No Will, No Justice? The heartache of intestacy.
I’ve not done my Tax Return yet. It’s mid January now and I must get it to done by the end of this month or HMRC will hit me with fines and penalties. Typical me I suppose – leaving things to the last minute. Trouble is there’s always something more urgent (or more interesting – wouldn’t be hard!) to do than filling in a Tax Return. In that sense, it’s a bit like getting round to making a Will: not the most pressing – or the most fun – thing on most people’s “ to do” list. But the difference between your Tax Return and your Will is that at least the Taxman tells you his deadline: the Grim Reaper invariably does not! And the Reaper doesn’t publish a tariff of financial penalties for non-Willmakers on any website either. So maybe it would be useful to consider what these penalties could be.
I always find case studies more interesting than a list of facts and figures – so here’s one:-
Craig and Donna
Craig is a GP and his wife Donna is a teacher. They’re both in their early 30s. They both enjoy their demanding jobs and haven’t decided yet when or if they want to start a family. Craig’s parents died just as he was completing his medical training and his inheritance from them enabled him to buy a modest house, mortgage free. This is the house the couple now live in and Craig is quietly pleased that it has been steadily increasing in value over the last few years: others on the street are now fetching over £200,000. With no mortgage to worry about, Craig has been making use of his ISA allowance every year since he started work and now has ISA and other investments worth £209,000 at the last count.
Tragically, a week before his 34th birthday and out of nowhere, Craig suffers a massive stroke and dies instantly. Although the couple had talked about making Wills, they had never got round to it. Other than Donna, Craig has no family apart from his sister, Janice. Craig was never close with Janice – probably because she was so much older than him and she had emigrated to Canada when he was in his early teens. She did come over for Craig and Donna’s wedding but that is the first and only time Donna had met her.
I am now faced with a grieving Donna seeking my help in winding up Craig’s estate. I have to explain to Donna that, since Craig died intestate (i.e. he did not leave a Will) the first thing we need to do is to get Donna appointed as Craig’s Executor. That is not a particularly costly or time consuming process: it costs a few hundred pounds and takes about 3 weeks; but it is money and time which could have been saved if Craig had made a Will naming an Executor.
Apart from the Executor appointment, the winding up process is pretty much the same with or without a Will – with one notable exception: the Bond of Caution (which, to make an obscure term even more obscure, is pronounced “Cay-shun”). Quaintly named but a downright waste of money, the Bond of Caution is an insurance policy the Court requires before processing an intestate estate like Craig’s. The premium for the Bond of Caution has to be paid from Craig’s estate and is calculated with reference to its value. Craig’s estate is worth £409,000 – and the one off premium for the Bond of Caution in this case is £1,200. Because it’s a Court requirement, Donna has no option than to purchase the Bond of Caution; but it is required for a reason. What if Craig’s estate is distributed as stipulated by the law of intestacy – and then it turns out that Craig had made a Will after all and that, in terms of this Will, Craig has made bequests to friends and various charities: oops! Craig’s estate having already been distributed, the Bond of Caution is for the Will beneficiaries’ protection – to ensure they get paid. That’s all very well but Donna knows full well that Craig absolutely did not have a Will. Unfortunately, since you can’t prove a negative, the Bond of Caution has to be bought and paid for out of Craig’s assets. If only Craig had made a Will in the first place…Bond of Caution…£1,200…downright waste of money.
So, OK, hindsight is a wonderful thing – too bad Craig didn’t make a Will – it’s cost £1,500 or so but Craig’s estate can then be wound up and everything passed over to Donna as his wife, right? Well, no that’s not right unfortunately. As I’ve said, when there’s no Will the law of intestacy sets out how an estate is to be distributed. That law is contained in the Succession (Scotland) Act 1964, as updated from time to time, and it provides that Donna, as Craig’s surviving spouse, is entitled to:-
- His house (since it is Donna’s principal residence) up to a value of, currently, £473,000. Craig’s house is valued at £200,000 – so that’s fine.
