Legal rights entitlements of children both under 16 and 18 present a unique set of challenges in Scotland particularly where individuals are acting in a combination of distinct roles such as executor, beneficiary and parent/guardian of a legal rights claimant. Understanding legal rights for minors, and where and to whom duties are owed is crucial in ensuring both compliance and protection for all parties involved. This awareness helps recognise potential conflicts of interest early.
The executor role
Legal rights provide an automatic entitlement for children to claim a portion of a deceased parent's net moveable estate, regardless of the terms of the will. These rights are automatic and vest at the time of death, regardless of age. However, the exercise or discharge of these rights is not always straightforward when the claimant is under 16 or 18. Legal rights can be discharged or claimed, but doing so requires careful consideration — particularly where minors are involved.
Executors require to identify and notify all legal rights claimants. Legal rights are a debt of the estate, and the executors are under a duty to discharge debts appropriately. Failure to uphold these duties can result in challenges to the discharge, reputational damage (especially if the executor is a solicitor or a firm’s trustee company), or even personal liability.
Normally, legal rights prescribe after 20 years from the date of death. Arguably, as minor beneficiaries do not have capacity until 16, the prescription period starts then. This could significantly increase the period where a claim could be made if not dealt with correctly during the estate administration period.
Legal rights can have a significant impact on the inheritance tax position of an estate if not discharged in early course where otherwise a surviving spouse or civil partner would inherit the whole estate. It is important all parties are aware of this, and the executors are provided with appropriate advice regarding this.
Understanding legal rights for under 16s
There are different considerations for children under 16 and those between the age of 16 and 18. A key consideration is whether the child has legal capacity to make a decision regarding their legal rights. In Scotland, children under 16 lack legal capacity to make decisions about their legal rights.
Legal representatives (such as a parent or guardian) may be able to competently discharge legal rights on behalf of their child by relying on The Children (Scotland) Act 1995, if certain considerations are met. The legal representative must act as a “reasonable or prudent person” would under the circumstances and make decisions that will best “safeguard and promote the child’s health, development and welfare”.
Any future challenges by the child are against their legal representative, not the executor, if the executor has fulfilled their duties. Executors must be able to show they have complied with their duties and having the correct paperwork showing this and an audit trail of considerations made when accepting the discharge would be diligent.
If a child when they reach legal capacity wishes to challenge any discharge, then the legal representative who discharged their rights would have to satisfy the test that it was reasonable and prudent to do so. If the legal representative obtained independent legal advice in respect of discharging the child's legal rights, this can be of assistance here.
Legal rights claimants between 16 and 18
Any child over 16 should be informed of their legal rights and given the chance to decide whether to claim their entitlement. A child that is between the age of 16 and 18 does have the legal capacity to make this decision.
However, a child can seek to have a transaction set aside before reaching 21 if an adult exercising reasonable prudence would not have entered into the same transaction or it has caused or is likely to cause substantial prejudice to that child.
In circumstances where waiting until the child attains 18 is not practical, the solution is for a Court action to ratify the proposed discharge by the child before they sign this. This ensures the discharge cannot be set aside at a later date and protects the executor from future claims. It also allows the executor to finalise the estate administration timeously. Conflicts of interest are clear here and independent advice for the child should be sought and will be insisted upon in any Court action.
Inheritance Tax Considerations
The Inheritance Tax Act 1984 recognises that legal rights for minor beneficiaries is a problematic area and where, if claimed, would result in an inheritance tax charge, gives executors two options to deal with this. Firstly, executors can pay the inheritance tax as if legal rights were claimed whilst the second is not to pay the inheritance tax on the basis legal rights will be discharged in the future. This choice must be made within 2 years of death, and if the legal rights claimant does not do what was anticipated when the election was made, a corrective account will need to be submitted when the legal rights claimant makes their decision and either IHT paid or repaid, with interest, as required.
Managing Conflicts of Interest
Conflicts of interest in executries and trusts are often subtle, but it is clear with legal rights for minors these may arise.
If the residuary beneficiary of the deceased’s estate stands to inherit a greater share of the estate, than they would if legal rights were claimed, and they are also the legal representative of the child discharging their rights, a conflict arises between the person’s role as a beneficiary of the estate and a legal representative of the child.
There is a further layer to the conflict if the person is also an executor of the estate. The executor must balance (1) their fiduciary duty to administer the estate efficiently wearing their executor's hat, (2) their obligation to act in the child’s best interests wearing their parent hat, as their child's legal representative, and (3) their personal interest wearing their beneficiary hat. The conflicts here are not hypothetical — they are direct.
Practical steps can be taken to mitigate any conflict of interest such as independent legal advice and clear separation of representative roles. Independent advice may be of even greater importance particularly if the claim involves complex financial or tax implications.
The key takeaways here are that although legal rights for minor beneficiaries can cause an added complexity, they can and should be dealt with timeously and correctly. Lawyers should always be clear who they are acting for and which hat their client is wearing and consider independent legal advice where appropriate to ensure appropriate advice is provided with all hats on. Clear records documenting decision making should be kept throughout the administration.
Where conflicts are clear from the outset, these should be recognised and considered.
If you are dealing with executries where legal rights are presenting challenges and you are in need of support, please get in touch with one of our executry specialists.
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