Is £322,000.00 enough?

Is £322,000.00 enough?

For the purpose of this article all references to a surviving spouse also apply to a civil partner. The increase in the Statutory legacy is a good occasion to remind people of the potential perils of intestacy.

As from 26th July 2023, the Statutory legacy is increased from £270,000.00 to £322,000.00. This is the sum which a spouse is entitled to when their own spouse dies intestate, that is to say without a Will. They also get all of the deceased person’s personal chattels and one half of whatever is left over. The remaining half goes in equal shares to the children. If the total estate is less than £322,000 then the spouse gets everything.

Important to remember this only relates to assets passing under the intestacy. So if a property is owned as beneficial joint tenants or there is a joint bank account these assets pass automatically and are disregarded when calculating the Statutory legacy.

It is important to bear in mind this only applies where you are married or in a civil partnership. If you are living with somebody and you have children, and they die then everything goes to the children absolutely. You don’t get the Statutory legacy. You may have lived with someone for twenty years, but the intestacy rules regard you as “a stranger”. You have rights under the Inheritance (Provision for family and dependants) Act 1975 but this can involve lengthy and expensive legal proceedings

Imagine the following nightmare scenario: You and your partner decide to buy a house. You are pregnant and not working at the time, the mortgage proceeds in the sole name of the male partner with the result that the house ends up in their sole name. You have a child but unfortunately, within six months, your male partner passes away. You have provided for this contingency by taking out term assurance so that the mortgage is paid off. The sole owner however now of the property is your infant child. If you want to do anything about this, you are then faced with taking your child to Court. This is without regard to the tax bill that you may get. But the number one lesson here is that if you are in an unmarried relationship and you have children, you must have a Will.

Even where the parties are married, the fact that not all of the estate may go to a spouse can result in a number of unforeseen consequences:

1. Whereas assets passing to a spouse are free of Inheritance Tax those passing to children are not. You may find that because of the intestacy rules you suddenly have an Inheritance Tax bill to pay.

2. Even modest houses in London these days sell for at least half a million pounds and often considerably more. If you only receive the Statutory legacy and half the balance, you may find that you don’t own all of the house and that part of it belongs to your children. They may be infants, in which case if you wish to do anything about the matter then you have to take your children to Court. If they are adults, then you have to hope that you will keep on the right side of them or you may find that they are seeking an Order for the property to be sold and for you to be put out of it.

Matters are sometimes taken out of a child’s hands in the event that they become bankrupt, divorce, become mentally ill or die, then you may find that you are dealing with a third party who wishes to realise your child’s share in the property.

Our intestacy laws are now 98 years old having been passed in 1925. They have no regard to the way in which most people currently live their lives.

It is important to be aware that if you do not want to get married then you may get a tax bill on the death of your partner which you would not have got if they were your spouse.

If you are neither married and your deceased spouse does not have a Will, then you can find yourself in a disastrous situation.

If you are married, then you have to think is £322,000.00 enough?

Nigel George is the Head of Life Planning ngeorge@garner-hancock.co.uk