The Statutory Legacy on Intestacy has increased - what does this mean?
From 26 July 2023, the Statutory Legacy increases in England and Wales from £270,000 to £322,000.
The Statutory Legacy is the sum a surviving spouse or civil partner is entitled to receive when a person dies intestate (without a valid Will), leaving surviving children (whether or not those children are over 18).
How do the Rules of Intestacy work?
The new legislation brought into force by the Government increase the previous Statutory Legacy of £270,000 by £52,000, amending the provisions applying as to how a person's estate is distributed where they die without a Will – known as the Rules of Intestacy.
The Rules of Intestacy provide a strict structure for how a person's estate will be divided, which will vary depending on whether they were married and had children, and if so how many.
The Rules can be complicated in some family arrangements, but essentially favour a person's spouse/civil partner, followed by their children and thereafter remoter family members such as siblings and nieces and nephews. Cohabitees and so-called 'common-law spouses' (which do not exist in English Law) are not accounted for by the Rules.
What does this Rule change mean?
The increased Statutory Legacy means that a spouse will receive the first £322,000 of the estate. If the estate has a value equal to or less than the Statutory Legacy, the spouse will essentially receive the entire estate. If the estate has a value greater than £322,000, any value over and above this sum will be divided so as 50% to the spouse and 50% to the children.
How is an intestate estate distributed?
The examples below demonstrate the manner in which the application of the Intestacy Rules will differ depending on the type of family arrangement.
Example 1 – Married but with no children
Richard and Elizabeth are married. Richard dies without having made a Will and leaves an estate worth £1,000,000.
As Richard and Elizabeth were married Elizabeth inherits the entire estate and no inheritance tax (IHT) is payable.
Example 2 – Cohabiting with young children
Richard and Elizabeth have lived together for many years and share two young children. Richard dies without having made a Will and leaves an estate worth £1,000,000.
As Richard and Elizabeth were unmarried, the whole estate passes to Richard's children who will receive their inheritance at 18. Significant IHT will be payable.
As Elizabeth has not been provided for from Richard's estate, she may need to make a claim against the estate for financial provision (these claims are outlined further below).
Example 3 – Married but with children
Richard and Elizabeth are married and have two young children. Richard dies without having made a will and leaves an estate worth £1,000,000.
Elizabeth receives £322,000 by way of statutory legacy. Of the remaining £678,000, half passes to Elizabeth and half passes to the children who will receive their inheritance at 18. The children's share may be subject to inheritance tax depending on how the estate is constituted.
As Elizabeth has not been provided for from Richard's estate, she may need to make a claim against the estate for financial provision.
Changing how the estate is distributed by agreement
If the beneficiaries of the estate are all over the age of 18, have capacity, and are in agreement, they can enter into a Deed of Variation, which varies how the estate is to be distributed and can also write back the tax position of the estate. There is a strict statutory deadline for these Deeds to be entered into and advice must therefore be sought as soon as possible.
Changing how the estate is distributed when agreement cannot be reached
If the beneficiaries of an estate do not all agree to vary its distribution (ie an adult child does not agree to give up a part of their share in favour of their deceased parent's cohabitee), the 'disappointed party' can seek additional provision from the estate under the Inheritance (Provision for Family Dependants Act)1975 (the 1975 Act).
Only specific categories of person can pursue a claim under the 1975 Act, and there is a strict time limit in which to do so. If successful however, a 1975 Act claim can override the Rules of Intestacy (or any Will) to make provision for the claimant.
Claims under the 1975 Act can however be complex, stressful, time consuming and costly for all involved, but offer a potential solution adequate provision for dependants has not been made.
Most 1975 Act claims can be avoided if a person ensures they have a Will which is up to date, and has up front conversations with immediate family members to avoid any 'nasty surprises' after their death.
Should you make a Will?
Having no Will or an out of date will can not only mean that those you care about may not be provided for (for example if you are in a long term relationship but unmarried), or indeed can mean that those you do not wish to benefit (estranged family members) do benefit.
In addition, not only can additional IHT be payable but individuals may be forced to seek redress through the Court system just at a time of great stress and bereavement.
All of this can be avoided by the use of a professionally drafted Will which is regularly reviewed.
This Insight was originally published on 28 May 2020 and was updated on 26 July 2023.