Inheritance and Trustees’ Powers Act 2014

You have probably heard that the Intestacy Rules applicable in England and Wales changed on 1st October.  The new rules are encompassed in the Inheritance and Trustees’ Powers Act 2014.

 

About time too!  Until the change, for example, “personal chattels” included your carriages, horses and stable furniture, so you can see it has been a while since this was revisited.

 

This is an area which should be of concern to all financial advisers.  Why?  Because far too many of our clients never get around to drawing up a will.  Recent research suggests nearly 60% of adults in the UK do not have a will.  Typically, the reason given for not making a will is that “it can wait until I am older”.  The fact that not one of us knows whether we will even be alive tomorrow seems to have been forgotten.

 

We should all know the basic rules of intestacy by heart so that we can bring home to our clients the importance of dealing with their wills.  Fortunately, the new law has slightly simplified these rules.

 

Rules of Intestacy – Married

If you are married (legally married, not simply living together) or in a civil partnership and have no children, your spouse or civil partner gets everything.  If you have children, your spouse or civil partner gets the personal chattels, the first £250,000, and half of any excess.  The children get the rest.  But note that “children” means either biological children or adopted children.  It does not include step-children, but does include illegitimate children.

 

With rising property values, many clients will find their home already takes them over the £250,000 threshold.  This could mean a widow will find herself with the house but little or none of her husband’s money.  The new legislation promises an increase in this £250,000 threshold in line with the Consumer Price Index at least every five years but it could still rise slower than property prices.

 

The definition of “personal chattels” is now much simpler.  Personal chattels is any tangible moveable property (a familiar concept to those of us much involved with pensions) except money, securities, and assets held as investments or used for business.  Remember, the spouse gets all of these in addition to the first £250,000 and half of any excess.  I can imagine disputes arising where a widow claims her husband’s wine cellar is personal chattels but her children claim they are an investment!

 

Rules of Intestacy – Unmarried

If you are living with someone who is not your spouse or civil partner, that person gets nothing unless they are a relative.  There is no change here.  There is probably no need for you to memorize the order in which relatives will receive the estate, but for the record here it is:

 

Children

Parents

Siblings

Nephews and Nieces

Half Siblings

Half Nephews and Nieces

Grandparents

Aunts and Uncles

Cousins and their descendants

Half Aunts and Uncles

Half Cousins and their descendants

 

In the case of parents, the father will not receive anything if he was not married to the mother and his name does not appear on the birth certificate.

 

If there are none of the above, the Crown will get everything unless you lived in Cornwall or Lancaster (in which case charities chosen by Farrell and Co Solicitors will receive it).

 

Check with any clients in this situation whether they would prefer a charity of their own choice to receive their wealth rather than the Crown (which is already quite wealthy!) or a charity they may not support at all.

 

Trustee Powers

The new act has also modified some of the rules in the Trustee Act 1925.  Again, about time!

 

Previously trustees could only use income for a beneficiary under 18 if it was “reasonable” to do so.  This meant a decision of trustees could be questioned and overturned if a court decided it was not reasonable – even though the trustees may genuinely have believed it was.  This “reasonableness test” has now been removed and it is entirely down to the discretion of the trustees.  They are still, of course, required to consider all the relevant factors before making their decision.

 

Trustees can also now advance up to 100% of the capital in which a beneficiary had an interest.  The Trustee Act 1925 limited this to 50%.  Most well drafted trust deeds have a clause excluding this limitation, but such a clause will no longer be required in new trust deeds.

 

Trustees now have a statutory power to advance assets in specie to beneficiaries.  This power already existed in case law but now has a statutory basis.

 

Finally …

The changes brought in by the Inheritance and Trustees’ Powers Act 2014 have given us another good reason to contact our clients and see if there is anything further we can do to help them.  We should make sure they have up to date wills which really reflect what they want to happen on their death and which are tax efficient.  We should also be talking to them about the advantages of getting their wealth in trust, especially on death.