After much anticipation, the Scottish Government finally issued its response to its 2015 'Consultation on the Law of Succession' on 18 October. That consultation considered the recommendations put forward by the Scottish Law Commission ('SLC') in its reports on succession of 1990 and 2009 and it also follows the Succession (Scotland) Act 2016 which implemented some of the more technical proposals put forward by the SLC.
The Scottish Government consultation between June and September 2015 focussed on recommendations from the SLC to change substantive succession law and it also formed part of the Scottish Government's response to the Land Reform Review Group's ('LRRG') Report of May 2014.
This update looks at some of the more significant proposals put forward and the Scottish Government response. But perhaps the most important things to note are the areas in which it now seems likely that there will be no change to the present position. The retention of the status quo will be particularly relevant where there are rural and land interests and a desire to ensure that particular chosen beneficiaries inherit land and/or a house. The Scottish Government's response also makes it very important for those cohabiting to make a will.
The Scottish Government's response (given the areas where there would appear to be no future change from the current rules) also appears to underline the real value in having a will to direct who or what inherits your estate in order to have as much control and certainty for you and your chosen beneficiaries.
1. Intestacy
Current law
Currently, where a person dies intestate (that is, without a will), the Succession (Scotland) Act 1964 stipulates how their estate is divided. If there is a surviving spouse (references to spouse also include a civil partner), he/she will be entitled to:-
- The home (provided he/she is living in it) up to a value of £473,000
- Furniture in that home up to a value of £29,000
- A cash sum of either £50,000 (if there are children) or £89,000 (if no children)
The spouse and children are then entitled to legal rights. Legal rights are a distinctive feature of Scottish succession law and they apply when an individual dies intestate and also testate (i.e. with a will). Legal rights can only be claimed from the net moveable estate (land and buildings are excluded).
The legal right of the spouse is one third (if there are also children) or one half (if there are no children) of the net moveable estate. Similarly, the children have a right to one third (if there is a spouse) or one half (if no spouse) of the net moveable estate.
After prior and legal rights have been satisfied, any remaining assets in the intestate estate are distributed in accordance with the 1964 Act. If there are children, the estate will pass to them, but otherwise, the estate could pass to remote relatives.
Proposals
The SLC criticised the current law as being overly complex and they put forward what they considered to be a 'simplified' scheme as follows:-
- A spouse should inherit the entire estate if there is no issue (i.e. children)
- If there is no spouse, the issue should inherited the whole estate
- Where there is a spouse and an issue, the spouse should get the first £300,000 and the remainder should be divided between the spouse and issue.
- Where there is a spouse and issue and the net value of the deceased's interest in a house which passes automatically to the spouse by way of a survivorship destination is less than £300,000, this sum should be reduced by the net value of the deceased's right.
Scottish Government response
The 'simplified' approach put forward by the SLC was clearly not as straightforward as suggested and public views in relation to how an intestate estate should be divided where there is both a spouse and children varied significantly. As such, the Scottish Government concluded that they will consult further on these proposals and, in the meantime, there will be no change here.
However, the position is more straightforward where the deceased is only survived by either a spouse or,in these circumstances, the Scottish Government agreed with the proposals a) and b) above and confirmed they will be implemented in future succession legislation.
2. Testate succession
Current law
Under current law, even where the deceased died with a will, as noted above, the spouse and issue can still claim legal rights from the net moveable estate and it is not uncommon for an individual to take steps during their lifetime to limit legal rights i.e. by converting moveable assets into heritable assets.
Proposals
In place of legal rights, the SLC proposed that a spouse should be able to claim a legal share from the whole estate (heritable and moveable) and that the fixed share should be 25% of what he/she would have been entitled to if the deceased had died intestate.
In relation to children's rights, the SLC had offered two options for further consideration:-
- Either the 25% legal share would apply to children in the same way as it would for spouses (i.e. 25% of what the child would have been entitled to on intestacy); or
- Dependent children would be entitled to a capital sum.
