Personal Law

New succession law on its way?

The Scottish Government announced the outcome of a recent consultation on succession law. This blogs looks at that consultation and considers certain aspects that are and, importantly, are not to be taken forward by Scottish Government for legislative change (at this juncture).

Shortly after the consultation outcome was announced, the Scottish Government published a Succession (Scotland) Bill to legislate on certain aspects of the consultation topics. A separate, but connected blog will look at the Succession (Scotland) Bill itself.

The consultation

The Scottish Government announced in summer 2014 its intention to consult on certain aspects of succession law in Scotland. The first part of that process was a consultation on “Technical Issues Relating to Succession” (not that the other aspects will be “non-technical”, of course, but rather the other areas include matters of (social) policy).

The Scottish Government has now collated the responses and issued a paper summarising the responses and its intended way forward with the topics covered under the “technical” umbrella.

Some of the matters under consideration were particularly technical and this blog seeks to look at the outcomes that will have most impact on yourself, your family and loved ones and your clients. As noted above, we will also be looking at some of the topics that Scottish Government does not intend to legislate on (at this stage) as the decision not legislate and change rules is of consequence as well.

A cautionary tale: “Bonds of Caution” (pronounced “kay-shun”)

Bonds of caution are a form of insurance contract that is required where the court appoints an executor to an estate. Invariably this will apply where the deceased died intestate – without a will. The bond of caution is designed to protect beneficiaries from any mismanagement of the executry or mistakes in the distribution of the estate. We understand they are rarely invoked to reimburse beneficiaries for a loss.

For many, the bond of caution feels like an “unnecessary” step in the administration of an estate and incurs “unnecessary” costs. Others will argue that the insurance contract provides protection to beneficiaries in a situation where we do not know who the deceased wished to entrust with the winding up of their estate (we should remember that the executor(s) appointed (by the court) to an intestate estate are invariably the beneficiaries of it).

The outcome of the consultation is that Scottish Government does not proposed to legislate to abolish bonds of caution. Rather, it will seek further views on introducing a discretionary system (at the discretion of a sheriff) whereby in certain estates caution will not be required. One of our bloggers often queries (including in a judicially referred to article on the topic) the logic and internal consistency of situations where the law requires and does not require caution (not just in estates- see guardianships and powers of attorney under incapacity law as a prime example) and wonders if a discretionary system might make caution more expensive and complicated. The current “black and white” rule on needing caution at least delivers certainty. We await further work being done on the discretionary caution system and further announcements as to the Scottish Government’s plans for ultimately taking forward any changes to the current system.

Rectification of wills

Scottish Government will take forward legislation to allow wills to be rectified post-death where it can be shown it does not reflect the intentions of the deceased. This would seem to be directed at “mistakes” in implementing instructions to prepare a will.

It will be interesting to understand further how this would fit with deeds of variation and also how the rectified will will be taxed- could a tax drafting error be the basis for rectification and will the rectification be treated as effective from the moment of the tax liability? On the latter query, it is also of note that inheritance tax (likely to be the tax at stake here) is a Westminster reserved matter and Holyrood legislation cannot change inheritance tax law. It also could open up a new “route” for disappointed beneficiaries- i.e. those who feel and think they should have got more (or anything) from an estate or “lost out” due to professional failings. As we have recently blogged, a clear will is incredibly important to create certainty and avoid cost and delays for families and loved ones.

The effect of divorce and dissolution of a civil partnership on a will

In an important development, Scottish Government will legislate to provide that, unless a will expressly provides otherwise, divorce or dissolution of a civil partnership will automatically revoke any provision in a will (i.e. not the whole will) for the ex-spouse/civil partner. In such circumstances the ex-spouse/civil partner is to be treated as having pre-deceased.

This rule will only apply where the deceased dies domiciled in Scotland. This is actually quite interesting. It means the provision in the will in effect REMAINS valid UNTIL death AND ONLY if one dies domiciled in Scotland. Internationally based individuals must take care- death in a jurisdiction which does not have a similar rule would mean the provision in favour of the ex-spouse/civil partner would NOT be revoked.

In addition to the quirk of changing domicile, as there will be other issues to consider (e.g. death benefits and pensions), it will be best to revisit a will during/following separation and divorce/dissolution rather than relying on this new backstop rule.

My colleague, Kirsty McGuinness has blogged on family law issues connected to the succession law changes.

Survivorship destinations

Following on from the plans to legislate to ensure the automatic revocation of any provision in a will in favour of the ex-spouse/civil partner, the Scottish Government has confirmed that it will extend this to other property which (by way of Scots law) would otherwise pass automatically on death to the ex-spouse/civil partner by way of a ‘survivorship destination’ contained within the title deeds to the property. ‘Survivorship destination’ is the term used to describe where a property is held in the following manner- in the names of ‘Mr and Mrs Williams and the survivor of them’. In this example on the death of Mr Williams, his one half share of the property would automatically pass to Mrs Williams – EVEN if they were no longer together – and IRRESPECTIVE of the terms of his will.

