The introduction of the Inheritance and Trustees’ Power Act last year has raised many questions. Here, Paula Myers looks at the changes and what they mean for dentists
While it can be a difficult subject for many to think about, the issue of considering the future and how you would like your estate to be handled in the event of your death is hugely important. This is especially so as new legislation recently took effect.
For business owners, putting instructions in place for those left behind is particularly critical, as it is likely that interests in an organisation and any wealth built up through the running of it will make up a key part of what is passed on to loved ones in the future.
Impact
Few think about what may happen when they pass away and what this may mean for their business interests. Who would be entitled to their share of the practice? If it were to pass to their offspring, are they old enough and in a position to handle the responsibilities that taking over a business may entail? What impact would a dispute regarding their estate have on business cashflow and its reputation?
These are significant questions, yet research has shown that people are failing to consider what will happen to their assets when they pass away. One study revealed 60% of people don’t have a will and 47% of Britons admitted they have no idea how assets are distributed after death.
Such figures are a massive issue. Any lawyer working on behalf of those seeking to take action regarding the handling of a loved one’s estate will tell you that major legal and emotional consequences can be caused by not leaving clear guidance in a will. Relationships between friends and family can even be irrevocably damaged as people clash over the handling of such matters.
Urban myths
There are many myths that have sprung up over how an estate can be divided. These myths may be distorted further by the introduction of the Inheritance and Trustees’ Power Act 2014 at the start of October 2014.
The legislation includes changes that affect a number of key issues, including intestacy, the law around what is passed to stepchildren, those who are adopted and those who were cared for by the deceased, as well as other tweaks to the rules.
So, what are the changes and what will they mean for individuals and those owning and operating a business?
Intestacy
Put simply, intestacy arises when a person dies without a will being left in place.
Under the previous regime, the position was that in terms of the estate of a person who dies leaving a spouse but no children, the first £450,000 and personal chattels – or possessions – would be given to the spouse, and the remainder of the estate would be divided, with half going to the spouse and half going to parents or other relatives.
The issues that can be caused by this are not to be underestimated; there are many cases involving a property worth more than £450,000 where spouses have had to face up to the worrying prospect of having to take legal action in order to remain in the house they’ve called home for many years.
Following the changes, the estate of a person who dies intestate leaving a spouse but no children or other dependants will now pass entirely to the surviving spouse.
The new law also covers situations where a person dies intestate leaving both a spouse and children. The previous rules in this area were that the first £250,000 and personal chattels would go to the spouse and the remaining would be divided, with 50% going into a life interest trust for the spouse (ie, the spouse received income only and then the remaining capital went to the deceased’s children on the spouse’s death) and the other 50% went in equal shares to the deceased’s children.
This arrangement often led to great difficulties for spouses, who previously faced going through a complex and time-consuming process regarding their 50% share of the remainder of the estate. The new position is that a spouse will receive the first £250,000 plus personal chattels, with the remaining estate being split between the spouse and children.
This, of course, means there may be an increase in claims from children who may have received a larger share of the parent’s estate under previous rules. These changes also do not resolve the complications that can arise when a property involved is worth more than £250,000. Again, most lawyers acting in this area will tell you that they’ve seen many cases where a spouse has little option but to launch legal action against their partner’s children in order to retain the family home.
People cared for by the deceased
The old law allowed a person to make a claim regarding inheritance if they have been treated as a child within a family unit that was based on a marriage involving the deceased. The most common type of claimant in this situation would be a stepchild – they could claim against the estate of someone who was married to their parent or someone else who cared for them (e.g. a grandparent).
However, the new Act changes this by stating that the deceased must have stood in a role akin to that between a parent and child – meaning there is now no requirement for the treatment of the child to be in relation to a marriage. This means a person will be able to claim against the estate of their parent’s late partner regardless of whether they were married, as well as in situations where the person who treated them as a parent was single.
The new Act also closes a loophole that meant that children lost their interest and a right to inherit from a deceased parent’s estate when they turned 18 if they were adopted by another family prior to reaching that age. The new position means children would still maintain their interest even if they were adopted later on. This will undoubtedly be a relief to parents who would only want the best for their offspring when they passed away.
‘Major legal and emotional consequences can be caused by not leaving clear guidance in a will’
Other key changes
The new Act removes the requirement for those making an inheritance claim to show that the person who has died contributed more to the relationship than they did. It also removes the requirement to show that the deceased had formally ‘assumed’ responsibility for the claimant’s maintenance – something that was previously key in determining a reasonable financial provision for those bringing a claim.
Importantly, the changes will open up this category to situations where the claimant and the deceased were mutually dependent on each other. An example of someone who might now be able to claim is a partner in a non-cohabiting couple where each had assumed some responsibility for each other.
Previous legislation also stated that a claim could only be launched once work had formally begun to divide the estate involved – through the use of a grant of probate. However, the new Act states proceedings can begin before this, bringing an end to cases when people refuse to issue a grant in order to prevent others from launching claims.
A modern view
Arguably, the key underlying purpose of these changes in the Inheritance and Trustees’ Power Act 2014 is to ensure that the law reflects modern society. For example, it acknowledges the sheer number of people who choose to cohabit without getting married, as well as those who have died intestate – without making a will – in recent times.
While much of the new legislation undoubtedly brings the law on wills into the 21st century, there are aspects that raise questions and that could, in the long-term, lead to an increase in the number of legal disputes launched regarding inheritance issues.
Ultimately, the simple advice for dental practice owners is that they should always seek legal advice when preparing a will to essentially ensure that the documents reflect their wishes and are comprehensive, leaving no doubt for family and friends how an estate should be divided.
Losing a loved one is incredibly difficult, but often such situations can be made worse when people are left to fight for inheritances or property. As a result, it is vital that the people understand both the key changes and what it may mean for them should they need to bring legal action to access what they deserve.
Paula Myers is head of Irwin Mitchell’s specialist will, trust and estate disputes team.
