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Intestacy rules change but co-habiting partners still lose out

In 2014 major changes were made to the intestacy rules which apply when someone dies without leaving a Will. The amendments included an increase in the statutory legacy (the fixed sum of money that passes to a surviving spouse or civil partner on their partner’s death), to £250,000 with a direction that this sum should be reviewed after five years and increased in line with the Consumer Prices Index.

The five year review period expired last autumn but, perhaps not surprisingly given the way parliamentary time was taken up by Brexit, the legislation to increase the statutory legacy was not put before parliament until 15 January 2020. The new statutory legacy of £270,000 came into effect for deaths after 6 February 2020. This means that the first £270,000 of assets held in a deceased person’s sole name will pass to their spouse or civil partner if they have not made a Will. If the deceased has children their partner will also receive half of the remaining estate after payment of the statutory legacy.

Sharing property or assets with the children

In many cases, particularly in parts of the country where property prices are higher, despite the increase this sum may be insufficient to cover the deceased’s share of the family home. For example, if someone with children dies intestate leaving a property valued at £800,000, their partner would receive £535,000 from the estate (£270,000 plus half the remainder) which means that the partner would inherit nearly 67% of the value of the home with the remainder owned by the deceased’s children. This could cause problems, particularly if the children are from an earlier relationship and their relationship with the surviving spouse/civil partner is not a good one.

If a property is owned jointly by the deceased and their spouse the same problems could still arise. In the above example, if the house was owned jointly as tenants in common (so the deceased’s share of the property fell into their estate) the deceased’s children would still be entitled to a small share in the house. In bigger estates, the intestacy rules can lead to inheritance tax (IHT) liabilities. If, in the example above, the house was owned as joint tenants, and passed to the surviving spouse automatically, and the deceased left £1.5 million in investments, £615,000 would pass to the deceased’s children under the intestacy rules triggering an immediate inheritance tax liability of £116,000.

Co-habitants

The increase in the statutory legacy for spouses and civil partners will not affect the position of a co-habitant. If their partner dies intestate they will inherit nothing automatically, and any claim against the estate by the cohabitant will depend on either two years of co-habitation, or the bereaved partner showing that he or she was financially maintained by the deceased.

The current weaker position of co-habitants in all spheres of succession is illustrated by the recent proposed amendment to the Fatal Accidents Act 1976 that will allow co-habitants to receive bereavement damages if their partner dies as the result of an accident. However, the cohabitant must have been living with the deceased person for two years to qualify, a requirement that is not imposed on surviving spouses or civil partners.

How can the above problems be avoided?

The position of both co-habitants and surviving spouses can be protected, and unplanned for inheritance tax bills avoided, by drawing up a Will rather than relying on “the one size fits all” provisions laid down by the intestacy rules.

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