Compliance & excepted estates


HMRC are piloting a change in the way that they monitor of excepted estates
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Minutes of IHT and TACT Meeting.

Thursday 11 February 2010

Present: IHT: Tony Key, Ken Waite, Sarah Kelsey, Simon Thompson and Colin Varney.

TACT: Paul Saunders (Barclays Wealth), Michael Cou...
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Six free toolkits to help agents avoid common errors when filing clients’ returns were published on 17th May 2010 by HM Revenue & Customs (HMRC).

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Chris Bara
HMRC Trusts, IHT, and CGT Policy
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Dear Mr. Bara


In the March 2010 Budget, proposals were included for the adjustment of income tax bet...
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Code of Practice

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A1. Integrity

A TACT member must conduct its business with integrity.

A1.1 Members will ensure that their key persons and officers work with the highest integr...
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ALAN WRIGHT -BBC PRESENTER AND AFTER-DINNER SPEAKER
In 1998, two of the major events on the calendar in Northern England were the European Presidency Meeting of Ministers, and the launch of the new R...
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Consultation : Inheritance Tax : Simplifying Charges on Trusts - the next stage

Inheritance Tax: Simplifying Charges on Trusts – the next stage
Consultation document published by HMRC on 31 May 20...
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Inheritance Tax: Simplifying Charges on Trusts – the next stage
Consultation document published by HMRC on 31 May 2013

The Association of Corporate Trustees (TACT) is the membership organisation o...
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Present

HMRC Tony Key, Ian Hempstead
TACT Mike Coulshed, Paul Saunders


1. Compensation payments

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There are significant issues around the taxation of the various different redres...
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A comparison of the English and Scottish rules of intestacy

A Comparison of the English and Scottish Rules of Intestacy  Part I

John Gorham, MBA, FCIB, FTII, TEP
The Royal Bank of Scotland plc

(From Issue 8,July 1999)


1 Introduction

1.1 The purpose of this article is to compare the intestacy rules of England and Scotland. England (with Wales) and Scotland have of course separate legal jurisdictions in spite of common membership of the United Kingdom and this is reflected in significant differences in their rules of succession, including devolution on intestacy.

The trend over the last few centuries has, arguably, been towards a convergence of the two constitutions but the advent of the Scottish parliament suggests a part reversal of that trend, in domestic affairs at least. What impact that might have on succession laws in general, and intestacy laws in particular, is considered briefly later (section 6.2).

Incidentally, as far as Wales is concerned, the author understands that the Welsh assembly will not have powers to legislate on matters of succession.

The remarks for both England and Scotland are directed to the law at the beginning of April 1999.

1.2 The author wrote for the then `Trust Operations Gazette` in 1984 an essay `Succession and Trusts: The Calcutta Cup` which was a more wide-ranging comparison of English and Scottish laws. He has drawn on parts of that material for the purposes of this essay.

1.3 The current legislation governing intestacy in both countries emanates from the United Kingdom parliament. The English rules are derived from the Administration of Estates Act 1925 sections 46-49 (as amended, not least by the Intestates Estates Act 1952) and the current Scottish ones by various sections of the Succession (Scotland) Act 1964.

The concept of intestacy is, as might be expected, similar in the two countries. Broadly, intestacy arises if a person does not dispose of his or her property on death by will or by other disposition (e.g. nomination). Hence it can arise, among other ways, if: there is no attempt to make a will;

· there is, on the face of it, a will but it is invalid (e.g. through lack of formality or capacity);

· there is a valid will but it fails, wholly or partly, to dispose of the testator's estate (e.g. through not dealing with all assets, failure through uncertainty or being contrary to public policy);

· there is the failure of a beneficiary's interest (e.g. through not meeting a condition or contingency, by forfeiture, by disclaimer).

1.4 Before delving into the rules themselves, however, it is helpful to look at the extent of freedom of testamentary disposition in each country.

2 Freedom of testamentary disposition

2.1 Testators in both England and Scotland enjoy a basic freedom of testamentary disposition subject to certain constraints. The constraints vary, however, between the two countries.

