“It is what it is”… the laws of intestacy

For Love Island aficionados, this time of year is peppered with some classic quotes (and some new gems). One line that has stood the test of Love Island time is “it is what it is“. Literally, never a truer word spoken. It is also a phrase that applies neatly to the laws of intestacy. If one dies without a will the division of an estate will be determined by the laws of intestacy: it is what it is. And ‘it’ is often not good.

Why the laws of intestacy are 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, size/type of assets held and rules as at your date of death. That could all 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 is 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 estates, the bond of caution premium will be thousands of pounds. A completely unnecessary expense, some might say.

The law prefers the brother you hate to your spouse! Yes, this is true (but hey, it is what it is, yeah?). After some entitlements for a spouse/civil partner, the remainder of the estate (where no children) will pass to surviving siblings and parents. Siblings and parents sit higher up the order of entitlement to the balance of an estate than a spouse/civil partner. When this is learnt, it can cause some shock.

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).

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.

Taking control of your estate: the next step

How do you avoid the “it is what it is” random rules of intestacy generator applying? Simply get in touch to discuss making a will: Alan Eccles: alaneccles@bkf.co.uk / 07470808717.

“Alan is a professional, dedicated and passionate private client lawyer.” Another interviewee enthuses: “Alan has excellent experience and technical knowledge, and he is very generous with his time.” Chambers High Net Worth 2022 directory

“Alan Eccles is an excellent lawyer with a brilliant manner with clients – he relaxes them and builds confidence,” while another comments: “He is diligent, makes the complex understandable and is very approachable.” Chambers High Net Worth 2021 directory

“An experienced lawyer” who is “a superb strategist and is extremely knowledgeable”. Chambers High Net Worth 2020 directory

Alan Eccles is “one of the leaders in private client expertise in Scotland.” Chambers High Net Worth 2019 directory

Alan Eccles… a Legal Influencer for Private Client (UK) – Lexology Marketing Award

Alan Eccles is the Scottish contributor to the textbook, International Succession.

Tony’s advent calendar: a Christmas tale of the disappointed beneficiary

Tony’s Chocolonely advent calendar created a storm on 8 December. There was, deliberately, no chocolate in that door. It was apparently designed to highlight inequality in the chocolate industry. For now, we will leave others to discuss that. It also seemed to cause disappointment. On that we will pick up. And teleport to the world of the disappointed beneficiary and the contentious estate with help of what happened with that advent calendar.

The Tony’s Chocolonely advent calendar: the moment of opening 8 December and the aftermath

At the moment of opening that fateful advent door, the first thing that seemed to happen was shock.

“Where is the chocolate? I had expected a chocolate.”

Then there would have been the disappointment. Was expecting chocolate. Now not got chocolate. Sub-optimal.

The disappointment will then be infused with questions. How and why could this have happened… to me? There will be possibilities:

Mistake. It was never meant to be empty. If it was a mistake, there must be a way to fix the mistake… or blame someone. The chocolate was supposed to be there but there was a failure to fill that door? Are there ways to rectify what has happened?

Capacity. Is this indicative of a lack of capacity to make an advent calendar? The whole calendar might be invalid!

Undue influence and ‘facility and circumvention’. Somebody has interfered with the calendar production process and that has resulted in the missing chocolate. Indeed, has someone diverted that chocolate to themselves?!?

A failure to account. We were supposed to get 25 chocolates and appear to have only got 24. Those responsible for the calendar have duties and need to account for this and make good any shortfall. (*spoiler alert* the Tony’s calendar has a full complement of chocolates)

And after those questions will come a desire for justice. How do we sort this issue out? How do we get our chocolate back? There might or might not be grounds for it to be remedied.

The real answer in Tony’s was of course more shocking. It was a deliberate omission! You were not to get that chocolate… or at least not to get it on 8 December. Sometimes one is disappointed because someone else did not want them to get something. Or they have conditions and controls on that chocolate as to when and on what basis you are to receive that chocolate (like a trust!). It also highlights that someone can choose not to give you a chocolate and they don’t have to have a good reason. Or indeed any reason. And worse still, they can be capricious and spiteful! Tony’s position is they did have a good reason.

