As legendary boy/manband Take That kick off their tour in Scotland at Glasgow’s SSE Hydro, we are inspired by their songs. “Legal rights” on death is a very important concept and we often see interest in understanding more about the topic. We regularly discuss the matter with clients and other professionals. In the same way that the composition of a pop group can change over time, changes in family compositions mean that legal rights is an increasingly important issue to proactively address.
That is the simple message on legal rights.
Legal rights are:
- automatic entitlements on death
- an issue whether or not there is a will- a legal rights entitlement must be settled before implementing the terms of a will
- applicable to the “moveable” estate – i.e. in terms of value, basically everything apart from land and buildings could be affected
- on the first death, a right to 1/3 of the moveable estate by a surviving spouse/ civil partner and 1/3 children as a group
- on the second death, a right to 1/2 of the moveable estate by children as a group
- entitlements which can change who will inherit part of your estate
- in the first place, payable in cash. That is good and bad: it means nobody, via legal rights, is entitled to a share of a particular asset but they can demand a cash payment (with interest) which may be very difficult to find in some estates
- something which can cause unnecessary and unexpected inheritance tax liabilities on the death of a spouse/civil partner and reduce the benefits of the “transferable nil rate band” (the rule which can double the inheritance tax free threshold on the death of a surviving spouse/civil partner)
- an issue which could cause a family business problems (directly financially as well as strategically) after the death of a shareholder
Get ready for it and Rule the world… or at least take more control
It is possible to take greater control of matters to reduce the amount of a legal rights entitlement of, say, an estranged child.
Steps (another pop group!) can be taken during life to plan to mitigate the effects of legal rights and retain more control over who inherits what and when from an estate. The planning will often be bespoke to meet the specific family circumstances and assets involved.
We also have a lot of experience advising in relation to legal rights issues post-death. This experience has involved advising and negotiating on behalf of executors, spouses and children on the settlement of legal rights entitlements.
A thorough understanding of this unusual area of the law can deliver significant value to those on either side of a legal rights negotiation.
Legal rights is purely about succession law, is it not? No, that is wrong!
It is necessary to be alive to the issues across a range of legal areas and industry sectors. Carrying out a transaction or decision in a rural, corporate or real estate context can have significant ramifications for legal rights. Legal rights and succession related points must also be tackled properly in matrimonial and cohabitation issues such as separation, divorce and pre/post-nuptial or cohabitation agreements.
In some cases a decision can be taken which unwittingly and seriously increases the assets subject to legal rights. That could cause a significant change to inheritance, inheritance tax and business succession planning. So, before undertaking a reorganisation of a family business, be patient and think about legal rights amongst the other issues.
Legal rights have been a longstanding part of Scottish succession law. It is on the horizon that they will have their first change in over 50 years. The Scottish Government (through succession law and, very importantly, land reform programmes) has indicated legal rights might change.
A fundamental change on the cards would be the extension of legal rights to include the value of land and buildings. This would have a major impact on some with landed interests and rural business.
Watch this space.
Said it all
We have introduced here some of the essential aspects of this important topic. Depending on family circumstances and the assets involved there can be much, much more to say. Fortunately, in the vast majority of estates, legal rights will be ultimately a technical and somewhat academic matter and will not alter the tax or succession. However, in those cases where it is anything but academic great care is required.
So for now we conclude with the same point we began with: legal rights… never forget.
This blog was written by Alan Eccles. For more on legal rights please contact any member of our Personal & Family team based in each of our Aberdeen, Edinburgh and Glasgow offices.
Alan Eccles- 0141 245 6255 or firstname.lastname@example.org
On May 3, 2015