For both, on the other hand, assets may devolve on death other than by will. The following are examples common to, or with equivalents in, both countries:-

· Nominations.

· Donationes mortis causa.

· Life assurance policies written on joint lives or in trust.

In England, property might be held as `beneficial joint tenants`. On the death of one joint tenant, the benefit passes by survivorship directly to the survivor or survivors. Heritable estate (principally landed property) in Scotland (also termed `heritage`) may be subject to a special destination such as where it is held for `H and W or the survivor`. If H dies first, his interest in the property passes direct to W.

Rights under approved pension schemes, e.g. death benefits written under discretionary trusts albeit the trustees may be guided by the known wishes of the deceased member.

2.3 Turning to constraints, the Inheritance (Provision for Family and Dependants) Act 1975 (as amended) gives English courts wide powers to amend the will or intestacy of the deceased to make financial provision, or better financial provision, for certain disappointed `dependants`. The Act applies in respect of persons who die domiciled in England and Wales.

The potential claimants include the wife or husband of the deceased, a former wife or former husband who has not remarried, certain persons who had lived with the deceased as a spouse, a child of the deceased, a person treated by the deceased as a child and a person maintained by the deceased immediately before his or her death. They need to demonstrate that the deceased's will or the rules on intestacy, or a combination of the two, do not make `reasonable financial provision` for them.

The court has powers, provided specified criteria are met, to order periodical payments or lump sum payments out of the deceased's estate. As well as `free estate`, the court's jurisdiction extends to joint property, assets subject to a nomination, donationes mortis causa and dispositions made within six years of the death intended to defeat applications for financial provision under the Act.

There is no direct equivalent in Scotland to the 1975 Act. Spouses and children may claim `temporary aliment` and `continuing aliment` - aliment being maintenance - against the estate although, in practice, they are rarely claimed nowadays.

2.4 Whilst neither England nor Scotland has a system of community of property, Scotland has something akin with `legal rights` of spouse and issue to shares of the deceased's moveable estate (roughly equivalent to personal estate in England). Legal rights over heritable estate were abolished in 1964.

Legal rights are not strictly rights of succession but rather are claims in the nature of debts from the deceased's estate. The claimants cannot, however, compete with the creditors of the deceased; their claims attach to the free moveable estate remaining after the deceased's debts have been met and, in the case of intestaqcy, after satisfaction of the `prior rights` of a surviving spouse (see section 3.3).

A person may, however, defeat these claims in his net moveable estate by, during his lifetime, converting it to heritable estate or merely giving it away. Only genuine transactions will be recognised in this respect and sham transactions will not be allowed to defeat legal rights.

The rights are `jus relictae` and `jus relicti`, in the case of the widow and widower respectively, and `legitim` (or `bairns` part`) which is the portion of moveables falling to issue.

If the deceased is survived by spouse and issue, the moveables fall to be divided into three parts: one third to the surviving spouse, one third to the issue and the remaining one third (known as the `dead's` part) is free to pass under the will or under the ordinary rules of intestacy.

If there is spouse and no issue, or no spouse but issue, there is a division into two parts: one half to the spouse or issue, as the case may be, and the other half to the dead's part. If there are no spouse or issue, there are no legal rights.

As far as legitim is concerned, children (including adopted and illegitimate children) claim per capita while the division among the issue of a deceased child is per stirpes.

The doctrine known as `collation inter liberos` is designed to preserve equality among the claimants on the legitim fund. Hence, if a child has received advances from the parent during his lifetime, he must as a rule bring these advances into account for allocating the legitim fund where there is more than one claimant. Remoter issue must collate both advances to themselves and also the appropriate proportion of advances made to the person whom they represent.

Whether or not a provision falls to be collated depends on its nature and circumstances. Advances `made for the purpose of setting a child up in trade or a settlement in the world or for a marriage portion` must be collated. Collation has no bearing on the calculation of the fund for legal rights of the spouse unless there has been a bargain between the spouse and issue.

