How an individual’s estate should be divided upon death is a complex topic and can be cause for much debate, not to mention family tensions. In Scotland, the law of succession is largely based on legislation dating back to 1964. Scotland’s social landscape has changed significantly in the intervening half century and there is little question that the rules are in need of an update.
Following Scottish Law Commission reports published in 1990 and 2009, some of the more technical proposals have been incorporated into the Succession (Scotland) Act 2016. To collect views on more significant proposals, the Scottish Government ran a consultation in 2015, a response to which was published in October 2018. The main areas of focus were as follows:
Intestate Estates where there is no valid Will
Research carried out in 2006 found that only 37% of Scots have made a will. How many of these Wills are up to date is a whole other question….
Where there is no will, the deceased’s estate is currently distributed in a prescribed order with creditors ranking ahead of “Prior Rights” claims of a surviving spouse (home and furniture as well as a cash sum) followed by “Legal Rights” of the spouse and children (on moveable assets only, not land and buildings). The remainder of the estate is then divided according to the 1964 Act giving priority to children over any other family members.
The Commission proposed the following order for dividing the whole estate with no distinction between moveable and heritable property:
- Spouse/civil partner should inherit the whole estate if there are no issue
- Issue should inherit the whole estate if there is no spouse/ civil partner
- Where there is a spouse and issue, the spouse should receive a threshold sum out of the whole estate and the remainder of the estate should be divided in two; one part for the spouse and the other to be divided amongst the children.
Conclusion - Steps 1 and 2 are uncontroversial and will therefore be implemented in future succession legislation. The final step however received “widely divergent views”, such that further consultation will follow.
Protection from Disinheritance where there is a Will
Current succession rules mean that even where a valid Will does exist, absolute testamentary freedom is a fallacy. A surviving spouse and children, even if excluded from benefit under the Will, can claim Legal Rights over the moveable estate of the deceased. They cannot take an inheritance under the terms of the Will and claim these Rights so must choose between them where both are applicable.
The Commission described the current system as “flawed” and recommended replacing the Legal Rights rules with the following:
- A spouse should be able to claim a fixed share from the whole estate (heritable and moveable) equal to 25% of what they would have been entitled to if the deceased had died intestate
- For children, two options were proposed:
- A claim to a fixed share of the deceased’s estate, both moveable and heritable, equal to 25% of what they would have received on intestacy, or
- Rights of adult children would be abolished and dependent children given the right to a capital sum payment
Conclusion – Despite a general consensus in favour of protecting a spouse from disinheritance, there was no agreement on the level of the fixed share. There were also particular concerns in terms of meeting claims for land based businesses with fears that the recommendations could impact on the viability of such businesses and, therefore, the wider rural economy.
The Government has decided not to go ahead with any reforms in this area.
Further Protections for Cohabitants
Where there is no Will a cohabitant can, within 6 months of death, claim part of the deceased’s estate. It has long been suggested that this time period is too short.
Where there is a Will in place, a cohabitant currently has no protection against disinheritance. The Commission therefore recommended granting cohabitants a right to an appropriate percentage of the estate at the same level as a surviving spouse under the rules of intestacy or Legal Rights.
Conclusion – In cases where there is no Will, the intention is to extend the claim period to 12 months. Where there is a Will, no further rights will be granted to cohabitants meantime, however further discussions are set to take place.
It is important for individuals to keep up to date with any legislative changes for estate planning and Inheritance Tax purposes. We have assisted many clients in ensuring their estates are passing to the next generation in accordance with their wishes and as tax-efficiently as possible.
For more information please contact Lisa Tait (firstname.lastname@example.org) or your usual AAB adviser.
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