Intestacy Rules | Venues 4 Funerals

Intestacy Rules

A person who dies without making a Will or without making a valid Will, dies intestate. The property belonging to such a person is inherited according to a strict set of rules commonly known as the intestacy rules. Instead of the property going to the deceased’s chosen beneficiaries, it is left to other relatives in a particular order.

Total Intestacy

If a person dies without leaving a valid Will, they are said to die intestate. This occurs when the deceased never made a Will at all, cancelled their Will and did not make a new Will or because the Will that was made is invalid.

Partial intestacy

A person dies partially intestate if they leave a valid Will, but the Will fails to dispose of all the assets. If, as is usual, the Will contains a valid residuary gift, a partial intestacy is avoided. A residual gift is one which ensures that all the property which has not been specifically dealt with in the Will (the residue) passes to chosen beneficiaries nominated by the person making the Will (the testator). Make sure your Will prevents partial intestacy by automatically gifting your residuary estate in accordance with your wishes.
 

Effect of Intestacy Rules

The effect of the intestacy rules is that they impose a trust over all the property in respect of which a person dies having provided for them in their Will.
This trust imposes duties and gives certain powers to the PRs (personal representatives, those appointed to manage the estate when someone dies intestate). The PRs must pay the funeral and administration expenses and any debts of the deceased. The balance remaining (after setting aside a fund to meet any cash gift left by the deceased in the Will) is the residuary estate to be shared amongst the family under the rules of distribution.
The PRs have the power to use assets towards satisfaction of a beneficiary’s share with the beneficiary’s consent. Personal assets must not be sold without special reason. In other words, where money is required to pay debts or expenses and there is a shortage of funds in the estate, the PRs would be entitled to sell personal assets.

What happens to the estate if someone did not make a Will?
The right of a person to benefit on intestacy depends on their relationship with the deceased and whether any closer relatives have survived. The general principle is that the estate is shared by the relatives in the highest category, to the exclusion of relatives in a later category but it is more complicated if there is a surviving spouse.
The spouse has priority over all other categories of beneficiaries, but may have to share the residuary estate with other beneficiaries. If the person who dies intestate has no surviving spouse or civil partner, their estate passes to the following in order:

  • Their children, subject to the property being placed in trust but if none, to
  • Their parents, equally if both alive, but if none to
  • Their brothers and sisters subject to the property being placed in trust but if none to
  • Their half brothers and sisters subject to the property being placed in trust, but if none 
  • Their grandparents equally if more than one, but if none to
  • Their uncles and aunts subject to the property being placed in trust, but if none to
  • Their half uncles and aunts subject to the property being placed in trust, but if none to
  • The Crown.

The statutory trusts

Apart from the spouse, parents and grandparents, each category of relatives takes subject to the trust being created. The purpose of the trust is to establish membership of the class of beneficiaries and the terms on which they take, in much the same way as would normally be provided in a Will. The trusts contain three main provisions:

The class of beneficiaries

The residuary estate is held on trust in equal shares for those the relatives in the relevant category who are living at intestate’s death. The term living includes a person who is conceived but not born at the intestate’s death.

The contingency

The interest of the beneficiaries are subject to reaching the age of 18 or getting married whichever is earlier.

The substitution

If a member of the category has died before the intestate leaving a child or children, the child or children take their deceased parent’s share, if more than one in equal shares, subject to reaching the age of 18 or getting married whichever is earlier.

Spouse/civil partner only

Where the intestate (someone who dies without having made a valid Will) leaves a surviving spouse or civil partner but no children, parent, brother or sister, or children of a deceased’s brother or sister, the whole estate, however large, passes to the spouse or civil partner absolutely.
More distant relatives such as half brothers and sisters, grandparents and cousins are not entitled to any part of the estate.
If, however, the spouse or civil partner dies within a period of 28 days of the death of the intestate, the estate is distributed as if the spouse or civil partner had not survived the intestate.

Spouse/civil partner & children Spouses and civil partners

Under the intestacy rules, a spouse is the person to whom the deceased was married at their death whether or not they were living together, or in the case of civil partners, were joined in a civil partnership under the Civil Partnership Act 2004 Where the parties were divorced or are traditionally separated the spouse will not benefit under the rules.

Children
Children who benefit under the rules include all direct descendants of the deceased. That is children, grandchildren, great grandchildren etc. Adopted children are also included as are those whose parents were not married at the time of their birth.

