In July 2023, the Government increased something called the “statutory legacy”. To be precise, it went up from £270,000 to £322,000. Is this good news? Let’s dive in.
For starters, the statutory legacy only applies if you die without a Will. If you have got a Will in place, the rest of this blog won’t apply.
But let’s say you’re one of the many people who never get around to making a Will. In that case, your assets will pass via the rules of “intestacy”. Intestacy is the law that decide who inherits what.
The rules of intestacy rigidly determine who is going to inherit from you if you don’t have a Will. There’s no disputing this – if you die without a Will, the law says who will inherit.
So how does this work in practice?
Let’s say that you are married or in a civil partnership, both of which are treated the same under intestacy, and don’t have children. If you die, your spouse will inherit the “statutory legacy” from your estate. As mentioned earlier, that sum is now £322,000.
Incidentally, the statutory legacy last changed three years ago, so it’s probably unlikely to rise again any time soon.
What will children inherit?
The situation gets more complicated if you have children. If your estate (total value of your assets minus debts) is worth less than the statutory legacy, your spouse gets everything.
That maybe doesn’t sound too bad unless, of course, you do want your children to get something when the first spouse dies. Many married couples don’t. They prefer their children to inherit when the second spouse passes away.
But what if your estate is worth more than the statutory legacy? In that case, your spouse still gets ALL of the statutory legacy plus HALF of the excess. And they’ll inherit ALL of your personal possessions.
Did you want to give a particular item of jewellery to your daughter, or a treasured watch to your son (or vice versa?) Too bad!
Now I said your spouse would inherit HALF of the excess. So let’s say you die with an estate worth £422,000. Your spouse inherits the statutory legacy of £322,000. The excess is £100,000 so your spouse gets another £50,000. The other £50,000 goes to your children in equal shares.
Did you want to give your children equal shares? Or did you already leave a large gift to one of them and you’d prefer to leave that child a bit less? Or perhaps you fell out with one of your children? Or maybe there’s a child from a previous relationship who you haven’t seen for 30 years and you’d prefer to write them out altogether.
The problem is that all of your children would inherit an equal share under the law of intestacy.
And then there’s the definition of what children actually means. In this instance, children is defined as “including legally adopted children and their descendants, but it does not include stepchildren and their descendants.”
Did you want to leave money to a stepchild who is not from your bloodline? Too bad!
And let’s now consider what would happen if those children are minors. Their share would have to be held in Trust until they reach the age of 18.
Finally, consider the situation where your estate consists almost entirely of your house. Let’s say your house is worth £422,000 and you don’t have much in the bank. For the sake of this example, the value of your bank account is zero and your total assets are worth £422,000.
The excess amount is again £100,000. Your spouse is entitled to half of it (£50,000) and children also get £50,000, which is split into equal shares.
But how would they get that £50,000? At worst, it would be an inconvenience to the spouse who has survived you to have to come up with the money. In the worst case scenario, if the children are adults, they could force a sale of the property to get their hands on their inheritance.
All of which shows that it’s better to avoid the headaches of intestacy and get Wills drawn up. I have a factsheet on intestacy (What happens if I don’t make a Will?) which you can download here. It’s been updated with the new figure for the statutory legacy.
I also recommend looking at the excellent Gov.uk interactive intestacy tool, which takes you through all the scenarios so you can see exactly who would inherit if you don’t make a Will. Just be aware that at the time of writing (1st August 2023), it was still showing the old statutory legacy figure of £270,000.
In my experience writing Wills for clients in Bristol, the statutory legacy has never come up as a topic for discussion, which is hardly surprising. If you do make a Will, as my clients obviously do, it won’t affect you at all. And that’s definitely for the best.