In January 2020, the government announced that the Statutory Legacy would be increasing with effect from 6th February 2020.
Before getting into the details of what the Statutory Legacy is – and what this increase could mean – you should be aware that it will only affect you if you have not made a Will. If you have a valid Will in place, you don’t need to think about it.
This highlights one of the most useful features of making your Will – the control it gives you over what should happen to your property after your death. Whilst the increase to the Statutory Legacy could be considered as a good thing in general, the effect it has may not reflect what you would want.
What is the Statutory Legacy?
When someone dies without making a valid Will, they are said to die ‘intestate’ and all of the property which forms their estate will be passed on according to rules known as the Intestacy Rules.
If you die intestate, and you are survived by a spouse or civil partner and by your child or children, the Statutory Legacy will take effect. The Statutory Legacy is a fixed sum allocated from the estate to the surviving spouse or civil partner before the remainder of the estate is shared out.
On 6th February 2020, the amount of this fixed sum will increase from £250,000 to £270,000.
The Intestacy Rules provide that, after the Statutory Legacy, any remainder of the estate is then shared between the spouse/civil partner and the children. 50% of this remainder will go to the spouse/civil partner and the other 50% will be shared equally amongst the children.
If you would like to know more about how the Intestacy Rules work, we have made a handy flowchart which explains what happens if you die without a Will.
An example of how the Statutory Legacy works
Susan dies in March 2020 without making a Will. She is survived by her husband, Ian, and their two children, Anna and Jenny. Susan’s estate is worth £1,000,000. In accordance with the Intestacy Rules, her estate will be shared out as follows:
- Ian, her spouse, will receive a total of £635,000 (comprising the £270,000 Statutory Legacy + 50% of the remaining £730,000, which is £365,000).
- Anna and Jenny will each receive £182,500 (i.e. their equal shares of the other £365,000).
Why is the Statutory Legacy important?
When you are making plans for the future welfare of your loved ones, it is crucial that you are aware of where your property would go after your death. Many people assume that dying intestate means your property is shared out equally amongst your immediate family. As you can see from the example above, this is clearly not the case and the Statutory Legacy has a significant effect on how an estate’s value is distributed between a spouse/civil partner and children.
This effect is even more pronounced in smaller estates. Looking at the example above, Ian received 63.5% of Susan’s estate after her death. Had her estate been of lower overall value, Ian would have received a much higher percentage. With a total estate worth £400,000 instead of £1,000,000, for example, Ian would have received 83% of the estate (i.e. £335,000) due to the fixed sum of the Statutory Legacy.
The significance goes beyond just the numbers. In either case, questions arise. Would Susan have wanted Ian to receive so much of her estate? By contrast, maybe Susan would have wanted Ian to receive all of her estate?
Why it is more important to make a Will
You might look at the Intestacy Rules and Statutory Legacy, predict what would happen after your death, and be satisfied that it generally matches your intentions anyway. If so, you may believe a Will to be unnecessary and forego making one. This approach carries a number of risks, however. For example, would your loved ones know that these arrangements were your wishes, or would there be disputes over your estate? What if your circumstances changed before your death, would the Intestacy Rules still match your intentions?
Relying on the Intestacy Rules also overlooks many of the benefits which making a Will can bring. These include:
- Choice – Your Will enables you to choose exactly who is to receive value from your estate, and how much they will receive. It also allows you to make gifts of specific items to specific people if you so wish. Additionally, a Will gives you the ability to provide for loved ones who would never be able to inherit through the Intestacy Rules (such as step-children, friends, or even relatives who would be superseded by others – e.g. a brother or sister, when you are also survived by your children).
- Tax management – It is possible to make tax-efficient arrangements in your Will, to reduce the amount of Inheritance Tax and other taxes, your estate would have to pay on your death. For example, you might create certain types of Trusts in your Will or take advantage of exemptions and tax reliefs. Of particular relevance to the Statutory Legacy, is the ‘spouse exemption’. This allows for the value of any property going to a spouse or civil partner to be fully exempt from Inheritance Tax. Relying on the Intestacy Rules is unlikely to make full use of such provisions. For more information on this, please see our factsheet about ‘Reducing Inheritance Tax on your Estate’.
- Contingency planning – The terms of your Will can be used to allow for alternative arrangements if your first intentions cannot be carried out. For example, in the event that someone whom you wish to benefit from your estate dies before you.
- Guardianship – If you have young children, your Will is the best means to appoint Guardians. These are the people who should take over parental responsibilities, in the event that you and your partner/co-parent die whilst the children are still under 18. Our factsheet on ‘Appointing a Guardian’, covers this in more detail.
How Roche Legal can help
At Roche Legal, we assist many people in making their inheritance arrangements and plans for the future. We are reassuring experts who can guide you through a wide range of legal matters. We specialise in: