Last week the Scottish Law Commission published their Report on Succession, which included recommendations for reform and a draft Succession (Scotland) Bill.
The Bill, if passed by the Scottish Parliament, will introduce significant changes to the law of succession in Scotland, and in particular to intestate succession (dying without a Will), protection from disinheritance for a spouse/civil partner and children and the rights of those who cohabit.
Intestate succession
The distinction between heritable (e.g. a house) and moveable estate (e.g. cash) will be withdrawn for intestate succession, and a new threshold sum will be introduced, which the Law Commission recommend is set at £300,000.
Currently, the amount a spouse/civil partner receives on death depends on the split of the deceased’s estate between heritable and moveable. The right of parents and siblings to inherit where a person dies with a spouse/civil partner but no children will also be withdrawn.
These proposals will be a welcome change to the law as it often surprises and somewhat shocks people to learn that their siblings can inherit in place of their spouse/civil partner.
Protection from disinheritance
A spouse/civil partner or child’s right to inherit from his or her spouse’s or parent’s estate has always been a controversial aspect of succession law in Scotland. There has been discussion for many years of abolishing a child’s legal rights in particular. However, the recommendations do not go this far.
Again, the distinction between heritable and moveable estate will be removed. For a spouse/civil partner, the new recommendation is that a spouse/civil partner’s legal share should be 25% of the estate to which the spouse/civil partner would have been entitled if the deceased had died intestate.
The Law Commission have not made a recommendation regarding children but have provided two options for Parliament to consider. The first option is that each child will be entitled to 25% of the estate to which that child would have been entitled if the deceased had died intestate.
If this option is taken forward then this could result in a child’s ‘legal share’ being worth far more than their current right of legitim, particularly where a person dies without a spouse, with a significant amount of their estate in heritable property.
Take the following example:- a person dies with 1 estranged adult child and no spouse. They wish to leave their whole estate to charity. The estate is made up of a £300,000 house and £100,000 cash.
Under the current legal rights system, the child’s legal rights would amount to one-half of the moveable estate, i.e. £50,000. Under option 1 of the new system the child would be entitled to 25% of what they would have been entitled on intestacy, i.e. £100,000, double the amount under the current system.
No doubt if this option is progressed, there will be an increase in the number of lifetime trusts set up to avoid such a claim on death.
The second option is that only a dependent child will have the right to inherit from a parent’s estate. They will be entitled to a capital sum payment which would be calculated to provide reasonable financial support for the child until he or she leaves full time education. This is similar to the position which already exists in England where dependents are allowed to claim from an estate.
The Bill specifies that the likelihood of the child going on to university or college after the age of 18 is to be taken into account although how this is agreed for a young child will be interesting. If agreement cannot be reached between the child/his guardian and the deceased’s executors then a court action must be raised within 1 year of the death. The capital sum can only be paid from any estate passing to a person who does not have a duty of aliment towards the dependent child, so this proposal will only affect estates where a deceased’s spouse/civil partner did not accept the deceased’s dependent child as their own.
Cohabitation
Rights for cohabitants on death were only introduced by the Family Law (Scotland) Act 2006, however the Law Commission has already decided that the current law is “unsatisfactory and should be replaced”.
The scheme will be extended to cover testate cases as well as intestate cases, however, the discretionary scheme will be retained. This still means that any cohabitant not provided for will still have to apply to court for a determination of his or her entitlement.
The cohabitant will be entitled to a certain percentage of the estate to which a spouse/civil partner would have been entitled. The percentage can be equal to but not exceed 100%. The percentage will be fixed by reference to the length of cohabitation, the interdependence, financial or otherwise of the parties during the cohabitation and what the survivor contributed to their life together, whether financial or otherwise.
Summary
The changes mentioned above are the most significant proposed changes announced in the Report. However, there are other proposed changes that will be significant to a small number of estates, e.g. the proposal to abolish the need to find caution in intestate cases.
The Press Release published with the Report on Succession stated that it was intended to “simplify the law radically by providing rules which are easily understood”. While the rules may have been simplified, potentially they could have a far greater effect on a person’s estate and their freedom to distribute their estate as they wish.
The significance of the changes reinforces the need to take legal advice where a person wishes to leave their estate in a certain way. By taking action during lifetime, a person can mitigate such claims and leave their assets the way they wish to.
For more information on how the proposed new changes will affect you or to discuss Wills, trusts and succession planning in more detail, please contact Claire Macpherson.