2. Intestacy, and Property Passing Outside the Will or Intestacy

Question 1

In what two situations will the rules of intestacy apply?

Answer 1

1. Deceased died without a will, or at least a valid will
2. Deceased’s will does not dispose of all of their property

Question 2

For a spouse to receive their beneficial entitlement, for how long must they survive the deceased?

Answer 2

28 days

Question 3

What is the spouse’s entitlement where there are no issue, i.e. children?

Answer 3

The entire estate

Question 4

What are the spouse’s three entitlements where there are issue?

Answer 4

• £322,000 (statutory legacy)
• Personal chattels
• Half the residue absolutely

Question 5

How is ‘personal chattel’ defined?

Answer 5

statutory definition - s55 AEA:

It means ‘tangible movable property’ but excludes the following:
(a) Money or securities for money
(b) Property used by the intestate at their death solely or mainly for business purposes
(c) Property held at the death of the intestate solely as an investment

Question 6

What happens to the matrimonial home if they held the home as joint tenants?

Answer 6

the right of
survivorship will apply

Question 7

What happens to the matrimonial home if the deceased was the sole owner of the home, or if the deceased held a share as a beneficial tenant in common?

Answer 7

the deceased’s interest will form part of the succession estate and will be distributed in accordance with intestacy rules.

the spouse has no automatic right to receive the deceased’s share of the marital home

However, they may elect to appropriate the home in full or partial
satisfaction of their statutory entitlements (Schedule 2 Intestate Estates Act 1952).

This means they have the right to ‘buy’ the deceased’s share of the property from the PRs using the money they would have received from the estate.

Question 8

How should the surviving spouse/CP make this election?

Answer 8

• in writing
• to the PRs
• within 12 months of
  the date of the grant.

During that period the PRs cannot normally sell the home without the spouse’s consent.

Question 9

What is a spouse with issue’s other option with regard to the matrimonial home?

Answer 9

They can opt to take the matrimonial home (or deceased’s interest in it if they were tenants in common) in satisfaction their entitlement to the three things in the previous card (chattels, 322k, half the residue), and the children will take the residue (after IHT)

If the property is worth more than the entitlement, the spouse must pay this equality money (the difference) to the estate using personal funds

Question 10

for appropriation purposes, what date is used to value the home?

Answer 10

The date of appropriation, not the
date of death.

Question 11

are there any restrictions on the right to appropriate?

Answer 11

yes, some. the consent of the court is required where the home is only part of a building owned by the deceased, or when the home is part of a farm or
other business premises.

Question 12

What is the statutory order of entitlement on intestacy?

Answer 12

As soon as a beneficiary falling a category in the below list is identified, subsequent beneficiaries are ignored:

1. Spouse/CP and issue
2. Spouse/CP OR issue
3. Parents (equally if both alive)
4. Full brothers or sisters on statutory trusts
5. Half brothers and sisters on statutory trusts (share one parent)
6. Grandparents (equally if both alive)
7. Full uncles and aunts on statutory trusts
8. Half uncles and aunts on statutory trusts
9. The Crown as bona vacantia

Question 13

Who is and isn’t considered ‘issue’?

Answer 13

Issue:
- Legitimate - born to married parents
- Illegitimate - born to unmarried parents
- Legitimated - born to unmarried parents who later marry
- Adopted
- Conceived but not yet born

Not issue:
- Step children or their issue
- Foster children

Question 15

How will members of a class of beneficiaries take their share, and what are the two conditions, one of which is required?

Answer 15

They will take their shares equally, as long as they:

1. Reach 18, or
2. Marry before 18

Question 16

What does on the statutory trusts mean?

Answer 16

It means that both the ‘substitution limb’ and the ‘contingency limb’ must be satisfied // It means that all classes, except for parents and grandparents, take the parent’s share per stirpes, i.e. through the root, assuming the parent’s share

Question 17

What is the ‘substitution limb’?

Answer 17

Each entitled beneficiary must survive the
intestate and reach the age of 18 in order to
inherit. Until this requirement is satisfied, the
beneficiary has a contingent interest.

If a beneficiary is already 18 or older when the
intestate dies they will inherit absolutely and
immediately, as the contingency is already
satisfied. In this case the beneficiary has a
vested interest.

Question 18

What is the ‘contingency limb’?

Answer 18

If an entitled beneficiary dies before the
intestate that beneficiary’s own issue can
inherit in their place, provided the
beneficiary’s issue themselves satisfy the
contingency limb (ie reach the age of 18).

This would also apply in the rare scenario
where a beneficiary survives the intestate but
subsequently dies before attaining a vested
interest, eg before reaching 18.

Question 19

Do both contingency and substitution limb need to be satisfied?

Answer 19

Yes

Question 20

What happens if a potential beneficiary (i.e. a beneficiary with a contingent interest) who was living at the intestate’s death, dies before their interest vests?

Answer 20

Their issue take the deceased parent’s share

Question 21

What happens if a potential beneficiary (i.e. a beneficiary with a contingent interest) who was living at the intestate’s death, dies before their interest vests, but they have no issue?

Answer 21

The estate will be administered as if that beneficiary has never existed

Question 22

For the purposes of intestacy, who are deemed to be an adopted child’s parents?

Answer 22

The adoptive parents. Not the natural parents.