Legal rights may be expressly discharged by the person prospectively entitled to them while the ancestor or spouse is still living. Legal rights may also be renounced after the death of the spouse or ancestor: this will have the effect of increasing the dead's part of the estate whereas a lifetime discharge will benefit partly the dead's part and partly the other funds for legal rights. A discharge or renunciation of legitim may only be made by a person over eighteen years.

Legal rights may be claimed at any time up to twenty years from the date of the deceased's death (unless previously discharged). Where, however, the deceased died testate, a beneficiary cannot claim both legal rights and a legacy under the will.

Legal rights, being in the nature of debts, should strictly be settled in cash rather than in specie. It is possible for a spouse or issue to take an appropriation of assets from the estate - in effect, to buy assets from the estate.

2.5 As noted, the intestacy rules are potentially subject, in England, to claims under the 1975 Act and, in Scotland, to legal rights. This leads into the intestacy rules themselves.

3. The intestacy rules - overview

3.1 The broad order of priority for the two jurisdictions is similar, i.e. spouse, children and remoter issue, parents and siblings, remoter relatives. The devil lies in the detail.

3.2 In England, the extent of claims of the surviving spouse depends on the value of the estate and whether or not the deceased has also left issue or certain other relatives.

Where there is issue, the spouse takes the `personal chattels` (as defined in section 55(1)(x) of the Administration of Estates Act 1925), a legacy of £125,000 (or the entire residuary estate if less) and the income from half the residue of the estate. Subject to this, the estate is held on `statutory trusts` (see section 4.3) primarily for the children.

Where there are spouse, no issue, but parents or brothers and sisters (or their descendants) of the whole blood of the deceased, the spouse's legacy is increased to £200,000 and she or he receives one half of the residue of the estate absolutely. The other half of the residue passes to the parent or parents, if surviving, or, failing them, to the brothers and sisters or their descendants on the statutory trusts.

If there are no issue, parents or brothers and sisters of the whole blood (or their descendants), the spouse receives the whole estate outright.

If there is no spouse but issue, the whole estate is held for the issue to the exclusion of other relatives.

Failing spouse, issue and parents, the estate is held on the statutory trusts for other classes of relatives of the deceased so that a class of a higher order is preferred to one of a lower order. More detail of the classes appears in section 3.5 but the lowest in the order is uncles and aunts of the half-blood. The classes are confined to descendants of the intestate's grandparents and the grandparents themselves.

In the absence of all specified relatives, the estate passes to the Crown (or, if appropriate, the Duchy of Lancaster or Duke of Cornwall) in bona vacantia. The Crown (etc) has a discretion to make ex gratia payments to dependants and other persons for whom the intestate might reasonably have been expected to provide.

3.3 In Scotland, the surviving spouse is entitled to `prior rights` after the just claims of the deceased's creditors have been fully met.

Firstly, the spouse is entitled to the deceased's interest in the dwellinghouse (subject to heritable debts secured over the interest). There is a limit of £130,000 (net of securities) on the deceased's interest and, if the value is more, the spouse is entitled to receive the sum of £130,000 rather than the house itself.

Secondly, the spouse is entitled to receive `furniture and plenishings` (roughly equivalent to `personal chattels` in England excluding heirlooms and usually a motor car) up to a value of £22,000. If the value is more, the spouse may choose items up to a value of £22,000.

Thirdly, the spouse is entitled to a legacy of £35,000, if the deceased left issue, and £58,000 if there is no issue. The sum in question has to be found rateably out of the remaining heritage and moveables.

If any moveable estate remains, legal rights (as described above) have to be satisfied and a surviving spouse is entitled to her or his legal rights as well as prior rights.

Any remaining `free estate` (including the dead's part of moveables and heritage not subject to the prior rights of a spouse) then devolves on the classes of relatives specified in section 2 of the 1964 Act so that a class higher in the order is preferred to one lower down. Relatives of the whole blood take priority over relatives of the half-blood.

There is a difference with England in that all possible (blood) relatives can qualify for benefit (i.e. they are not limited to grandparents or their descendants). Once a class is `exhausted`, succession continues to the next line of ascendants, followed by collaterals (i.e. siblings), and so on.