Distribution

Where both spouse/civil partner and children survive the intestate ,their estate is distributed as follows: 
The spouse/civil partner receives the personal assets absolutely. Personal assets are also called personal chattels and include carriages, horses, stable furniture and effects, motor cars and accessories, garden effects, domestic animals, plate, plated articles, linen, china glass, books, pictures, prints, furniture, jewellery, articles of household or personal use or ornaments, musical and scientific instruments and apparatus, wines, liqueurs and consumable stores. They do not include any chattels used at the death of the intestate for business purposes nor money or securities for money.
In addition to the personal assets, the spouse/civil partner receives a specific gift of £125,000 free of tax and cost plus interest at a prescribed rate from the date of death until payment. If the residuary estate apart from the personal assets is worth less than £125,000, the spouse/civil partner receives the whole amount and the children receive nothing.
If there is more than £125,000, the first £125,000 will go to the spouse/civil partner and the rest of the estate is divided into two equal funds. One fund is held on trust for the spouse/civil partner for life with remainder to the children also to be held on trust. In other words, the PRs will invest 50% of the rest of the estate in a fund and pay the interest to the surviving spouse/civil partner for life and thereafter it will be paid in accordance with the trust. The other 50% will be invested by the PRs for the benefit of the children who will ultimately receive that portion of the estate.
The spouse/civil partner’s entitlement to the benefits under the intestacy rules in conditional on the spouse/civil partner surviving the intestate for 28 days. Where the intestate’s spouse/civil partner dies within 28 days of the intestate, the estate is distributed as if the spouse/civil partner had not survived the intestate.

Living together but not married
So far as intestacy is concerned there is no such thing as a ‘common law wife’ or husband. If you are not legally married, you get nothing. However anyone who was financially dependant on the deceased may be able to make an Applicaion for provision from the estate.

Application for provision (Inheritance Act)
By way of the Inheritance Act 1975 certain family members and other dependants can make a claim against the estate if no provisions are made for them in the Will. A ‘common law wife’ or husband, – defined as living together as husband and wife for two years or more at the time of death, are able to make a claim under the Act. In this case they need not to have been strictly dependant on the deceased in order to receive provision.
Other members of the family who were dependant on the deceased, e.g children may claim a share of the estate if the Will does not give them one, but are likely to receive no more than a ‘maintenance’ sum.
The main purpose of making a Will is to ensure your wishes are carried out after your death. If there is a possibility that the provisions in your Will may fall foul of the Inheritance Act, yet you have reasons for what you do, you can set the reasons out in a special document called an Inheritance Act Statement. For example, if you have given their ‘inheritance’ to one of your children during your lifetime and want to exclude that child from your Will, you can say so in the Statement.
While Inheritance Act Statements are not binding on the court in the event that your Will is disputed, the court is more likely to rule in favour of upholding the provisions of the Will if it can see that you have a reasonable motive for what you do.

Applying Trusts for descendants The primary beneficiaries are the children of the intestate who are living at the death of the testator. Grandchildren are included only by substitution, which is where a child has died before the intestate.

The interests of the children are subject to them reaching the age of 18 or marrying under that age. If a child dies after the intestate, but before they reach 18 or marry, their share is distributed as if they had pre-deceased the intestate.
Any children of the deceased child (i.e. grandchildren of the deceased) who are living at the intestate’s death take their deceased parents share equally between them, subject to them reaching the age of 18 or earlier marriage. Great grandchildren will be included only if their parent had also pre-deceased the intestate.
Whilst money is being held for children before they reach 18, the trustees have powers to advance income and capital to the children.

Spouse/civil partner’s right to cash in

The surviving spouse/civil partner may elect to take a lump sum payment in place of a life interest. This means that the half of the residue (i.e. amount over £125,000) which would, under the provisions outlined above, be held on a trust for the spouse/civil partner for life with remainder to the children will instead be divided between the spouse/civil partner and the children. The spouse/civil partner receives a cash payment immediately and the balance is held for the children on trust.
If all the children entitled to share in the intestate’s estate are of full age and capacity, they can agree the capital value of cashing in the life interest with the surviving spouse/civil partner. In the absence of agreement, or if any beneficiary is not yet 18, the amount which the surviving spouse/civil partner receives is calculated according to certain prescribed guidelines. The effect is that the younger the spouse/civil partner the greater the lump sum will be, although it will never be full capital value of the life interest.
If the spouse/civil partner prefers to take a lump sum payment they must give written notice of their decision to the PRs within 12 months of the PRs receiving their authority to act in the management of the estate. Where the spouse/civil partner decides to take a lump sum in place of a life interest, this will have the effect of increasing Inheritance Tax payable by the estate. The reason for this is that when a person leaves assets to their spouse/civil partner, those assets are exempt from Inheritance Tax. If the spouse/civil partner takes a lump sum payment instead of a life interest, the value of the lump sum will be less than the life interest and therefore the estate will be left with a larger amount, which will be taxable.