It seems that in some cases parents jumped to the rescue. They bought replacement chocolate. Seemingly on the basis that the opener of the advent door had some sort of fixed chocolate entitlement. Such parents stepping in with an alternative chocolate offering as a protection from disappointment. As if they were ‘legal rights’ in this story of succession disappointment. Legal rights being a fallback for certain family members in a Scottish estate.

So, as with empty advent calendars, succession can cause disappointment. There can be a variety of reasons behind the disappointment. Some of which can result in actions to unravel the disappointment and get back to where you wanted to be. In some cases there will not be a solution… bah humbug or maybe you were just on the naughty list.

Merry Christmas.

For help and advice on succession law issues (or eating chocolate), get in touch with Alan Eccles: alaneccles@bkf.co.uk / 07359001038.

“Alan Eccles is an excellent lawyer with a brilliant manner with clients – he relaxes them and builds confidence,” while another comments: “He is diligent, makes the complex understandable and is very approachable.” Chambers High Net Worth 2021 directory

“An experienced lawyer” who is “a superb strategist and is extremely knowledgeable”. Chambers High Net Worth 2020 directory

Alan Eccles is “one of the leaders in private client expertise in Scotland.” Chambers High Net Worth 2019 directory

Alan Eccles… a Legal Influencer for Private Client (UK) – Lexology Marketing Awards

Disinheritance: that’s not fair!

The British Columbia Supreme Court has decided that a father’s will should be varied to reflect his ‘moral obligation’ to his adult daughter when there was an unequal division of the estate between her and her brother.

Could that happen in Scotland? Can you disinherit a child under Scots law? What are the rights of a child or spouse/civil partner in an estate? What happens if you get less from an estate than hoped? All that, and may be more in this blog.

What happened in Canada?

The deceased left a will splitting the estate 50% to his son and dividing the other 50% equally among his daughter and her children. The daughter was disappointed by this division and sought under the law of British Columbia to ask the court to vary the will and the division of the estate. The variation was sought on the basis that the father had failed to discharge his moral obligations to his daughter. The relevant legislation allows a court to consider whether or not a deceased has made “proper maintenance and support for a spouse or child” and if they have not, the court may set out a division of the estate which it thinks is “adequate, just and equitable in the circumstances”.

The court weighted up a number of factors including provision made for the son outside of the estate, the relative financial positions of the son and daughter and also that the daughter is disabled. The son argued that making provision for the grandchildren was right and given the daughter’s apparent inability to manage money, this ensured the grandchildren would receive an inheritance.

The court decided that the father had not fulfilled his primary moral duty to support his children. It was irrelevant that the deceased had benefited both sides of the family equally. The court ordered, based on this moral duty and the children’s respective health and financial circumstances, that the estate should in fact be divided as follows: one-half to the daughter; one-third to the son and one-twelfth to each of the grandchildren.

Could this happen in Scotland?

The short is ‘no’. It is not possible in Scotland to ask the court to alter an estate on the basis that it was an unfair division. Yes, if there are allegations that, for example, the deceased did not have capacity or there was undue influence, a court challenge can be raised to strike down the will. But that is on the basis the will is invalid rather than it containing an unfair division. Of course, the reason to seek to challenge a will’s validity could be due to perceived unfairness.

So, spouses/civil partners and children are left ‘high and dry’ in Scotland?

The short is answer is ‘no’. Unlike jurisdictions such as British Columbia or England, Scotland has, like France, a system of ‘forced heirship’. Scottish forced heirship is known as ‘legal rights’. Legal rights creates automatic, fixed entitlements for spouses/civil partners and children. Legal rights apply irrespective of the terms of the will. Systems like England and British Columbia have court based discretionary processes to offer some protection from disinheritance.

What are the legal rights entitlements?

If a deceased is survived by a spouse/civil partner and children, the spouse/civil partner is entitled to one-third of the net moveable estate and the children, as a group, are similarly entitled to a one-third share.

If a deceased is survived by only a spouse/civil partner, then the spouse/civil partner is entitled to one-half of the net moveable estate.