Scottish Government response
Approximately 70% of those who responded to the 2015 consultation agreed that spouses should be protected from disinheritance but views in relation to the 'fixed share' proposals put forward by the SLC were mixed and 'sharply divided' and there was no consensus on what share a spouse should receive in these circumstances. Equally, the SLC's recommendation regarding payment of a capital sum to dependent children received differing views and there was a lack of consensus here.
The Scottish Government also revisited the issue as to whether all children (i.e. dependent and non-dependent) should be protected from disinheritance and there was no agreement on this point. Concerns were expressed by respondents on the potential issues that might be encountered by land based businesses in satisfying the claims which could feasibly impact on their viability and, ultimately, on the rural economy.
In summary, there are no plans to reform the current law in this area. This is perhaps the most important conclusion to emerge at this stage and enables planning to proceed with a greater degree of certainty than has been the case for many years.
3. Removal of the distinction between heritable and moveable property
One of the more controversial proposals put forward by the SLC concerned the removal of the distinction between heritable and moveable property on death.
Current law
As noted above, legal rights are currently only calculated with reference to and satisfied from moveable assets so the deceased's home (and any other heritable assets) are protected.
Proposals
The consultation asked if the distinction between heritable and moveable assets should be removed where there is no will, meaning that legal rights (or its replacement) would be calculated with reference to the entire estate.
Scottish Government response
Views here were divided but the majority (59%) of respondents disagreed with this proposal. As such, there are no plans to remove this distinction and the Scottish Government will consult further on intestate succession generally. This was thought to be among the areas most likely to change. The confirmation of the present rules again provides welcome certainty.
4. Cohabitants - intestacy
Current law
Cohabitants currently have a right to apply to the court on the death of their partner to claim part of their deceased partner's estate. However, this right only applies where their partner died intestate and, crucially, any claim must be made within 6 months of death and there is no discretion to extend this period.
Proposals
There has been considerable criticism of the current law for cohabitants on death and the SLC put forward a number of recommendations which sought to address these concerns. In particular, the wide discretion that the court currently has to essentially take absolutely anything into consideration when deciding whether or not to award the surviving cohabitant cash or other assets from their deceased partner's estate has been criticised As well as putting forward proposals for a new test to determine the nature of the cohabiting relationship, the SLC also proposed a new test to quantify the surviving cohabitant's claim.
The SLC also recommended that the period for making a claim should be extended to 12 months in line with the time period in which a cohabitant can make a claim for financial provision on separation.
Scottish Government response
Views on the SLC's proposals here were mixed. There was sufficient support in relation to the proposal to extend the time period for making a claim on death from 6 to 12 months and the Scottish Government announced its intention to legislate on this basis.
However, the remaining proposals will not be implemented at this time. Instead, the Scottish Government announced that 'the time is ripe to consult on a fresh approach to cohabitants' rights' and it therefore intends to consult on the other proposals in the future.
5. Cohabitants' rights in testate estates
Current law
As noted above, currently, cohabitant's can only make a claim where their partner died intestate.
Proposals
The Scottish Government sought views on whether a cohabitant should also be able to make a claim where their partner died testate.
Scottish Government response
42% of respondents were against this proposal, 24% agreed and 33% were ambivalent. However, ultimately, the Scottish Government does not intend to take this forward and extend cohabitants' rights on death to testate estates, with a view to preserving the testamentary freedom of individuals and not imposing rights on those who may have consciously decided not to get married to avoid the associated legal consequences on death.
6. Closing remarks
Some of the proposals put forward by the SLC and LRRG were fairly radical and controversial, and the Scottish Government's response to these proposals is, on any interpretation, fairly conservative. It leaves open the possibility of another consultation on further changes, particularly in relation to intestacy. Watch this space. For now, the advice remains the same: put in place the right form of will for your circumstances taking account of your overall estate planning. This will give you and your chosen beneficiaries as much control and certainty over inheritance as you can have.
For more information, please do not hesitate to contact any of the members of our personal team.
Contributor
Partner