The matrimonial home
If there is a matrimonial home, which forms part of the estate, the surviving spouse/civil partner can retain the matrimonial home in full or partial satisfaction of their interest in the estate.
If the property is worth more than the spouse/civil partner’s entitlement, the spouse/civil partner may still retain the matrimonial home provided they pay the difference to the estate. This is called equality money. For example, according to the intestacy rules the surviving spouse/civil partner is entitled to £125,000 and the matrimonial home is worth £150,000. The surviving spouse/civil partner may therefore receive the matrimonial home but will have to pay to the PRs an amount of £25,000 being the difference between the value of the house and the amount to which the spouse/civil partner is entitled. The amount of £25,000 will then form part of the rest of the estate to be divided into the two equal funds as discussed above.
The spouse/civil partner will receive the home at its open market value at the time it is decided to keep the home. In times of rising house prices, the surviving spouse/civil partner should exercise the right as soon as possible after the death.
In view of the right to retain the matrimonial home, the PRs should not sell or otherwise dispose of the matrimonial home during the twelve months from the date they receive the authority to act without the written consent of the surviving spouse/civil partner. However, if there are insufficient funds to cover the debts and estate expenses, the PRs will be entitled to sell the home with the consent of the surviving spouse/civil partner.

Spouse/civil partner & parents, brothers or sisters
Where the intestate (someone who dies without having made a valid Will) leaves a surviving spouse/civil partner but no children, the distribution of the estate depends on whether any other close relatives survive. If the intestate is survived by either or both parents, by brothers or sisters or by children of the deceased brothers and sisters, the spouse/civil partner will receive:

  • All of the personal assets absolutely.
  • A specific gift of £200,000 free of tax and costs plus interest from the date of death until payment. If the rest of the estate apart from the personal assets is worth less than £200,000 the spouse/civil partner will receive the entire amount tax free.
  • Half of the rest of the estate absolutely. In other words, no life interest is created and assets placed on trust.

The spouse/civil partner’s entitlement is subject to surviving the intestate for 28 days. If the spouse/civil partner dies within 28 days of the intestate, the intestate’s estate is distributed as if the spouse/civil partner had not survived them.
If either parent survives the intestate, that parent receives the remaining half of the rest of the estate absolutely. If both parents survive, that half is shared equally between them. If both parents have died before the intestate, the remaining half is divided between the intestate’s brothers and sisters subject to the property being placed on trust. The terms of the trusts are the same as those for children. If a brother or sister of the intestate dies before the intestate leaving children, the children (i.e. nephews and nieces of the intestate) take their parent’s shares.
The surviving spouse/civil partner once again has the right to take the matrimonial home in full or partial satisfaction of their interest in the estate.

No surviving spouse/civil partner
Where there is no surviving spouse/civil partner or the spouse/civil partner has died within 28 days of the intestate (someone who has died without having made a valid Will), the residuary estate is divided between the relatives in the highest category in the following list however large the estate:

  • Their children, subject to the property being placed in trust but if none, to
  • Their parents, equally if both alive, but if none to
  • Their brothers and sisters subject to the property being placed in trust but if none to
  • Their half brothers and sisters subject to the property being placed in trust but if none to
  • Their grandparents equally if more than one, but if none to
  • Their uncles and aunts subject to the property being placed in trust, but if none to
  • Their half uncles and aunts subject to the property being placed in trust, but if none to
  • The Crown.

Each category other than parents and grandparents takes subject to the property being placed in trust. This means that children under the age of 18 take the interest subject to reaching the age of 18 or marrying earlier. Children of a deceased relative may take that relative’s share.
Adopted children are treated for intestacy purposes as the children of the adopted parents and not of their natural parents. The intestacy rules are applied regardless of whether or not a particular individual’s parents were married to each other.
Where an estate passes to the Crown, the Duchy of Lancaster or Duke of Cornwall there is a discretion to provide for dependants of the intestate or for other persons for whom the intestate might reasonably have been expected to make provision.

 
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