- Household furniture up to a value of £29,000 – again fine – it was owned jointly by Craig and Donna and Craig’s share was worth less than £29,000
- Cash and other investments up to a value of £89,000.
The above constitute Donna’s “Prior Rights”, as Craig’s surviving spouse . Remember though that Craig had investments worth £209,000 and Donna’s Prior Rights cover only £89,000 of these – so what happens to the other £120,000? Well, in addition to Prior Rights, Donna has “Legal Rights” to half of Craig’s remaining investments- so she gets a total of £149.000 (£89,000 Prior Rights and £60,000 Legal Rights). OK– but what about the other half of the £120,000, does Donna not get that too? No, that’s the bad news for Donna … remember Janice, Craig’s distant sister? Well, she gets that £60,000!
I explain all this to Donna and she can’t believe it. Janice was of an older generation than Craig, was grown up while he was still a child and away to Canada when he was still at school. They spoke on the phone occasionally and sent Christmas cards but that was about it. There was no way Craig would have wanted Janice to have that money. I am sure Donna is right but that’s the law and there is nothing Donna or I can do about it if Janice takes up her inheritance. There was, however, something Craig could have done about it: he could have made a Will. A simple one, naming Donna as his executor and beneficiary would have sufficed. It’s too late for Craig – his deadline for making a Will has passed and Donna is paying the penalty.
Craig and Donna – a Twist in the Tale
In true Sliding Doors style, what if…? What if Craig and Donna fell in love, Donna moved in with Craig to the house he’d recently bought with his inheritance from his parents – but, just as they never got round to making their Wills, they never quite got round to setting their wedding date either. I’m now having my meeting with the grieving Donna where she asks for my help in winding up Craig’s estate. This is a much more difficult meeting for me and a much more distressing one for Donna. Because, Donna, unfortunately Craig did not leave a Will and so his estate has to be wound up under the law of intestacy. You are Craig’s long term partner and the love of his life – but you are not, under the law, related to him. You can make a claim against part of Craig’s estate by going to Court and I can assist you with that. However, in the meantime, it is Craig’s closest relative, his sister Janice who is entitled to be appointed as Craig’s executor and – subject to your Court claim – it is Janice who will inherit Craig’s whole estate (including the house you shared with Craig but which was owned only by him and which now forms part of his estate).
To right what she will undoubtedly see as a grievous wrong against her, Donna will have to make a claim in the Sheriff Court for a share of Craig’s estate. The amount the Court can award Donna cannot exceed what she would have received from Craig’s estate had she been married to him. In the circumstances of their long term relationship, the Court may well award Donna something approaching her maximum entitlement. However, to obtain this, she will have to go through a full blown court action – or else negotiate a settlement with Janice in order to avoid that. And there is never any certainty as to what a Court will award. In this case, the Sheriff may tip the balance back towards Janice somewhat if, as is likely, Donna will have received other payments flowing from Craig’s death, such as a death in service benefit. The risk of such an outcome would have to be factored into negotiations with Janice and so, financially as well as emotionally, the whole situation is a nightmare for Donna. Craig is probably turning in his grave – if only he had made a Will, Donna could have inherited his whole estate with no hassle and Janice would have had no entitlement whatsoever.
And as if poor Donna hasn’t been pummelled enough, enter the Taxman. There’s no inheritance tax payable on estates passing between husband and wife. But Craig and Donna weren’t married. Craig’s estate exceeds the inheritance tax threshold and, in this case, the resulting tax bill is £33,600.
I should just say Craig and Donna don’t exist. They are figments of my imagination, on a snowy Saturday evening when, with nothing much on the telly. I should probably just have started that confounded Tax Return instead!
I hope, if you haven’t made your own Will yet, the tale of Craig and Donna prompts you to ensure that, unlike Craig, you beat the Reaper’s unknown deadline.
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