A person who dies without making a Will or without making a valid Will, dies intestate. The property belonging to such a person is inherited according to a strict set of rules commonly known as the intestacy rules. Instead of the property going to the testator's chosen beneficiaries, it is left to other relatives in a particular order.
If a person dies without leaving a valid Will, they are said to die intestate. This occurs when the deceased never made a Will at all, cancelled their Will and did not make a new Will or because the Will that was made is invalid. Approximately two out of every three people who die in England and Wales die intestate.
A person dies partially intestate if they leave a valid Will, but the Will fails to dispose of all the assets.
If, as is usual, the Will contains a valid residuary gift, a partial intestacy is avoided. A residuary gift is one which ensures that all the property which has not been specifically dealt with in the Will (the residue) passes to chosen beneficiaries nominated by the person making the Will (the testator).
The right of a person to benefit on intestacy depends on their relationship with the deceased and whether any closer relatives have survived. The general principle is that the estate is shared by the relatives in the highest category, to the exclusion of relatives in a later category but it is more complicated if there is a surviving spouse.
The spouse has priority over all other categories of beneficiaries, but may have to share the residuary estate with other beneficiaries. If the person who dies intestate has no surviving spouse or civil partner, their estate passes to the following in order:
Apart from the spouse, parents and grandparents, each category of relative takes subject to the term of a trust. The trusts contain three main provisions:
The residuary estate is held on trust in equal shares for those relatives in the relevant category who are living at the intestate's death. The term living includes a person who is conceived but not born at the intestate's death.
The interest of the beneficiaries is subject to reaching the age of 18 or getting married whichever is earlier.
If a member of the category has died before the intestate leaving a child or children, the child or children take their deceased parent's share, if more than one in equal shares, subject to reaching the age of 18 or getting married whichever is earlier.
This means that if John's two children Jason and Mary are entitled on John's intestacy to £1,000 in equal shares and Jason dies before John leaving two children, Barry and Pam, the amount of £500.00 will go to Mary. John's grandchildren, Barry and Pam will receive £250 each.
Where the intestate (someone who dies without having made a valid Will) leaves a surviving spouse or civil partner but no children, parent, brother or sister, or children of a deceased's brother or sister, the whole estate, however large, passes to the spouse or civil partner absolutely.
More distant relatives such as half brothers and sisters, grandparents and cousins are not entitled to any part of the estate.
If, however, the spouse or civil partner dies within a period of 28 days of the death of the intestate, the estate is distributed as if the spouse or civil partner had not survived the intestate.
Under the intestacy rules, a spouse is the person to whom the deceased was married at their death whether or not they were living together, or in the case of civil partners, were joined in a civil partnership under the Civil Partnership Act 2004. Where the parties were divorced or are judicially separated the spouse will not benefit under the rules. The same applies where civil partners have dissolved their partnership.
Children who benefit under the rules include all direct descendants of the deceased. That is children, grandchildren, great grandchildren etc. Adopted children are also included as are those whose parents were not married at the time of their birth.
Where both spouse/civil partner and children survive the intestate, their estate is distributed as follows:
The spouse/civil partner receives the personal assets absolutely. Personal assets are also called personal chattels and include carriages, horses, stable furniture and effects, motor cars and accessories, garden effects, domestic animals, plate, plated articles, linen, china, glass, books, pictures, prints, furniture, jewellery, articles of household or personal use or ornaments, musical and scientific instruments and apparatus, wines, liqueurs and consumable stores. They do not include any chattels used at the death of the intestate for business purposes nor money or securities for money.
In addition to the personal assets, the spouse/civil partner receives a specific gift of £250,000 free of tax and cost plus interest at a prescribed rate from the date of death until payment. If the residuary estate apart from the personal assets is worth less than £250,000, the spouse/civil partner receives the whole amount and the children receive nothing.
If there is more than £250,000, the first £250,000 will go to the spouse/civil partner and the rest of the estate is divided into two equal funds. One fund is held on trust for the spouse/civil partner for life with remainder to the children also to be held on trust. In other words, the PRs will invest 50% of the rest of the estate in a fund and pay the interest to the surviving spouse/civil partner for life and thereafter it will be paid in accordance with the trust. The other 50% will be invested by the PRs for the benefit of the children who will ultimately receive that portion of the estate. These legacies are defined as 'statutory legacies' and in Northern Ireland pass to the surviving spouse and/or children absolutely.
