless you fall into the rare group where intestacy does work better (we have talked about this rare situation before and something to do with careful advice), you are allowing your estate to be divided according to the family make-up, age and stage of family members, size/type of assets held and rules as at your date of death. That could all still be quite random and have quite unexpected and unfortunate outcomes.
Having no will adds to the timescales of dealing with an estate. One definite additional piece of process and time delay stems from the need to apply to the court to have an executor appointed. That should take around a month to happen but if there are delays at the court (or in the family), it could be longer. So, the estate will be running at least a month behind to start. And that can mean a month or so longer, at least, to have control of the assets in the estate.
It might give you the ‘wrong’ executor(s). The court does not have carte blanche to appoint the best or most appropriate individual(s) to be executor(s). There is an order of entitlement for the court to follow. That can create issues and risks. It can also bring together executors who are unlikely to work well as a team. If there is more than one person at the level of entitlement to be appointed as executor, all of them are entitled to be appointed. That can lead to an in-built tension in the estate’s decision-making.
A costly ‘caution’-ary tale. Where there is no will, executors (subject to a few exceptions) need to obtain a ‘bond of caution’. It is an insurance contract. For most intestate estates, it is an absolute requirement. This adds extra process. It also adds extra cost. A cost that in itself will usually eclipse (and in many, many cases by a long way) the cost of making a will. The bond of caution cost will be based on the value of the gross estate. In some larger estates, the bond of caution premium will be thousands of pounds. A completely unnecessary expense, some might say. So, even if the new law got the estate to the ‘right’ person in the form of the surviving spouse, they are literally paying a premium for it.
It’s like giving lots of candy to a baby. Where there are children, the law prefers them to a spouse/civil partner where there is no will. This can create a whole host of problems. Not least, the children might now be wealthier than their surviving parent. The control dynamic in the family might be partly flipped. The laws of intestacy for the period until children are 16 puts in place a rather clunky management and inflexible system for a child’s inheritance. After 16, it is over to the children to do what they want without any management system in place. Sports car anyone? A will can put in place a proper and flexible management structure for younger beneficiaries. And one that can help protect family wealth for the family. It also ensures the management system for younger beneficiaries can be responsive to the assets in the estate (e.g. investments or business interests).
There is a lack of effective and protective management structure for vulnerable beneficiaries. Vulnerable beneficiaries can receive large and complex assets outright which might be difficult for them to manage or not be in their interest to receive directly.
It can be very bad for business. Allowing the laws of intestacy to govern what happens to your estate means a business you own might end up with some unexpected shareholders. Your business partners might find they have children or people who do not get on with each other (at all!) as their co-owners of the business. A will helps avoid this problem (as does the right corporate documentation).
Cohabitants are very vulnerable. If you are unmarried/not in a civil partnership, the intestacy rules create significant uncertainty. It can involve a court to sort out what happens. It also can involve the surviving cohabitant essentially having to raise a court action against the deceased’s surviving parents/siblings… does not make for a great Christmas dinner! The clear message is: if you are cohabiting, make a will.
The laws of intestacy can ‘infect’ other sources of wealth. Some ‘assets’ such as pension death benefits and death in service through work exist outwith one’s estate. But if the paperwork for those benefits has not been completed/kept up-to-date and there is no will, the rules on intestacy can impact what happens to those benefits. This can compound an already not fantastic situation… all due to the lack of a will.
Intestacy can be tax inefficient. Particularly where the law places a spouse/civil partner behind children, siblings and parents, the starting position is that the spouse/civil partner inheritance tax exemption will be lost. Generally, the laws of intestacy can be more difficult to take post-death steps to make the estate as tax efficient as possible.
Back to you don’t get to choose: loved ones and charitable causes. The laws of intestacy decide who benefits. If you want particular people to inherit, a will is the best thing to have. Looking at it somewhat more negatively, a will (and sometimes related planning) is the way you can control your estate including preventing/restricting certain people inheriting. And if you wish to make provision for charity, again, a will is the way to do that.
The law of intestacy: it is what it is. You get whatever the rules are at that given time based on the family make-up and value of the estate. You give up control of your the inheritance of your estate to (arguably out-of-date) legal rules and the roll of dice on the size of your estate and who has survived you. The Trusts and Succession (Scotland) Act 2024 improves matters but only to a certain extent. Intestacy is still not a good idea. Make a will and related steps to make sure you control what happens to your estate in the best possible way.
Taking control of your estate: the next step
To take control of succession through a will and related planning, get in touch: Alan Eccles: alaneccles@bkf.co.uk / 0141 221 6020.
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