In a complete absence of relatives of the whole or half-blood, the estate passes to the Crown as ultimus haeres. The Crown has a discretion to benefit people unrelated to the intestate, e.g. those with moral claims on the estate.

3.4 The amounts of the statutory legacies for the English rules and those relating to prior rights for the Scottish ones may be revised by statutory instrument. The last revision for the former was by the Family Provision (Intestate Succession) Order 1993 (SI 1993/2906) for deaths on or after 1 December 1993 and for the latter by the Prior Rights of Spouse (Scotland) Order 1999 (SI 1999/645) for deaths on or after 1 April 1999.

3.5 The following table is an attempt to compare, in summary form, the two sets of rules by reference to particular classes of beneficiaries. A number of refinements are discussed in the next section

Comparison of English and Scottish Intestacy Laws

England

Scotland

 

Entitlement of Spouse

 



Spouse and Issue

 

Spouse and Issue

· personal chattels

· statutory legacy of £125,000

· income for life from half of residue

· prior rights to dwelling house [to £130,000]

· prior rights to furniture and plenishings [to £22,000]

· prior rights to cash of £35,000

· legal rights

Spouse, no Issue, Parents/Brothers and Sisters of Whole Blood

Spouse, no Issue, Parents/Brothers and Sisters of Whole Blood

· personal chattels

· statutory legacy of £200,000

· half of residue absolutely

· prior rights to dwelling house [to £130,000]

· prior rights to furniture and plenishings [to £22,000]

· prior rights to cash of £58,000

· legal rights

Spouse, no Issue, Other Relatives

Spouse, no Issue, Other Relatives

· whole estate absolutely

· prior rights to dwelling house [to £130,000]

· prior rights to furniture and plenishings [to £22,000]

· prior rights to cash of £58,000

· legal rights

Receives free estate also if no:

· Parents

· brothers and sisters of the whole blood or half-blood or their descendants

 

 <![endif]>

Entitlement of issue

 


Spouse and Issue


Spouse and Issue

Residue, subject to half the income for life to spouse, on the statutory trusts

· Legal rights

· Free estate (i.e. estate after debts, prior and legal rights of spouse) to children per capita or remoter issue per stirpes

No Spouse, Issue

No Spouse, Issue

Whole estate on the statutory trusts

Whole estate to children per capita or remoter issue per stirpes

 

 

Entitlement of Parents/Brothers and Sisters

 


Spouse, no Issue


Spouse, no Issue

Half of residue in the following order of priority:

· Parent(s), equally if both survive

· Brothers and sisters of the whole blood on the statutory trusts

Free estate (i.e. after debts, prior and legal rights of spouse) to

· Parents and brothers and sisters (if someone survives from both classes): each class takes half

· Brothers and sisters (if no parents alive)

· Parents (if no brothers and sisters alive)

Relatives of the whole blood take priority over those of the half-blood

Class takes per capita, descendants take per stirpes

 


No Spouse, no Issue


No Spouse, no Issue

Whole estate in the following order of priority:

· Parent(s), equally if both survive

· Brothers and sisters of the whole blood on the statutory trusts

· Brothers and sisters of the half blood on the statutory trusts

Whole estate to

· Parents and brothers and sisters (if someone survives from both classes): each class takes half

· Brothers and sisters (if no parents alive)

· Parents (if no brothers and sisters alive)

Relatives of the whole blood take priority over those of the half-blood

Class takes per capita, descendants take per stirpes

 

 

Entitlement of others


No Relatives of a Higher Priority


No Relatives of a Higher Priority

Whole estate in the following order of priority:

· Grandparents, in equal shares absolutely

· Uncles and aunts of the whole blood on the statutory trusts

· Uncles and aunts of the half-blood on the statutory trusts

· The Crown in bona vacantia

Whole estate in the following order of priority:

· Uncles and aunts

· Grandparents

· Grandparents' brothers and sisters

· Remoter relatives

· The Crown as ultimus haeres

Relatives of the whole blood take priority over those of the half-blood

Class takes per capita, descendants take per stirpes

John Gorham MBA, FCIB, FTII, TEP

28 May 1999

© The Royal Bank of Scotland plc

4. Intestacy rules - refinements

4.1 Administrative

By section 33 of the Administration of Estates Act 1925 (and for deaths on or after 1 January 1997), personal representatives hold any estate of an intestate on trust with power to sell it (previously there was a trust for sale). There are then directions to pay funeral, testamentary and administration expenses, debts and other liabilities and to set aside a fund for any pecuniary legacies bequeathed by will (i.e. in the event of partial intestacy). Section 33 may be displaced, e.g. by an express trust for sale in a will (on a partial intestacy).

