The 14th of May this year has seen the Inheritance and Trustees Powers Act 2014 (ITPA 2014) receive Royal assent meaning that, as of the commencement date of 1 October 2014, significant changes to the intestacy procedures, rules regarding claims against an estate and certain powers of Trustees will come into practice. ITPA 2014 amends already existing legislation, namely:
- Administration of Estates Act 1925 (AEA 1925)
- Inheritance (Provision for Family and Dependants) Act 1975 (IPFDA 1975)
- Trustee Act 1925 (TA 1925)
In summary, these amendments will simplify the sharing of assets upon a death intestate, will recognise more modern family structures upon intestacy and with regard to claims against an estate, will revise the definition of what is a ‘personal chattel’ and will revise powers of Trustees to use income and capital for the benefit of beneficiaries.
The present law on the distribution of the estate upon a death intestate is laid out in a table in the AEA 1925. ITPA 2014 greatly simplifies this table in the following ways:
- If a spouse survives the deceased but does not leave any children the entire estate will pass to that surviving spouse rather than giving a portion to surviving parents of the deceased as was previously the case.
- If the deceased is survived by a spouse and children or other issue (grandchildren for example) the surviving spouse will receive all personal chattels and a statutory legacy of £250,000 (with interest accruing at the Bank of England base rate at death from the date of death) plus half of the residue of the estate above that statutory amount. The surviving children or other descendants will take the other half of the residue. Previously the half of the residue taken by the spouse was on a life interest trust whereas now that amount will go to them absolutely.
- The £250,000 statutory legacy to the spouse may be altered by the Lord Chancellor from time to time and must be reviewed every five years. Generally speaking it will increase in line with the Consumer Price Index and be rounded up to the nearest £1,000.
Where the deceased’s parents were unmarried when a child dies intestate there is a rebuttable presumption that the deceased’s father and father’s family did not survive the deceased. ITPA 2014 disregards this presumption where a person is recorded on the child’s birth certificate as a parent other than the mother. This being the case an individual with two female parents as a result of fertility treatment born on or after 6 April 2009 would have rights under an intestacy that they would not otherwise have had.
DEFINITION OF PERSONAL CHATTELS
AEA 1925 currently contains a list of items to be regarded as personal chattels. This includes things as varied as “Carriages”, “stable furniture” and “scientific instruments”. ITPA 2014 has boiled this provision down to simply “Tangible movable property”. However, this will not include assets held for the purposes of a business or as an investment. So, for example, if the deceased were a fisherman the fishing boat used in his business would not pass to his wife on death intestate whereas if the boat were one owned purely for personal use this would pass to her. Alternatively if the deceased had purchased a valuable bottle of wine in the hope that it would increase in value and so could be sold to realise a profit, this would be an item held as an investment and therefore would not pass to the spouse. Compare this to the situation whereby the deceased simply loved to drink wine for recreation; those bottles she would have drunk for her own enjoyment will pass to her spouse upon her death intestate. The definition of Chattels within AEA 1925 is applied to wills also and will therefore need to be considered by those drafting them.
INHERITANCE (PROVISION FOR FAMILY AND DEPENDANTS) ACT 1975
The new law now recognises that a family unit may exist outside of what we consider to be traditional family roles. ITPA 2014 now allows for an IPFDA 1975 claim to be brought by a person who was treated as a child of the deceased person regardless of whether that relationship had arisen because of the marriage of any person in that unit or not. This includes the situation where the family consists simply of the deceased and that person. So, we can imagine a situation whereby the deceased was the unmarried partner of the parent of that child. The child will now have a right to make a claim against the estate as though they were a child of the deceased even if their own parent had passed away prior to the death of the deceased.
Previously, a person making an IPFDA 1978 claim as a dependant of the deceased would need to show that the deceased had contributed significantly to the relationship between them to the point that, in general terms, the deceased had “put in” to their relationship greater than 50% of the contributions between the two, financially speaking. The implementation of ITPA 2014 means that this “balance sheet” approach is no longer necessary – the test will now revolve around whether or not the deceased made a substantial contribution to the needs of the individual making the claim. Naturally this does not extend to a commercial situation where the deceased’s contributions were for valuable consideration such as if the claimant was a lodger of the deceased.
TRUSTEES ACT 1925
The power given to trustees to apply half of the income and capital of a beneficiary’s entitlement under a trust for the maintenance of that beneficiary has been extended by ITPA 2014 to apply to the whole of that beneficiary’s entitlement to all of the trust assets. This change will affect trusts created after the commencement date of 1 October 2014. This means that, should they consider it prudent, Trustees may apply the entirety of a trust allowance toward the schooling of a beneficiary without the obligation to retain half of those assets for the beneficiary to take at a later date.
The overarching considerations to come from these changes are varied. However, there are some primary practical considerations to be borne in mind. Such as where wills are drafted following the commencement date, the drafter should consider whether the definition of chattels within AEA 1925 is sufficient to the end that the testator wishes to achieve – for example bearing in mind the illustrations of the fishing boat or the valuable wine given above, a testator would now need further drafting to achieve the application of those should he wish them to pass alongside his other personal possessions.
Further, those without wills should consider whether they would be happy for their estate to be distributed in line with the new intestacy rules. Perhaps taking into account that, should their parents survive them, those parents would receive nothing should the deceased also leave a surviving spouse.
Individuals should also now consider who may be deemed to be their dependant, and therefore eligible to make a claim under IPFDA 1975 against their estate. It may be that the testator should now make a statement of non-provision in order to explain why such a person has not been made any allowance for under a will.
The above is simply an overview of the main changes brought about by ITPA 2014. There are some further alterations which are simply too detailed to go into here but this article should act as a flag to those who think they may be affected to seek further advice or for advisers to take instructions on the matters discussed.
Stephen Horton is on the Legal and Tax Team at Kings Court Trust and can be reached on firstname.lastname@example.org.