We come into this world with nothing and, ultimately, we leave with nothing. So what happens to the property we have acquired during that time? And what control do we have over what happens to it? How do we ensure it goes to our loved ones? How do we plan in a tax-efficient manner? Mirella Marchini, one of our Private Client Associates, has written this short article explaining why having a professionally-prepared Will can save a great deal of money, time and stress.
The ‘law of succession’ is the branch of law that deals with what happens to our property when we die i.e. it deals with the question of ‘who gets what’. By ‘property’, we mean property of all kinds; that could be a house or land (sometimes referred to as ‘heritable property’ or ‘heritage’) or cash in the bank, shares, your car or your shoe collection (‘moveable property’ – i.e. anything other than houses and land). This distinction between property types can be important, since different legal rules may apply to different types of property.
The property that we leave is called our ‘estate’. This sounds rather grand but it simply means the sum total of everything that we own, regardless of its value. The ‘net estate’ means what is left after all debts of the deceased (the person who has died) have been paid. It is often wrongly thought that debts ‘die with you’ but that is not the case. Debts are the first things to be deducted from the estate – even taxes are calculated after the debts have been paid.
In this article, we will refer to a wife, husband or civil partner simply as a ‘registered legal partner’. This is important since the law of succession is very different for married couples and civil partners than it is for partners who do not fall into either of these categories e.g. an unmarried couple living together.
So let us look at two situations: i) dying without a Will and ii) dying with a Will.
What happens if you die without a Will?
Although most people realise that having a Will is a good idea, it is very common for people to die without ever having ‘gotten round to it’. This is called ‘dying intestate’ i.e. without a Will. To avoid a ‘free-for-all’, the law has provided certain rules (called ‘rules of intestacy’) that dictate what will happen to your property if you don’t have a Will. The obvious problem is that these rules may not correspond with what you would have intended to do if you had actually gotten round to putting a Will in place. We will return to this problem shortly, as not having a Will causes another problem before we even discuss how the estate is to be divided.
That problem is that, whether or not there is a Will in place, in Scotland the estate of the deceased can only be handled by a person called the ‘executor’. An executor is a person appointed to administer the estate. Therefore, before anything can be done with the estate, an executor must be appointed. Executors will normally be appointed by a properly drafted Will, but what happens if you die and there is no Will in place? Your family will need to apply to the court for an executor to be appointed. The law specifies the persons who are entitled to be appointed by the court as executors (‘executors dative’) in cases like this. This will be a relative (usually the surviving legal registered partner) or, if there is no such person, a beneficiary of the estate. However, this naturally results in increased costs and delay. It may also result in the appointment of an executor that would not have been your preferred choice. Further, an executor appointed by the court will be required to arrange an insurance policy to protect the estate. This insurance policy is called a ‘bond of caution’ and would not have been required if the executors had been appointed by a Will.
So, let’s say that your family have been to court, had executors appointed and have arranged the required insurance policy. What next? Since there is no Will, the executor of your estate will look to the rules, mentioned above, that will apply.
The details of these rules are complex and outside the scope of this article but, briefly, they mean that in most cases a registered legal partner will acquire the deceased’s share of the house he or she owned, as long as the surviving registered legal partner resided in such a property too. The surviving registered legal partner will usually be allowed to keep all of the furniture of such a property and will receive a cash sum from the estate by virtue of what are referred to as ‘Prior Rights’, a technical term in succession law. Please note that limits apply to the value of the estate that can be acquired under these ‘Prior Rights’. In addition to this, both the surviving registered legal partner and children of the deceased will be ‘reserved’ a share in the moveable estate (‘Legal Rights’). Once the ‘Prior Rights’ and ‘Legal Rights’ have been satisfied, whatever is left (if anything), will be distributed amongst the children of the deceased. If there is no surviving registered legal partner or children, the rules then look to parents and/or siblings and, failing that, to more distant relatives. The precise division of an estate depends on several factors, including the value of the estate. Further, such a division is relatively crude: it does not allow for efficient tax-planning; it does not automatically provide for more distant relatives e.g. grand-children, nieces, nephews etc, or to charities or friends if that is what you would have wished; it does not allow provision to be made for vulnerable or disabled children by the use of trusts; nor does it allow for protection of the deceased’s estate from potential future care fees which may eventually be incurred by the surviving registered legal partner.
It is worth mentioning that for couples who are living together (i.e. cohabiting), making a Will becomes even more important since a cohabitant does not enjoy the same protection as a registered legal partner. Even though there are laws which allow a cohabitant to make an application for a share in the estate of a deceased partner, there is no automatic right to such a share, and the application must be made to the court. It is also worth noting that, despite continuing folklore to the contrary, there is no such thing in Scots law as a ‘common law wife’ or ‘common law husband’ or ‘common law civil partner’. None of these mythical beasts have any legal significance whatsoever.
In summary, the main points to be taken from the above are that having no Will in place means that:
- More work will be required to administer the estate;
- Dealing with the estate will be more expensive;
- Your estate may not go to those you wanted it to go to;
- Opportunities for efficient tax-planning are lost.
So what are the advantages of having a Will?
Let us now look at the advantages of having a Will in place. Whilst a professionally drafted Will has an associated cost, it will become clear that this will be far less than the additional expense (and inconvenience) mentioned above.
In your Will, you can appoint executors that you know and trust. It is good practice to appoint more than one (even executors can die and this is very inconvenient if they decide to do so while only half-way through administering your estate…!). They will usually be family members, but don’t have to be. Appointing executors by Will is also free, unlike court- appointed executors, and they will not be required to obtain an insurance policy before dealing with the estate, unlike executors appointed by the court.
Of course, the main point of a Will is to make sure that your estate goes to those that you want it to go to, and in the shares that you decide. This is where the real value of a Will becomes apparent. You can specify the beneficiaries (those you are leaving something to) and precisely what each beneficiary is to receive. A Will allows much greater flexibility such as using a trust for a vulnerable or disabled child or until a child reaches a certain age. A legal device called a ‘liferent trust’ may be used to allow a surviving partner (whether married, civil partners or cohabiting) to live in a house owned in common (usually referred to as being in ‘joint names’) for the remainder of that partner’s life, after which it will then pass to another specified person or persons e.g. children of the relationship. A liferent trust can also be used to preserve the deceased’s share of a house for the next generations. Even if the surviving partner goes into long term care, the deceased’s share of the property will not be affected as it passes to another beneficiary or beneficiaries when the liferent comes to an end (the deceased can specify in the Will that the liferent is to end under specific conditions e.g. if the surviving partner remarries or goes into long-term care).
From the above, the advice is clear: it is always best to have a Will in place. This gives certainty, reduces administration and costs, protects assets and allows efficient tax planning. Your Will should be reviewed regularly and updated when necessary as your personal circumstances change.
Mirella Marchini is a dual-qualified Scottish and Italian solicitor, registered to practise law in both Scotland and Italy. She specialises in Succession law, Wills, Executries and Inheritance tax planning and deals and advises on complex Scottish-Italian estates and inheritance matters. Mirella also deals with the purchase and sale of property in Italy. You can get in touch with Mirella by emailing firstname.lastname@example.org or calling 01383 629849.