Section 39 of the Administration of Estates Act 1925 gives personal representatives wide powers of management for estate administration.

Section 2 of the Executors (Scotland) Act 1900 gives to executors nominate (appointed by will) the statutory and common law powers and privileges of Scottish trustees and there is a similar provision in section 20 of the Succession (Scotland) Act 1964 for executors dative (equivalent to administrators in England).

4.2 The surviving spouse

Both jurisdictions require `spouses` to be legally married so that so-called common law spouses do not benefit under the intestacy rules themselves (they may benefit in England on intestacy following a claim under the Inheritance (Provision for Family and Dependants) Act 1975).

In England, intestate spouses who are judicially separated at the time of death are debarred from benefit.

In Scotland, the position is more complex and there is a disparity of treatment as between husband and wife. Where an intestate wife has obtained a separation decree before her death, her husband is deemed to have predeceased her in respect of property she acquired after the decree. Prior and legal rights still apply for the husband, on the other hand, in respect of property acquired by the wife before the decree.

In England, by contrast to Scotland, there is no specific right under the intestacy rules to entitlement to the deceased's interest in the matrimonial home. This assumes of course that the property was not held jointly (and that the entire benefit passed by survivorship to the widow or widower).

On the other hand, a surviving spouse may, under the English rules, elect to have the deceased's interest in a house in which she or he was living at the time of death appropriated in or towards her or his entitlements in the estate. The value is that at the time of appropriation.

There are also embellishments to the prior right of a surviving spouse to a dwellinghouse in Scotland. Where the value of the deceased's right exceeds £130,000 (and there is no special destination), the survivor is (as noted in 3.3) entitled to a sum of £130,000 rather than the property itself. A prior right does not exist in relation to a dwellinghouse which forms part of a property which the deceased tenanted.

Further, where the dwellinghouse forms part of a business undertaking of the intestate (for example a farm) and the value of the whole undertaking is likely to be substantially diminished if the dwellinghouse is disposed of separately, the survivor is entitled to a sum (up to £130,000) equal to the value of the deceased's interest.

There is no limit to the value of personal chattels which a spouse may receive under the English rules. There is such a limit for furniture and plenishings in Scotland (see section 3.3).

In England, a surviving spouse may stand to receive the income for life from half the residuary estate. She or he may elect to have the income entitlement redeemed for a capital sum under provisions in section 47A of the Administration of Estates Act 1925.

The rights of an English spouse are, since 1 January 1996, dependent on her or his surviving the deceased by at least 28 days. There is no equivalent in Scotland so that survivorship by any period is sufficient to benefit.

The normal `commorientes` rule in England (section 184 of the Law of Property Act 1925) deems, in circumstances which render the order of deaths uncertain, a younger person to survive an older one. This is displaced for intestate spouses so that, in effect, each spouse is regarded as having predeceased the other (to prevent the combined estates passing entirely to the relatives of the younger one should there be no issue).

The equivalent to `commorientes` in Scotland is known as `common calamity` (section 31(1) of the Succession (Scotland) Act 1964). There is also an exclusion of the normal rule on the intestacy (and, incidentally, testacy) of a spouse.

Partial intestacy can lead to complications. For deaths on or after 1 January 1996, a surviving spouse under the English rules does not have to bring into account, when computing the statutory legacy, the value of any benefits received under the will. In Scotland, by contrast, a `legacy` has to be set against a prior right of cash but not those to a dwellinghouse or furniture and plenishings. `Legacy` is widely defined for this purpose to cover benefits such special destinations and donationes mortis causa (calculated at the date of death).

