Fair share? Scottish wills

It often comes as a surprise to those in Scotland wishing to make a will that the law allows certain family members to claim funds from their estate, regardless of the terms of the will.

Legal rights under Scots Law give a surviving spouse or civil partner, the children of the deceased and, in some cases, remoter issue a right to a share of the estate of a deceased person.

Unlike the position in England, legal rights offer family protection where the deceased died domiciled in Scotland without the need to apply to a court. Legal rights arise automatically and may be claimed when the deceased died intestate or testate. The spouse’s right is called jus relicti where a widower claims his legal rights and the widow’s claim is referred to as jus relictae.

The legal rights claim of the children is referred to as legitim.

Prior rights

On intestacy, Scots law gives the surviving spouse or civil partner prior rights. Broadly speaking, the spouse or civil partner receives a right to the deceased’s interest in his dwelling house, a right to the deceased’s furniture and plenishings and a cash sum. Thereafter, the legal rights fund must be paid to the spouse or civil partner and the children, with the remainder of the estate then being paid over to the children (or, if there are no children, to other family members in accordance with section 2 of the Succession (Scotland) Act 1964).

Where the deceased leaves a will, the spouse or civil partner or children may still claim their legal rights, regardless of the terms of the will. It is not uncommon for a will to leave the entire estate to the surviving spouse on the first death.

If the deceased left children, those children are entitled to claim their legal rights, to the detriment of the surviving spouse. This will not generally happen when there are no issues within the family – the children will be content to wait and receive their inheritance when the second parent dies.

However, a child who will not benefit under either parent’s will may decide to make a claim. Similarly, a beneficiary who would obtain a bigger share of the estate by claiming his or her legal rights, rather than accepting the terms of the will may be tempted to claim.

In wills executed on or after 10 September 1964, unless the will contains an express provision to the contrary, any provision in the will is deemed to contain a declaration that it is in full and final satisfaction of legal rights.

The effect of this is that a person who claims legal rights, rather than accepting the benefit conferred under the will, forfeits his or her entitlement to the provision in the will. Some testators will simply leave a bequest to an individual of an amount equal to their legal rights, acknowledging that it is not possible to disinherit certain family members.

Moveable estate

The amount of the legal rights claim depends upon whether the deceased is survived by a spouse or civil partner and/or children or remoter issue. When a person dies survived by a spouse or civil partner and children, the spouse or civil partner may claim a one-third share of the net moveable estate and the children may claim a further one-third share equally between or among them.

Essentially, this means that a testator dying domiciled in Scotland may only really be free to dispose of one-third of his net moveable estate by will.

When a person dies survived by a spouse or civil partner, but no children or remoter issue, the spouse or civil partner is entitled to claim a one-half share of the net moveable estate. Similarly, where there is no surviving spouse or civil partner, the children can claim a one-half share of the net moveable estate.

Where a child has predeceased the deceased but leaves children of his own, those children may represent their deceased parent. The grandchildren of the deceased would share the amount to which their parent would have been entitled had he still been alive.

As mentioned above, children will be entitled to make a claim when the will leaves the entire estate to the surviving spouse. The possibility of a claim by a child under the age of 16 (the legal age of capacity in Scotland) can pose difficulties.

Until a child reaches 16, he or she cannot claim or discharge their legal right of legitim. In most cases, the executors will be forced either to keep aside the amount of the claim, or pay it over to the beneficiary (usually the spouse of the deceased and the children’s mother or father), in return for an undertaking that the beneficiary will repay the sum due to the children if the children decide to make a claim on reaching the age of capacity.

The prescription period for making a claim to legal rights is 20 years. In the normal course of an administration of an estate, the executors would contact those entitled to claim legal rights and invite them either to claim or discharge their rights.

A discharge signed within two years of the death will not be treated as a gift by the potential claimant to the beneficiary of the estate for inheritance tax (IHT) purposes. Such discharges are routinely obtained and intimated to HM Revenue & Customs.

The net moveable estate will consist of the gross moveable estate less the estate’s debts, funeral expenses, administration expenses, IHT and, in the case of intestacy, the prior rights of the spouse or civil partner. Generally, only expenses of administration up to the issue of Confirmation (the Scottish equivalent of Probate) are deducted.

Fund value

The distinction between moveable and heritable property is clearly critical and it is important to classify property correctly. For example, the assets of a partnership in Scots law are moveable, regardless of whether the assets themselves are moveable or heritable.

The value of the legal rights fund is calculated on the value of the estate at date of death. The rule is normally that neither a gain nor a loss on realisation, if genuine, will affect the legal rights fund.

Legal rights claimants are entitled to interest on the claim, rather than a direct share of the income actually produced by the moveable estate. This can be difficult to fix, particularly where there are many non-income producing assets. If the executors and the claimant cannot agree an appropriate rate, the court will have to determine the appropriate rate.

The Scottish Law Commission issued a report on succession in 2009 which reviewed legal rights in Scots Law and put forward proposals for reform. During the consultation process, the Commission found that there was very strong support for the proposal that a surviving spouse or civil partner should continue to be protected from disinheritance.

A large majority of the consultees considered that the protection should take the form of a fixed share of the deceased’s estate, i.e. it should be rule based and not involve the intervention or discretion of the courts. The Commission reached the conclusion that the surviving spouse or civil partner’s fixed share should amount to 25 per cent of what he or she would have inherited if the deceased had died intestate.

However, the position with children and remoter issue of the deceased was less clear cut. The options in the initial discussion paper were to retain the right to a fixed legal share or to abolish the right to a fixed legal share.

The respondents to the Consultation were “deeply divided”. The Commission did not feel that it could recommend one option over the other and considered it to be “a political question for the Scottish parliament”.

Fixed share

Ultimately, the Commission recommended in its report that children should be entitled to a fixed share of the deceased’s estate (again, 25 per cent of what they would have inherited if the deceased had died intestate).

However, it also set out a second option, namely that a fixed legal share for adult children should be abolished and dependant children should have the right to a capital sum payment from their parents’ estate where the beneficiaries or intestate heir do not owe them an obligation of aliment.

The capital sum would be calculated on what was required to maintain the child until the child was no longer dependant.

The initial response of the Scottish government was that it had no fixed view on whether it would be preferable for issue to have a right to a legal share, or whether only dependant children should be protected from disinheritance. Interestingly, the Scottish government also indicated that it might wish to consider anti-avoidance provisions designed to protect close relatives where a deceased person may have given away or undervalued assets during their lifetime to reduce the amount of estate available to meet claims.

As this suggests, there are ways in which a future claim for legal rights can be defeated, or at least minimised, and this will often form part of the advice given to clients when preparing a will in Scotland.

Until such time as the law is reformed, longstanding rules of forced heirship will continue to impinge on the ability of Scots domiciled testators to dispose of their estates as they wish.

Jacqueline Leslie is an associate at Bird Semple www.bsemple.com