If a deceased is survived by only children, then the surviving child/children is entitled to one-half of the net moveable estate.

It is also worth noting that a legal rights entitlement is one of cash. The positive is that avoids a force break-up or sharing of assets, but it might create a pressure to fund the cash requirement.

Those entitled can also take their time to decide what to do. If someone entitled legal rights felt they were receiving too little from the estate, they might simply prefer to cause a little nuisance. They can wait 20 years to make a decision(!) and all that time the estate needs to be ready to settle the entitlement should it be asserted.

The moveable estate is essentially all assets excluding land and buildings. Care should be taken with land that is held in a company as it will be treated as moveable. Partnership agreements should also be reviewed to confirm how land held in a partnership is to be treated for legal rights purposes. In some cases it will be important to not accidentally and unthinkingly enlarge the amounts that someone is entitled to under legal rights by restructuring land and buildings into a company.

But I want to prefer one child over another!

While a will would allow someone to say their entire estate is to pass to one particular child, that is still subject to legal rights entitlements. So, to pass more of an estate to one child, it may be necessary to take action during life to restructure their estate or alter how the preferred child inherits (part of) the estate. Because legal rights is based on the value of the moveable estate held in the deceased’s name immediately before death, moving assets out of their name or otherwise reducing the value of the net moveable estate will be key to minimising or avoiding a child’s legal rights entitlement. The use of pensions, trusts, policies and contracts can all be part of the planning to control legal rights. The impact (and advantages) associated with some tax rules also need considered with legal rights planning.

Those with assets such as large investment portfolios, cash or private business holdings should take particular care with legal rights.

I don’t like legal rights: I’ll emigrate to avoid it!

A potentially bold option. But as we have seen with Canada and noted in passing about England, most countries have some system to protect those you are (in whole or part) disinherited. Systems like British Columbia or England have the uncertainty of a discretionary court approach: everything is up for grabs and in the air. Scotland and others have more rigid entitlements, but at least you can try and plan around the rules in the knowledge that there is no British Columbia-esque legislation to unpick an estate.

As an aside, I am part of the writing team for the book, International Succession and it is notable that each chapter on each country covered in the book looks in detail at rules on disinheritance.

Protecting beneficiaries

One for another blog perhaps, but worth reflecting on the point raised that the Canadian case’s deceased apparently wanted to ensure some inheritance passed to his daughter’s children and also to recognise her issues with financial management. If protecting family wealth and holding it safely for (but away from the own hands of) a beneficiary is desired, then a mix of lifetime planning and the right will is required in Scotland. There can also be legal and even emotional value in preparing a letter of wishes to accompany a will and other steps in that situation. A letter of wishes can provide guidance on your aims and also help with any explanation of those aims.

Voluntary variation: deeds of variation

We have previously talked about the valuable ability to vary an entitlement in an estate following a death. This can have various succession and tax advantages. You can read a blog on that here.

For help and advice on succession issues including legal rights or being a disappointed beneficiary, get in touch with Alan Eccles: alaneccles@bkf.co.uk / 07359001038.

“An experienced lawyer” who is “a superb strategist and is extremely knowledgeable”. Chambers High Net Worth 2020 directory

Alan Eccles is “one of the leaders in private client expertise in Scotland.” Chambers High Net Worth 2019 directory

Wills: have you seen pics from lockdown DIY haircuts?

#WFH = #WillsFromHome… but not DIYWills

The internet has been flooded with pictures of the outcome of the world becoming DIY barbers and hairdressers. It is probably safe to say that most people are now clear being a coiffeur is not easy. It takes skill, experience, know-how and the right tools. The same can perhaps be said about wills.

Sure ‘DIY’ wills can sometimes come out perfect – just like some attempts at lockdown hairdos. Other attempts will come out anything but the right style.

Even an attempt at a ‘simple’ will (query what one of these actually is) can cause disappointment. And there are other things to think about that affect how an estate is inherited beyond what is written down in a will.