Both sets of rules provide for interest to be paid on the fixed cash sums for spouses from the date of death to that of payment.

4.3 Class gifts

A feature of the English legislation is `statutory trusts` which are defined in section 47 of the Administration of Estates Act 1925. These apply to gifts to classes such as the issue of the intestate and the issue of other relatives.

The broad effect of the statutory trusts is to divide the fund equally among such of the members of the class who survive the intestate and attain eighteen years or marry under that age. Where, however, a primary member of the class fails to take a vested interest but leaves issue of his or her own, the issue take their parent's share `through all degrees, according to their stocks, in equal shares if more than one`.

Hence, if an intestate leaves two adult children and minor grandchildren being children of a deceased child, the fund is divided into three with the intestate's children taking one-third each and the remaining one-third being held for the children of the deceased child.

The statutory power of advancement (in section 32 of the Trustee Act 1925) and the statutory provisions for maintenance and accumulation of income (in section 31 of the same Act) apply.

For deaths prior to 1996, lifetime `advancements` for the benefit of children (not issue or other relatives) had to be taken into account (at a valuation at the date of death) in calculating the shares of the respective children. The rule does not apply for subsequent deaths.

The effect of the Scottish rules in relation to the free estate is broadly equivalent although there are no `statutory trusts` as such. Sections 5 and 6 of the Succession (Scotland) Act 1964 provide for the infinite representation of a deceased beneficiary with division per capita among the primary members of the class and per stirpes among their issue. On the other hand, there is no contingency (such as attaining eighteen or marrying) other than survivorship of the intestate.

Persons over sixteen years in Scotland can give a valid receipt (compare eighteen years in England where applicable) although a receipt given between ages sixteen and eighteen can be set aside until the person reaches twenty-one if the transaction is deemed to be prejudicial. In practice, particular care is needed in relation to legal rights and the cautious view is to wait until age eighteen.

There is no requirement, with the free estate, for beneficiaries to bring into account lifetime advancements by the intestate. This contrasts of course with the doctrine of collation in relation to legal rights (see section 2.4). As legitim deals only with moveables, advancements of heritage are not affected by collation.

In both jurisdictions, relationships through illegitimacy and adoption now rank with legitimate ones. Similarly, relationships through the half-blood (i.e. sharing just one parent rather than two with the intestate or ancestor) stand to qualify although rank after relationships of the whole blood. Neither jurisdiction recognises, however, step relationships where there is the absence of a blood tie.

4.4 Entitlement to a grant of representation

In both countries, real estate as well as personal estate - or heritage as well as moveables - now devolves on the `personal representatives` (to adopt for convenience an English expression) of the deceased whether he or she dies testate or intestate. `Personal representatives` in England can mean `executors` (appointed by a testator) or `administrators` (appointed by the court, i.e. where there is no will or there is a will but the named executors are dead or unwilling or unable to act). In Scotland, the equivalents are `executors nominate` and `executors dative`.

A personal representative in either England or Scotland needs a grant of representation - probate or letters of administration in England, confirmation in Scotland - to demonstrate his or her title to administer the assets in the estate. The procedure for obtaining a grant is broadly similar in both countries and, since the Administration of Estates Act 1971, a certificate of confirmation of a person who dies domiciled in Scotland is accepted in England and a grant of probate or letters of administration of a person who dies domiciled in England is accepted in Scotland without the need for re-sealing.

Jurisdiction over probate matters in England is vested in the Family Division of the High Court for non-contentious business and the Chancery Division for contentious business. The equivalent jurisdictions in Scotland are vested mainly in the Sheriffs Courts and Commissary Office in Edinburgh.

In the event of total intestacy, the orders of priority to a grant are substantially similar albeit they differ in detail.

In England, the order is:

· the children of the deceased and the issue of any child who died in the deceased's lifetime;

· the parents of the deceased;

· brothers and sisters of the whole blood (or issue of any who have predeceased);

· and so on according to the order of entitlement to the estate.

