Following the recent landmark disinheritance case in England and considering proposed amendments to Legal Rights in Scotland, Private Client Partner, Murray Etherington looks at Legal Rights and how the proposed changes may affect you.
In last week's blog on the recent landmark disinheritance case in England, I provided some comments on the position in Scotland. At the end of the article I mentioned that the traditional form of disinheritance protection in Scotland, Legal Rights, was subject to proposals for amendment.
As the previous article generated a great deal of interest I thought it might be useful to recap the Scottish provisions as they currently are, and look at the proposals begin put forward to alter them.
Legal Rights can only be claimed by spouses or civil partners and children of the deceased. Legal Rights for a spouse or civil partner provides for them to claim 1/3 of the net moveable estate if the deceased also left children or 1/2 of the net moveable estate if the deceased left no children.
Legal Rights for children provides for them to receive 1/3 of the net moveable estate if there is a surviving spouse or civil partner or 1/2 of the net moveable estate if there is no surviving spouse or civil partner.
You will note the use of the phrase "net moveable estate"; firstly legal rights are only payable from the moveable estate – this means that any heritable property (houses, land etc) are specifically excluded from the calculation, and secondly it is the "net moveable estate" which means that funeral expenses, debts, inheritance tax and certain administrative expenses (as long as these liabilities are payable from the moveable estate) are deducted before legal rights are calculated.
The main thrust of the proposals is to replace Legal Rights with a "Legal Share". This will also only be available to spouses or civil partners and children of the deceased. However, unlike Legal Rights a Legal Share will be available over the whole estate instead of being limited to the moveable estate. The removal of this distinction could have wide ranging consequences for those with significant heritable estates (ie farmers, property developers etc).
Due to the removal of the heritable and moveable split, the proportions of the estate that certain beneficiaries can claim is to be altered. For spouses, it is suggested that they be entitled to claim 25% of what they would have received if their spouse or civil partner had died intestate (without leaving a Will).
Where intestacy applies, usually where the deceased had not left a Will, the main proposals include a proposal where there is only a surviving spouse or civil partners and no children that the surviving spouse or civil partner will inherit the entire estate; if there is children as well as a surviving spouse or civil partner then the spouse or civil partner will inherit the entire estate if the estate falls below a "threshold sum" (proposed at £300,000); if the estate value is more than the "threshold sum" then the spouse or civil partner will receive the first £300,000 and 50% of the balance. The children would receive the remaining 50% of the balance. If there is no surviving spouse or civil partner but there are children then, as is currently the position, the children will receive the whole estate.
A dies. He leaves assets worth £500,000. In his Will he leaves his wife W a legacy of £100,000 and the rest of the assets to a charity. There are no children. If A had died intestate W would have been entitled to the whole estate. Therefore W's legal share is £125,000. If she claims the legal share she forfeits the legacy.
Whilst it is a fairly straight forward calculation for spouses or civil partners, the rights for children are more complicated. The consultation paper has two options to be considered in relation to disinheritance and children's rights and the responses to the consultation will help to decide which, if any, of the options to take forward. Option 1 is the same calculation as for spouses or civil partners. Therefore a child, no matter their age, would be able to claim their legal share which would be 25% of the share they would have been entitled to should their parent have died intestate.
A, a widow dies. She is survived by her daughters B and C. In her Will she leaves her estate to charity. The estate is valued at £500,000. If A had died intestate, B and C would each receive £250,000. Therefore each has a legal share of £62,500. Under option 1, B and C would each receive £62,500 and the charity £375,000.
Option 2 provides for a dependent child to receive a capital sum payment. This option essentially means that once a child reaches 25 they would have no right to make any claim in their parent's estate. The amount that could be claimed by a dependent child would be calculated by the Courts and be based on "reasonable financial support for the child". It should be noted that there would be no capital sum payment out of any part of the estate which is inherited by a person who owes the child an obligation of ailment (re a surviving parent).
A man dies survived by his wife and their two young children. He leaves his whole estate to his wife. The children, although dependent, would have no claim on his estate, as the beneficiary, their mother, owes them an obligation of aliment.
All of the above proposals are currently the basis of a consultation process which is being run by the Scottish Government until 18th September. It is likely that any proposed legislation will not be available until next year but it is an insight into the changes ahead for Scots Succession law. Thorntons will be taking an active role in the consultation process and will continue to keep you up to date on the proposed legislation's progression.
All examples used are from the Scottish Law Commission Report on Succession (SLC 215)