Who stands to gain?

On 1 October, the most radical set of reforms to the distribution of inheritance in a generation came into effect. The Inheritance and Trustees Powers Act 2014 has been hailed as a long-awaited and much-needed upgrade of an archaic system, and several legal convolutions have been removed. However, the changes are complex and understanding them is crucial, as the Act will alter the advice given to those seeking to protect their assets.

Numerous anachronisms have been removed, including several surrounding who is entitled to inherit the estate. Importantly, the law detailing which assets are captured in the legal parameter of someone's estate has been amended. The definition of "personal chattels"
(an individual's personal) belongings has been limited to exclude some movable items which could now be considered an investment. Legal advisers should therefore be prepared to amend wills to ensure that all personal belongings are left directly to the relevant individuals.

Parliament's attempts to modernise intestacy laws in order to better deal with the complexities of contemporary family life should certainly be welcomed. However, the reforms do not remove or limit the need for professional legal advice. The importance of drafting and updating a will is even more significant if the individual is cohabiting with (rather than being married to) a partner, and especially when an individual's desired inheritors include children from previous marriages and wider family members.

One important result of the reforms brought in earlier this month is that the inheritance of assets is now significantly skewed towards the current spouse. It is particularly important for individuals with children from a previous relationship to review and update their will in order to prevent the current spouse taking more than might have been intended, and to ensure all dependents are sufficiently protected.

Under the new laws, the first £250,000 plus half of the remainder of the assets will be left automatically to the current spouse. The rest will go to the deceased's children in equal shares. This sees the abolition of the life interest for the spouse, which would have traditionally ring fenced half of the remainder of the estate for the children of the deceased. This now means that the assets falling into the current spouse's half of the share may never go back to the children of the first marriage.

Previously, if an individual was married with no children, there was a statutory legacy of £450,000 passed to the surviving spouse, with 50% of the remainder of an individual's assets going to the parents or siblings. Now all assets will pass automatically to the spouse. This may seem fair, but having the spouse take everything may not have been the intention of the deceased, especially if there had been gifting from the deceased's parents or if it was a relatively new marriage.

The new Act will also allow trustees to apply income and capital with more discretion than was previously possible under the Trustee Act of 1925, however most well drafted wills will already incorporate such discretion.

The rights of unmarried, cohabiting partners is also a significant and complex issue, and one that modern law has, so far, been slow to adapt to. This new Act is a prime example of the law's inability to respond quickly to changing family situations and structures as unmarried, cohabiting partners still have no legal intestacy rights. As illustrated above, the reforms go some way towards modernising what is often deemed an archaic and arbitrary process, but for cohabitees, intestacy law offers no further clarification or protection. With the UK's high divorce rate and family structures becoming increasingly diverse, grey areas and exemptions are sure to increase.

Worryingly, it is estimated that between half and two thirds of the adult UK population do not have a current and up to date will. The changes introduced by the new Act mean that it is more important than ever to advise individuals of the importance of reviewing their will and amending it accordingly. As the changes sink in, case law adapts, and parliamentarians, lawyers and other professionals have time to observe and consider the impact of the new Act, wills may need to be updated once again.

James Ward is a partner in the private client department at Seddons Solicitors