Survivorship destinations can (and we see this often particularly in the separation/divorce context) cause unintended consequences on death therefore this legislation will provide clarity and will be a welcome change.

One important point to note is that this rule change does not apply to “survivorship destinations” that are contractual in nature- these are often found in the terms and conditions of the likes of bank accounts and investment management agreements. These should continue to be treated with caution.

Cohabitants

Since the introduction of the Family Law (Scotland) Act 2006, couples who are not married/in a civil partnership (or “cohabitants”) in Scotland currently have limited ‘rights’ on death. Cohabitants have the ‘right’ to apply to the court for financial provision on the death of their partner BUT only where the following requirements are satisfied:-

  1. the deceased died intestate (i.e. he/she died without leaving a valid will that disposes of all of his/her estate);
  2. the couple were cohabiting together as if they were husband and wife or civil partners immediately prior to the death;
  3. the deceased was domiciled in Scotland immediately prior to the death; AND
  4. the surviving cohabitant must apply to the court for financial provision within 6 months of the death. This is a strict court deadline that cannot be extended.

The financial provision which MAY be awarded to the surviving cohabitant is entirely discretionary (again at the discretion of a sheriff) and can take the form of either/both of a payment of a sum of money from the deceased’s estate or the transfer of property (including the home in which the cohabitants lived). It is possible that the court will decide that no award should be made in the cohabitants favour. A cohabitant cannot be awarded an amount which would exceed the amount the cohabitant would have been entitled to had he/she been married to the deceased. To sum up the legislation to date – one would say that cohabitants tend not to ‘fare well’ (if at all).

The Scottish Government has confirmed that it will specifically consider whether the current rules should be repealed and a new statutory regime introduced to provide rights for all surviving cohabitants (i.e. where the deceased had a will and also where there was no will) in their second consultation (published today!- 25 June).

The outcome of the current consultation is that the Scottish Government has decided to defer reaching any decision as to the proposed extension of the strict 6 month time limit to a 1 year time limit. Again, the Scottish Government would like to seek further views on this due to the fear that an extension would lead to undue delay in the winding up of the estate. This issue will now be considered as part of the second consultation. In the meantime, the only way to ensure certainty (whether the cohabitant is provided for or not) is to have a valid will in place as a will ‘knocks out’ the ability for the surviving cohabitant to make a claim.

Protection of trustees/executors

Trustees and executors are to receive certain statuary protections where they have distributed an estate and have done so “based on ignorance of the existence or non-existence of persons or their relationship or lack of relationship” with the deceased. This is not a blanket protection or watering down of executor or trustee duties as an executor or trustee must show that they have acted in good faith and made reasonable and prudent enquiries.

Donation mortis causa (broadly, gifts)

This historic concept will be abolished. Therefore, in the future, careful drafting can be used in lifetime documents and wills to make gifts (charitable or otherwise) and specify any conditions which are to be attached to the gift.‎ We have previously looked at these issues in the context of the arts where individuals wish to gift items to a museum or gallery and attach certain conditions as to use.

EU Regulation on wills and succession

The EU Regulation on Succession was adopted in 2012 and becomes effective this year. The UK (with the agreement of the Scottish Government) will not be party to the Regulations.

The consultation asked if certain aspects of the Regulation should be adopted into Scots succession law. The consultation outcome was that a piecemeal introduction of the Regulation could cause confusion and accordingly Scottish Government will not take this forward.

While Scots law will not include them, the Regulation ‎is important and may affect the owners of homes in, for example, France, Spain or Italy. We have current experience of how this Regulation fits with a Scottish will where assets are held in a European country which HAS adopted the Regulation.

[We should mention in connection with cross-border succession and estate planning (including the EU Regulation) that Alan Eccles and Ruth Saunders are part of the writing team on the textbook, International Succession (a new and updated edition being due for publication by the Oxford University Press during July 2015). Ruth also holds the Society of Trusts and Estates Practitioners Advanced Certificate in International Succession and UK Taxation of International Clients.]

This blog was written by Alan Eccles- 0141 245 6255 or alan.eccles@brodies.com and Hayley Manson- 0141 428 3351 or hayley.manson@brodies.com

Alan and Hayley previously worked at the Scottish Law Commission where some of the these consultation topics emanated from and Hayley worked on certain aspects of the Commission’s succession law projects.

For more on wills, succession, executries, trusts, estate planning or inheritance tax please contact your usual Brodies contact or any of the following:-

Alan Barr- 0131 656 0103 or alan.barr@brodies.com

Susanne Beveridge- 0131 656 0218 or susanne.beveridge@brodies.com

Mark Stewart- 01224 392 282 or mark.stewart@brodies.com

Norman Kennedy- 0141 245 6265 or norman.kennedy@brodies.com

Alan Eccles- 0141 245 6255 or alan.eccles@brodies.com

Personal Law