While a haircut that goes awry is immediately identifiable and grows out or can be fixed quite quickly, a faulty will can sit untouched until the time when it is needed… following a death. At which point the damage may have been done and difficult or impossible to unravel. Unravelling can be particularly tricky where the ‘wrong’ individuals are inheriting or benefiting from the estate or inheriting the wrong amount or in the wrong way. Serious disputes can ensue. There can also be tax consequences to how a will is made. A DIY will might result in an unnecessary tax bill.

Wills From Home… va va Zoom!

While there are restrictions on movement at the moment, Scottish law coupled to guidance from the Law Society of Scotland allows wills still to be made. Now is a good time to make or update a will and can be done without a visit to an office. Video calls can now be used.

To make a will get in touch: Alan Eccles – alaneccles@bkf.co.uk or 07470808717

Covid-19: I’m an executor, get me out of here!

What should executors be thinking about during the pandemic?

Executors administering estates under a will during the pandemic could actually be facing some similar issues to businesses. And with that sobering thought, executors also need to be very aware that the starting point is that executors have unlimited, personal liability for their actings.

Let’s look at some issues executors will need to keep in mind at the moment and for the foreseeable.

What are the liabilities in the estate? How will they be met?

It is trite that executors have a duty to ascertain the assets and liabilities in an estate. In more stable times one hopes ascertaining the former is the ‘main event’. But in the current climate, the value of the assets might be more fluid and so keeping a close eye on any labilities and the ability to meet them is a more prominent issue. Cash could be all important. Identifying known and potential liabilities should be high on the agenda.

But what liabilities should executors be looing out for? Some will seem obvious like any inheritance tax, a funeral account, outstanding mortgage (including equity release) or consumer loan.

Other liabilities might be more complex. In Scotland certain family members have an entitlement in the estate irrespective the terms of the will: known as ‘legal rights’. Legal rights are due in cash and are payable before any of the beneficiaries. If legal rights are due, executors should look at this issue early… particularly where the asset values could fluctuate. The staring point for the amount of legal rights due is the date of death value of the estate. A doomsday scenario is that the value of the estate plummets and that unintended/undesired recipient of the estate (getting their legal rights) receive even more than the intended/preferred beneficiaries! The intended beneficiaries may well then turn to the executors to explain what happened.

There might also be liabilities connected to business such as personal guarantees. These other liabilities might not be fixed and there will need to be work carried out to quantify the potential liability, perhaps negotiate settlement and have funds available to meet the debt.

Executors need to be able to meet the liabilities. They need cash or access to funds to do that. As well as liability management, the executors will need to carefully manage the assets and consider producing and holding cash. The executors will also need to, with appropriate robustness, communicate to beneficiaries. Communictaing a message that until third party liabilities and legal rights are settled/fully provided for beneficiaries cannot receive their (full) inheritance.

There may also be an even greater than usual desire or advantage in working to ‘pay out’ beneficiaries as soon as practicable and proper. This would be especially the case to transfer the risk of asset price fluctuation from executors to the benefciaries.

When can executors deal with and sell assets?

If being able to manage and sell assets during this period is going to be important for executors, having title and power to do so will be critical. The pandemic might partly get in the way of that. Executors need to plan ahead and even think creatively (like many businesses have had to pivot about how they deliver their products/services). Asset-holders such as investment managers will also need to consider their processes.

Confirmation (‘probate’) is the key milestone for executors that gives them title to assets. It enables executors to complete the sale of house or instruct the realisation of investments. Without confirmation executors can be exposed to a period in which the world moves, prices and values move, but they are restricted in how nimble they can be.

Executors will in the first place want to swiftly compile the information needed to be in a position to apply for confirmation. Social-distancing measures at Scottish courts (and any issues with HMRC transacting business for taxable estates) mean executors have not been able to confirmation during lockdown. There is now a slight unlocking for this process, but there will be likely backlogs and longer timescales. Given the confirmation delays, what might executors want to consider given these constraints?

