It has been widely reported that One Direction singer Liam Payne died intestate, leaving behind a net estate worth £24.3 million.
In the absence of a valid Will, Payne's estate will be distributed in accordance with the UK's intestacy rules. Since Payne had no spouse or civil partner, his entire estate will be held on statutory trust for his minor son until he turns 18.
The dangers of dying intestate are clear. While Payne may have wanted his son to inherit his entire net estate outright, he may also have wanted to benefit others and/or make some specific gifts. He might have preferred his son to receive distributions from his estate at a later age, such as 25, or to retain the estate in trust to protect his son and the estate further.
This article considers the intestacy rules, the issues they can give rise to and how these can be avoided by preparing a valid Will.
What are the current intestacy rules?
The intestacy rules operate where a deceased's estate is not wholly disposed of under a valid Will. The intestacy rules are dictated by the circumstances of the deceased at the time of their death, broadly as follows:
Spouse or civil partner
If the deceased is survived by their spouse/civil partner and left no children or grandchildren, the surviving spouse/civil partner will inherit the deceased's entire net estate.
Descendants
If the deceased leaves children and is not survived by a spouse/civil partner, then the deceased's whole net estate will pass to their children equally. Grandchildren (or great-grandchildren) will inherit in their parents' stead in the event that the child (or grandchild) has predeceased.
Spouse or civil partner and issue
If the deceased is survived by a spouse/civil partner and descendants, the spouse/civil partner will be entitled to receive a statutory legacy in the amount of £322,000 (the amount applicable for deaths on or after 26 July 2023). If the value of the deceased's estate's value exceeds this amount, the spouse/civil partner will be entitled to the deceased's personal chattels and half of the remainder of their estate. The other half will be inherited by the deceased's children.
Other relatives
If the deceased is not survived by a spouse/civil partner or any descendants, their other surviving relatives will inherit in accordance with the order of priority set out in the intestacy rules. It is important to note that these rules dictate that living parents will inherit in priority to surviving siblings.
The Crown
If the deceased dies intestate and is not survived by any blood relatives, then their net estate goes to the Crown.
The intestacy rules seek to ensure that the deceased's estate is disposed of in its entirety and tries to achieve this in a fair way by prioritising close relatives such as their spouse/civil partner and children. A key difficulty with relying on the intestacy rules to determine the disposal of your estate is that the way in which an individual's estate is disposed of under the intestacy rules might differ drastically from how that individual would have chosen to dispose of their estate.
Administration of the estate
When someone prepares a Will, they will have the opportunity to choose who they would like to appoint as the executor(s) of their estate. Given that the administration of an individual's estate can be burdensome, the decision is one which the testator should consider carefully.
In contrast, where a person dies intestate, a family member or other individual will need to apply for a grant of letters of administration in order to get authority to administer the deceased's estate. This process can result in someone whom the deceased might not have chosen taking on this role.
Beneficiaries of the estate
Preparing a Will gives an individual the opportunity to consider carefully who they would like to benefit from their estate, as we explored in the case of Marcus v Marcus. The facts of this case revolved around an individual who settled a portion of his wealth on trust for his "children". The key issue was whether the deceased's stepchild would come within the definition of "children". Although the case did not concern intestacy, it did highlight the importance of proper estate planning and clearly defining classes of beneficiaries. The Court held in this case that the stepchild would fall within the meaning of "children" – this may or may not have been the deceased's intention. If the trust deed had addressed this issue, the deceased's wishes would have been clear, and it would not have been a decision for the Court to make. From the perspective of intestacy it is important to note that stepchildren do not have a right to benefit, and legitimate and illegitimate children have equal rights. Although stepchildren may have a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act).
Preparing a well-drafted Will ensures your wishes are clear, and means the decision as to whom should benefit from your estate on your death remains firmly in your hands. Addressing points like these in a Will ensures that people you would like to benefit can do so without the need for them to bring a claim against the estate.
How should beneficiaries benefit when someone dies intestate?
If an individual dies intestate and is survived by a minor child, the portion of their estate will be held on statutory trust. The child will be absolutely entitled to the assets held on statutory trust once they turn 18 years old. This is often considered far too young to inherit outright, especially when looking at significant estates.
Conversely, preparing a Will gives an individual the opportunity to choose how beneficiaries receive their inheritance. For example, the deceased may want their children to inherit their portion of the estate at a later stage of life, for example at the age of 25 or upon reaching certain milestones such as graduating university. Wishes such as these can be achieved by way of a properly drafted Will. Without a valid Will in place, the estate will simply be distributed in accordance with the intestacy rules.
Cohabitation
A common myth is that of the common law spouse. If an individual is not married to / in a civil partnership with their long-term partner when they die intestate, the intestacy rules will not entitle the survivor to an interest in their deceased partner's estate. The survivor may be able to claim that they were dependent on the deceased in order to mount a successful claim against the estate under the 1975 Act. The position may change soon as the Government has agreed to consult on the Cohabitation Rights Bill this year.
Learn more about the issues for cohabiting partners and the implications for unmarried couples.
The importance of tax planning
Having a Will in place and undertaking broader estate planning helps to ensure the tax efficient passing of an individual's estate on their death. One common tax planning strategy when preparing a Will is to make use of the spouse exemption which allows the surviving spouse/civil partner of the deceased to inherit free of inheritance tax (to benefit from this exemption in full, both spouses must be 'long term UK-resident'). Another popular tax planning mechanism that can be incorporated into a Will is to make a qualifying charitable donation of at least 10% of the net estate. Where this is done, the applicable rate of inheritance tax is reduced from 40% to 36% on death.
Key takeaways
While the intestacy rules aim to distribute an individual's estate fairly among close relatives, the rules may result in the deceased's estate being distributed in a way which does not align with their wishes. Liam Payne's estate will be distributed in accordance with these rules, which might result in certain family members that he would have wanted to benefit being overlooked, and his son inheriting in a way he may have wanted to avoid. A well-drafted Will can give peace of mind by ensuring that an individual's wishes are respected on their death, reducing the uncertainty for family members and friends who are left behind, and giving individuals the opportunity to ensure their estate passes in a tax efficient way.