Any person who wants to take out a grant can only do so if he has a beneficial interest in the estate and has cleared off in the oath leading to the grant anyone higher in the order.

In Scotland, the order is broadly:

· the spouse exclusively if she or he inherits the whole intestate estate under prior rights but, otherwise, the spouse is entitled concurrently with persons in the next category;

· those who inherit the `free estate` (i.e. estate after debts, prior and legal rights of spouse).

5 Conflict of laws

5.1 Firstly, an international dimension exists as between England and Scotland - because of their distinct legal jurisdictions - as well as between each of those countries and more `distant` territories.

Secondly, for the purposes of the private international laws, it is necessary to classify assets into `movables` and `immovables` which concepts are reasonably similar (although not identical) to the classification into personal estate and real estate in England and moveables and heritage in Scotland. The author perceives the spelling of `moveables` includes the `e` as the fifth letter for Scottish domestic purposes but excludes it for other purposes.

Thirdly, both jurisdictions apply the law of their situation to immovables and the law of the owner's domicile to movables in matters of succession. The concept of `domicile` is similar for the two countries. Other jurisdictions may well have different rules so that they may not uphold devolution under English or Scottish domestic law in respect of movable (let alone immovable) assets within their territories.

Fourthly, it is useful to look at the conflicts rules separately for the Inheritance (Provision for Family and Dependants) Act 1975, legal rights and the intestacy rules themselves.

5.2 The Inheritance Act does not extend to Scotland in that it applies only to persons who die domiciled in England (section 1(1)). Hence, the Act cannot be invoked by the dependants of a deceased who died domiciled in Scotland even if he or she left assets, whether movable or immovable, in England.

Whether or not a Scottish court might be asked to consider a decision of an English court in relation to the Act is perhaps open to debate. If it was, the author likes to think the Scottish court would recognise a judgement on movables situated in Scotland but presumably it would not do so for immovables located there..He has not come across the point in practice!

5.3 Scottish law treats legal rights as rights of succession. They will be applied to movables wherever situated of a Scottish domiciliary (but not of course to immovables since 1964). Scots law will also recognise analogous rights of foreign domiciliaries over movables situated in Scotland but not over immovables situated there.

English courts will recognise legal rights of Scottish domiciliaries over English movables.

5.4 As to intestacy, the starting point is the general proposition of lex situs for immovables and lex domicilii for movables. The classification of rights into immovables or movables follows on from this.

Spouses in both jurisdictions have specific rights to furniture and other effects (`personal chattels` in England)and such assets are unquestionably movables.

Spouses in Scotland have prior rights in a dwellinghouse which is an immovable. However, the Scottish law is not likely to be recognised where the dwellinghouse is situated outside that jurisdiction, for example in England! Further, there are occasions when the prior right is a sum of money rather than heritage itself, for example where the value exceeds £130,000. It seems likely that such a sum would, in the circumstances, be classed as an immovable rather than a movable.

A spouse under the English rules is not entitled to the intestate's interest in a dwellinghouse but may have pre-emption rights to buy it. The author has not yet fathomed out whether such a right would be classed as an immovable or movable! It could be relevant to an English domiciliary who died resident in Scotland to the extent there was no prior right to the house.

Spouses in each country have rights to cash sums. In Scotland, the sum is met out of heritage and moveables in proportion to their relative values. For a person domiciled in Scotland, the sum is a charge on his heritage in Scotland and moveables wherever situated. For a non-Scottish domiciliary, only his Scottish heritage is affected and that bears the entire cash sum.

In England, property subject to intestacy normally forms part of one fund under section 33 of the Administration of Estates Act 1925 and the statutory legacy is payable out of that. There could conceivably be an issue, however, where the intestate owned foreign immovables and the other assets were insufficient to meet the legacy in full. The lex situs would presumably apply to the foreign immovables.

6. Law reform

6.1 The (English) Law Commission published a report `Distribution on Intestacy` in December 1989 and one of its recommendations was that a surviving spouse should, in all cases, receive the entire estate. This was controversial and has not been enacted.

