By not having a Will there is a distinct possibility that your Estate could end up passing to the wrong people and not to the people you would have wanted to benefit. One particular situation which can cause problems is where someone is living with a long term partner but they are not married nor in a civil partnership. There is a popular misconception that so called ‘common law spouses’ will have legal rights if one of them dies, but that is not the case.
If a person dies without a Will, there is set of legal rules which govern how their estate will be divided. Known as the Intestacy Rules, these will only distribute the estate (depending on who has survived the deceased) to a legally married spouse/civil partner, or to children and other blood relatives. There is no provision for cohabitees, no matter how long they have lived together.
This is particularly problematic if one partner is financially dependant upon the other – for example where one partner works and most of the family finances are in their name, with the other partner focussing on child-care or other caring responsibilities. This also arises where perhaps a couple have come together and the house belongs to one of them only – the other perhaps has sold their own property and they are using the cash as a couple to support their day to day lifestyle.
If a cohabitee finds themselves in this position, then providing the couple have been cohabiting for at least 2 years, there could be a claim available under the Provision for Family and Dependants Act 1975. However, bringing a claim takes a great amount of time and cost with no guarantee that they will receive anything at the end of the process. Not to mention there can be enormous emotional stress and strain involved in having to bring legal action against a loved one’s estate.
A cohabitee who brings a claim under the Act is also more likely to receive a right of residence to live within the property of the deceased for a set period of time or on the basis that certain conditions are abided to, rather than a lump sum payment. The terms of the settlement or order could be that they are permitted to live within the property, have to maintain all the outgoings of the property but not necessarily have any legal entitlement to it.
By making Wills, couples who are cohabiting can ensure that they leave their partners protected so far as the property is concerned, and make other provisions to protect them for the future without the need for a legal claim.
A comprehensively drafted Will ensures that your estate reaches the right people in the right way.
It is also worth highlighting the difference in the inheritance tax position between married couples/civil partners and those who cohabit only.
On the death of a spouse or civil partner, they can leave as much of their estate to the survivor as they wish without any immediate Inheritance Tax problems. There is an exemption from the tax known as spouse exemption which means there is no tax chargeable at this point, rather any tax charged is deferred on to the death of the survivor.
However this is not available to unmarried couples. On the death of the first of them, their estate will be considered fully subject to Inheritance Tax and there may be a tax bill to be paid even if the estate passes to the surviving partner.
On death, each individual has a ‘nil-rate band’ of £325,000. This means that when their estate is valued, the first £325,000 is taxed at 0%. Any value over and above that (which does not qualify for an exemption or relief) is taxed at 40%.
Even if the entirety of the Estate is left to the surviving partner the tax is not capable of being deferred by virtue of spousal exemption and tax would be payable at 40% on first death of on any of the deceased’s assets that exceed the £325,000 threshold. This would include the value of assets owned jointly with their surviving partner.
Inheritance Tax, although linked to how an estate is distributed under a Will, is also a separate consideration and cohabiting couples will need to ensure that they have a good understanding of their position, even if they have Wills in place.
We understand that Inheritance Tax, and making Wills can be a tricky and anxious issue to navigate. With the correct advice and estate planning we can assist you to understand your position and take steps to ensure that your family and loved ones can be protected and provided for.