Change is certainly the theme of the moment. There is no doubt that society and the structure of families have changed significantly in the past 55 years since Scotland's current rules of intestacy - the law that applies if you die without a will - came into force, to the point that the law no longer reflects current trends.
The Scottish Government launched a consultation on succession reform in February this year; on succession topics including what should happen to a person's estate if they die without a will, leaving a surviving spouse/civil partner and children.
As the law currently stands, the surviving spouse or civil partner is entitled to an interest in:
- the family home up to the value of £473,000,
- furniture worth up to £29,000, and
- the sum of £50,000 (if there are surviving children of the deceased) or £89,000 (if there are no children).
In addition, the surviving spouse or civil partner can claim a third of the remaining moveable estate, while the deceased's children can claim a further third between them.
The Succession (Scotland) Act 1964 sets out the order in which relatives of the deceased can inherit the remainder of the estate. Where the deceased is survived by a spouse or civil partner and children, the children will take the remainder of the estate.
Concerns and Options for Change to the Law
These current rules were criticised by the Scottish Law Commission for being too complex. Given the values, there is also concern that upon the death of an individual who has remarried, their entire estate could pass to their surviving spouse (and perhaps, ultimately, to that spouse's children), effectively disinheriting any children of the deceased from a prior relationship.
As part of its proposed changes, the Scottish Government has looked at how other jurisdictions approach the laws of intestacy.
While the details of these models vary, there are commonalities. In a situation where an individual remarries and is then outlived by their second spouse and children from a previous relationship, both models result in a more equal division of wealth between a surviving spouse and children. Contrastingly, current Scottish law sees most of the estate passing to the surviving spouse. (In a farming context, due to the values involved, this would more likely favour the children.)
Additionally, these other models both ensure that, in a blended family situation, the children common to both spouses are not treated more favourably than those who are only children of the deceased.
Planning for YOUR family
Whether or not Scotland incorporates other jurisdictions' approaches into its succession law remains to be seen. Undoubtedly, crafting intestacy legislation in a way that reflects everyone's definition of "family" will be a challenge - and the outcome may not suit every individual's circumstances or asset mix.
The only sure way to ensure that your definition of "family" - whatever that may look like - is provided for, is through proactive estate planning and making a will. This is particularly important for estate and farm businesses which often comprise of a complex mix of assets.
Frequently, there is also an unhappy interaction between the intestacy rules and inheritance tax rules. Leaving an estate to be distributed according to the rules of intestacy is generally very inefficient for inheritance tax purposes, particularly where there is a surviving spouse.
Only by forward planning in business structures and by making a will, can farming businesses avoid the prospect of relying on whatever is Scotland's default law when the time comes for their assets to be passed to the next generation.
The consultation is open until 10 May 2019 and can be accessed on the Scottish Government's website.
This blog originally appeared in Farming North