The spouse/civil partner's entitlement to the benefits under the intestacy rules is conditional on the spouse/civil partner surviving the intestate for 28 days. Where the intestate's spouse/civil partner dies within 28 days of the intestate, the estate is distributed as if the spouse/civil partner had not survived the intestate. For example, John is survived by his wife Jane and daughter Pam. If Jane dies within 28 days of John's death Pam will inherit the whole of John's estate.
The primary beneficiaries are the children of the intestate who are living at the death of the testator. Grandchildren are included only by substitution, which is where a child has died before the intestate.
The interests of the children are subject to them reaching the age of 18 or marrying under that age. If a child dies after the intestate, but before they reach 18 or marry, their share is distributed as if they had pre-deceased the intestate.
Any children of the deceased child (i.e. grandchildren of the deceased) who are living at the intestate's death take their deceased parents' share equally between them, subject to them reaching the age of 18 or earlier marriage. Great grandchildren will be included only if their parent had also pre-deceased the intestate.
Whilst money is being held for children before they reach 18, the trustees have powers to advance income and capital to the children.
The surviving spouse/civil partner may elect to take a lump sum payment in place of a life interest. This means that the half of the residue (i.e. amount over £250,000) which would, under the provisions outlined above, be held on a trust for the spouse/civil partner for life with remainder to the children will be valued and the capital value paid to the surviving spouse/civil partner. The valuation of a life interest is a complex issue, and you should seek further advice if this affects you.
If the spouse/civil partner prefers to take a lump sum payment they must give written notice of their decision to the PRs within 12 months of the PRs receiving their authority to act in the management of the estate. Where the spouse/civil partner decides to take a lump sum in place of a life interest, this will have the effect of increasing Inheritance Tax payable by the estate. The reason for this is that when a person leaves assets to their spouse/civil partner, those assets are exempt from Inheritance Tax. If the spouse/civil partner takes a lump sum payment instead of a life interest, the value of the lump sum will be less than the life interest and therefore the estate will be left with a larger amount, which will be taxable.
If there is a matrimonial home, which forms part of the estate, the surviving spouse/civil partner can retain the matrimonial home in full or partial satisfaction of their interest in the estate.
If the property is worth more than the spouse/civil partner's entitlement, the spouse/civil partner may still retain the matrimonial home provided they pay the difference to the estate. This is called equality money. For example, according to the intestacy rules the surviving spouse/civil partner is entitled to £250,000 and the matrimonial home is worth £275,000. The surviving spouse/civil partner may therefore receive the matrimonial home but will have to pay to the PRs an amount of £25,000 being the difference between the value of the house and the amount to which the spouse/civil partner is entitled. The amount of £25,000 will then form part of the rest of the estate to be divided into the two equal funds as discussed above.
The spouse/civil partner will receive the home at its open market value at the time it is decided to keep the home. In times of rising house prices, the surviving spouse/civil partner should exercise the right as soon as possible after the death.
In view of the right to retain the matrimonial home, the PRs should not sell or otherwise dispose of the matrimonial home during the twelve months from the date they receive the authority to act without the written consent of the surviving spouse/civil partner. However, if there are insufficient funds to cover the debts and estate expenses, the PRs will be entitled to sell the home with the consent of the surviving spouse/civil partner.
Where the intestate (someone who dies without having made a valid Will) leaves a surviving spouse/civil partner but no children, the distribution of the estate depends on whether any other close relatives survive. If the intestate is survived by either or both parents, by brothers or sisters or by children of the deceased brothers and sisters, the spouse/civil partner will receive:
If either parent survives the intestate, that parent receives the remaining half of the rest of the estate absolutely. If both parents survive, that half is shared equally between them. If both parents have died before the intestate, the remaining half is divided between the intestate's brothers and sisters subject to the property being placed on trust. The terms of the trusts are the same as those for children. If a brother or sister of the intestate dies before the intestate leaving children, the children (i.e. nephews and nieces of the intestate) take their parent's shares.
The surviving spouse/civil partner once again has the right to take the matrimonial home in full or partial satisfaction of their interest in the estate.
Where there is no surviving spouse/civil partner or the spouse/civil partner has died within 28 days of the intestate, the residuary estate is divided between the relatives in the highest category in the following list however large the estate:
Adopted children are treated for intestacy purposes as the children of the adopted parents and not of their natural parents. The intestacy rules are applied regardless of whether or not a particular individual's parents were married to each other.
Where an estate passes to the Crown, the Duchy of Lancaster or Duke of Cornwall there is a discretion to provide for dependants of the intestate or for other persons for whom the intestate might reasonably have been expected to make provision.