The area that is likely to be most sharply affected is investments. Prices can move and executors will want to be able to react promptly. Executors should speak to the investment manager. Where the investments are held with a nominee company, the deceased would not actually have held title to the particular share… the nominee company has title. Via the nominee, it might be possible for the manager to take instructions and sell. Ordinarily, they would then hold the proceeds of sale until confirmation is obtained. If this is difficult there are some interesting rules in the Charities and Trustee Investment (Scotland) Act 2005 that executors and investment management houses might want to consider.

Executors and financial institutions will also benefit from checking the terms and conditions that apply to the account. Some Ts&Cs set out who can give instructions on the account. That could unlock some situations.

Remember, executors should take investment advice.

Advice will be critical to support executor decision-making

Beneficiaries are owed duties by executors. Remember, executors have personal, unlimited liability. Unhappy beneficiaries have rights to call into question executor actings and ultimately could seek redress from an executor’s own pockets.

To support decision-making and their actions, executors will want to establish a good audit trail of the advice they have taken and considered.

Perhaps the most obvious requirement will be advice about investments. But other advice might be needed such as accountancy or corporate finance support where a private business holding is involved. Assistance might be required to understand the position on a debt due to or by the estate. There might be the need for the ongoing management of property.

Advice could also be crucial for the executors to demonstrate fair value has been obtained for an asset sold in the estate. This could even be the case where one beneficiary seeks to buy an asset from the estate (there are also confilct of interest rules to think about here where a beneficiary is also an executor).

Government ‘schemes’… or more accurately post-death tax repayments

Covid-19 has led to a raft of new government support schemes being created. Executors need to be aware of existing mechanisms to reduce a tax liability.

The starting point for an inheritance tax liability is of course the date of death value of the estate. Values can however change after that date. Famously the value of an investment can go down as well as up. Executors need to be aware of all reliefs that can reduce the tax liability. However, two might come into their own at the moment.

First, where within 12 months of death, investments (certain listed shares andunit trusts qualify) are sold at a loss, it is possible to make a claim for a repayment of inheritance tax based on the difference between the date of death value and the lower sales. The lower value is based on the net of all sales in the 12 month period. A valuable step that must be considered.

Secondly, where the sale of a house or land is involved, a similar rule to sales of investments applies. This time however, the window of opportunity is up to four years after death.

We should mention (with an optimistic outlook) that for deaths that occurred during a period of low asset values, executors should be keeping a careful eye on asset price increases. There is the potential for capital gains and steps that might be taken to minimise the tax consequences of that.

Engagement with beneficiaries

Executors are appointed by the deceased to do a job because the deceased trusted those chosen executors. The deceased will want the executors to be able to get on with the job as unhindered as possible. Executors are not expected to provide beneficiaries with a running commentary on the estate. Indeed, there might be some matters that are rightly confidential to the executors. But, executors do owe duties to the beneficiaries.

With those duties in mind and to help navigate what might be difficult times, executors will want to consider the best form of engagement with beneficiaries. What updates should be provided? Are there matters the executors will consult upon with beneficiaries to take their views before acting? Could there be decisions on which the executors would seek to get positive consent and approval from beneficiaries?

It’s all about surviving… survivorship destinations

We’ve discussed issues with not being able to obtain confirmation and subsequent barriers to selling assets. However, for some assets, the title is held in such a way that automatically on death and without the need for confirmation title will transfer to the survivor. This is where the title has a ‘survivorship destination’. The survivor can then deal with the asset. These destinations can appear in the title to any type of asset from houses to shares.

As well as ‘survivorship destinations’, the terms and conditions of an account (e.g. bank, platform or share) might contain terms similar in effect to a survivorship destination. That might be a basis upon which a financial institution will allow the survivior to access and deal with the assets.

Executors don’t need to take the ‘job’

Maybe this has been a gloomy blog… Or one to help ready executors at this time! But there are risks and issues, particularly at the moment, that a well-informed executor should consider. It might be the case that for various reasons an inividual does not want to take on the role. The law does not force someone to become an executor just because the deceased named them in the will. There might be moral or family ‘duties’ involved, of course. If someone does not wish to take on the position, they can decline. If someone wants to decline, they need to do this at the start of the estate and before they have begun acting in a manner consistent with having accepted the role. The decision to decline should be documented.