Written by Laura Bywater, Head of Wealth Protection, Price Slater Gawne
The statutory legacy determines how much a spouse or civil partner is entitled to from a deceased’s estate when they die intestate, without leaving a valid Will and with a spouse or civil partner and children.
The Government has announced that there will be an increase to the statutory legacy amount which is currently fixed at £270,000 and is set to increase to £322,000 from 26th July 2023.
What are the Intestacy Rules?
The intestacy rules govern what happens to someone’s estate when they die intestate i.e., without a Will. There is a strict order as to who benefits and by how much. The rules are complicated, however in summary, they prioritise spouses or civil partners and children, with the potential to benefit other relatives too. Unfortunately, the intestacy rules do not reflect the constantly changing and complex family structures that we have in society today with divorces, second families and partners cohabiting rather than getting married. For example, they do not benefit cohabitees or long-term partners. It is therefore especially important for unmarried couples to make Wills. Despite public belief, there is no such thing as a common law spouse or civil partner under the intestacy rules.
What is the Statutory Legacy?
The statutory legacy only applies to surviving spouses or civil partners. When someone dies intestate leaving a surviving spouse or civil partner and children, the surviving spouse or civil partner will be entitled to receive the statutory legacy amount of £322,000 (from 26th July 2023), plus the deceased’s personal chattels. The remainder of the estate will then be divided into two equal shares with the spouse or civil partner receiving one share and the surviving children receiving the other share, which they will divide equally between them.
Why the Increase?
The increase in the statutory legacy has been accelerated by the current cost of living crisis and rising inflation. The government considered, amongst other things, the average house prices in England and Wales of c£286,000 which is above the previous statutory legacy amount of £270,000. A surviving spouse or civil partner may find themselves in a difficult position as it could mean that a sale of the deceased’s property becomes necessary to release funds to satisfy the children’s entitlement. This revised statutory legacy sum should hopefully offer greater security and certainty for surviving spouses or civil partners. However, it is certainly no substitute for having a Will in place.
Why it is still important to make a Will?
There are a number of reasons why it is still important to have a Will in place:
· Choice: a Will allows you to choose who exactly is to benefit from your estate and by how much. It also enables loved ones, who are not family members, to inherit. A Will also lets you select suitable executors who will administer your estate following death. A Will also allows you to identify suitable guardians who will care for children during the remainder of their minorities.
· Unmarried couples: unmarried couples do not benefit from the statutory legacy at all, nor are they catered for by the intestacy rules. A Will ensures a cohabitee or partner can benefit from your estate.
· Tax efficiency: it is possible to create tax efficient arrangements in a Will to reduce the amount of inheritance tax that may be payable on an estate. For example, generally anything that passes to a spouse or civil partner benefits from the “spouse exemption”, whereas anything that passes under the intestacy rules to children is potentially chargeable to IHT.
Final Thoughts
Although an increase in the statutory legacy is arguably long overdue, for many clients this will not create a meaningful change from what has already previously existed. It is still crucial that your clients have a valid and up to date Will in place to ensure those that they care about are provided for in full, or indeed those who they do not care about are not provided for at all.