Question 23

Although the intestacy rules apply whether or not an individual’s parents were married, what does the law presume if a person dies intestate and their parents were never married?

Answer 23

The law presumes that the father has predeceased the intestate child, unless there is evidence to the contrary or the father is on the birth certificate

Question 24

On to Property passing outside the will or intestacy:

Can the rules discussed here be varied by the terms of the will?

Answer 24

No, they are strict

Question 25

In an intestacy situation, what are the six categories of property that do not form part of the deceased’s succession estate and are therefore not payable to personal representatives?

Answer 25

1. Property owned as beneficial joint tenant (house, cash)
2. Life insurance policies written in trust (incl. life assurance)
3. Some discretionary pension scheme death benefits
4. Nominated property in savings schemes
5. Life interests in trust property
6. Gifts where donor has received a benefit (is this GROB or DMC?)
7. DMCs
8. Statutory nominations

Question 26

If this property is not distributed under the will or the intestacy rules, how is this property dealt with?

Answer 26

It is possible to deal with such assets before obtaining a grant of representation.

Question 27

When identifying the deceased’s succession estate, why do we not usually include the value of assets held in a trust in which the deceased had a beneficial interest?

Answer 27

because assets held in trust are usually distributed in accordance with the terms of the trust deed, not the will of a deceased beneficiary or the application of the intestacy rules.

Question 28

What is one exception to the rule that assets written in trust do not pass into the succession estate?

Answer 28

if a deceased (by will) exercises a power of appointment in respect of trust
assets i.e., has the power to determine the distribution of the trust fund.

Question 29

Why does property owned as a beneficial joint tenant not pass under intestacy and to whom does it pass?

Answer 29

It passes to the other joint tenant automatically under the right of survivorship

Note that this obviously does not apply to tenancies in common, and may be the subject of a wrong answer choice

Question 30

Which life insurance policies pass to the succession estate (instead of outside the succession estate)?

Answer 30

Simple life insurance policies

Question 31

What are the 3 ways that life policies can be written into trust?

Answer 31

1. Under s.11 Married Woman’s Property Act 1882 for the benefit of spouse and/or children.
2. Expressly for the benefit of any nominated third party, eg grandchildren.
3. Into an existing trust for the benefit of the named beneficiaries in the trust deed.

Question 32

What is a life assurance policy used for?

Answer 32

Can be useful in the IHT context:

• Client can mitigate against the risk of dying within 7 years by taking out fixed term life assurance specifically to cover the cost of any IHT on the PET.
• This type of life insurance policy would pay out a lump sum (often equivalent to the IHT liability) if the donor died within the 7 years after the transfer.

Question 33

Why do life assurance policies not pass under intestacy?

Answer 33

Life assurance policies are held on trust for, or assigned to, the beneficiaries of the policy

Question 34

Which discretionary pension scheme death benefits will pass outside of the succession estate?

Answer 34

Deceased must have been a member of
- an employer’s discretionary pension scheme
- which allows contributors to ‘nominate’ a third party to receive any benefits due
after the contributor’s death
- (often by completing an ‘Expression of Wish’ form - such a nomination is not binding on the trustees, but in practice they almost always make it)

Question 35

Why do some discretionary pension scheme death benefits pass outside of the succession estate?

Answer 35

payment is entirely at the discretion of the trustees, meaning the deceased won’t be entitled to any payment from the scheme

Question 36

The release of the benefit of the discretionary pension scheme is contingent on what?

Answer 36

production of a death
certificate

Question 37

What is the monetary threshold which must not be exceeded for property in a savings scheme to be transferred to chosen beneficiaries and be excepted from the estate?

Answer 37

£5,000.

Question 38

Why do life interests not pass under intestacy?

Answer 38

Because a life interest vests in the remainderman upon the death of the life interest holder

Question 39

Does the remainder interest (the future right to receive trust capital) survive the remainderman’s death?

Answer 39

Yes, provided the remainder interest is vested ‘in interest’ i.e., the remainder
interest is not contingent on the remainderman outliving the life tenant.

In this case, when the remainderman dies, their remainder interest passes to their estate.

The trustee then holds for the life tenant for life, remainder to those entitled under the remainderman’s will or the intestacy rules.

Question 40

Even though property owned under a joint tenancy, life interests in trust property, and gifts with reservation of benefit do not form part of the estate for succession purposes, for what purposes are they considered part of the estate?

Answer 40

IHT / taxable estate

Question 41

What is a donatio mortis causa (DMC)?

Answer 41

Gift made in contemplation of death

Question 42

What are the 3 requirements for a valid DMC?

Answer 42

• The gift is made because the donor believes they may die imminently of a particular cause.
• The donor makes it clear that the gift is conditional upon them dying, and that the property
  reverts to them if they survive.
• The donor either parts with the property or something representing ownership of it.

Question 43

Is there a financial limit on statutory nominations?

Answer 43

Yes, max £5,000

Question 44

The release of the benefit of the nominated account is contingent on what?

Answer 44

production of a death
certificate

Question 45

What is a partial intestacy?

Answer 45

Some, but not all, property is disposed of by will

Question 46

What powers, if any, do the PRs have in respect of the undisposed of property?

Answer 46

They hold it on trust with power to sell under s 33 AEA.