In the event, various other recommendations - including ones on hotchpot, survivorship clauses and provision for unmarried co-habitees (under the Inheritance (Provision for Family and Dependants) Act 1975) - were enacted in the Law Reform (Succession) Act 1995.

As noted, the amounts of the surviving spouse's statutory legacy are revised from time to time by statutory instrument.

6.2 The Scottish Law Commission issued its `Report on Succession` in January 1990 which included proposals to reform the intestacy laws but, as yet, no legislation has resulted.

The author learned during a telephone conversation (in March 1999) with an official of the Scottish Office that reform of succession (including intestacy) would fall to the new Scottish parliament. However, since 1990, views on the proposals in the 1990 report had changed and it was difficult to predict the outcome of any future deliberations.

As noted, the amounts in respect of the surviving spouse's prior rights are revised from time to time by statutory instrument.

7. Concluding remarks

7.1 The challenge at this point is pull the comparison together. One way of doing so is to work an example by reference to each set of rules and the required skill becomes one of arithmetic rather than legal principles.

7.2 The facts of the example are:

H died intestate on 2 April 1999 leaving (at their values for probate or confirmation):

House (in land of domicile)

Furniture and effects

Car

Savings (in sole name)

Total

£120,000

£25,000

£5,000

£210,000

£360,000

and is survived by his wife W and issue.

For simplicity, the savings figure is what remains after debts, funeral expenses and the costs of administration have been provided for and no IHT is payable.

W has savings in her sole name but there are no savings in the joint names.

Two scenarios are considered:

(1) the house is owned by H solely.

(2) the house is owned by H and W jointly and passes by survivorship

Division:

  

England (1)

England (2)

Scotland (1)

Scotland (2)

W outright:

House

0

120,000

120,000

120,000

Furniture and effects

25,000

25,000

22,000

22,000

Car

5,000

5,000

0

0

Cash

125,000

125,000

35,000

35,000

Legal rights

0

0

61,000

61,000

Total

155,000

275,000

238,000

238,000

W income only (then issue)

102,500

42,500

0

0

Issue (on stat. trusts)

102,500

42,500

0

0

Issue (legal rights)

0

0

61,000

61,000

Issue (`free estate`)

0

0

61,000

61,000

Total estate

£360,000

360,000

360,000

360,000

Notes:

1. in England (1), W can elect to buy the house.

2. in England (1) and (2), W can elect to redeem her life interest for a capital sum.

7.3 Whether the house is owned by the deceased intestate solely or by him and his spouse jointly has a significant impact in England but is neutral in Scotland (at least on the facts of this example). This neutrality in Scotland would appear to hold good even if the house was security for a loan - the surviving spouse would, in either scenario, be liable for repayment. The destination of any life assurance proceeds intended to finance repayment would depend on how the benefit of the policy was written and secured.

The position over a mortgage in England would vary with the circumstances. If the house was owned solely by the intestate, the loan would be a debt of the estate (and reduce the residue if the estate was sufficient to meet the statutory legacy in full). If the house was owned jointly, the spouse would be liable for the loan but, as in Scotland, the benefit of any life assurance would depend on the `arrangement` of the policy.

Ignoring a loan, the outcome would be different if the house was in H's sole name and, for Scottish H, situated in England and, for English H, situated in Scotland - because of the impact of the lex situs. Scottish W would be `worse off` - she loses her prior right to the house - whereas English W would be `better off` - she gains the prior right.

7.4 The author hopes that this essay gives some flavour of the main differences between the English and Scottish laws of intestacy. The differences are significant and are probably explained best by the separate ways in which the two jurisdictions have evolved over many centuries.

An implication of Scottish home rule is that any future convergence is even less likely than it was and, if it occurs, it will be by accident rather than design. That, however, is primarily for politicians, not lawyers and practitioners.

In the meantime, the soundest advice, north and south of the border, must surely be to make a will - taking account of the potential constraints of legal rights in Scotland and the Inheritance (Provision for Family and Dependants) Act 1975 in England.

 John Gorham MBA, FCIB, FTII, TEP

28 May 1999

© The Royal Bank of Scotland plc

 





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