Chapter 1: Workshop 1: The succession estate and intestacy

Question 1

Introduction to Estates

Answer 1

This element explores the distribution of estates and how to identify the deceased’s succession estate.

‘It shall be lawful for every person to devise, bequeath, or dispose of, by his will….. all real estate and all personal estate which he shall be entitled to, either at law or in equity, at the time of his death, and which, if not so devised, bequeathed, or disposed of, would devolve…..upon his executor or administrator.

Section 3 Wills Act 1837

But what property actually passes to the executor or administrator?

Question 2

Distribution of estates

Answer 2

When a person dies it is necessary to consider two key issues before you can ascertain how, and to whom, their estate will pass:

Whether the deceased left a valid will. If so, they are known as a ‘testator’ and the will determines how their assets are distributed. If not, the intestacy rules are followed. (In some cases, it is necessary to look at both the will and the intestacy rules, because the will does not deal with all the assets that it should.)

The nature of the assets owned by the deceased. Assets capable of passing under a will or by intestacy are referred to collectively as the deceased’s ‘succession estate’or ‘distribution estate’. A number of assets are excluded from the succession estate and are distributed in accordance with their own specific rules.

Question 3

Testacy

Answer 3

If the deceased’s will covers their entire succession estate, they are ‘testate’. Only the will is relevant when determining how to distribute their succession estate.

Question 4

Partial intestacy

Answer 4

If the will does not cover the entire estate, the deceased is ‘partially intestate’. Partial intestacy often arises as a result of poor will drafting rather than intentionally.. The will is followed but the intestacy rules apply to any remaining property.

Question 5

Intestacy

Answer 5

A person who dies without making a valid will is said to have died ‘intestate’. The intestacy rules apply to their entire succession estate.

The ‘intestacy rules’are found in the Administration of Estates Act 1925 (‘AEA’) (as amended by the Inheritance and Trustees’ Powers Act 2014 (‘ITPA’)). They determine who inherits and what each beneficiary receives.

Question 6

Example

Answer 6

Cassie drafted her own valid will which contains only the following gifts:

the house I own at the date of my death to my sister Siobhan
the balance of my Nat West account to my nephew Rylan
Cassie’s succession estate comprises the following assets:

Her house
The balance on a current account at Nat West Bank
Other personal possessions
Siobhan and Rylan inherit the house and bank account respectively under the will.

As Cassie had personal possessions which are not disposed of by the will, she died partially intestate. The personal possessions will pass in accordance with the intestacy rules.

Question 7

Identifying the succession estate

Answer 7

Some types of property that the deceased owned during their lifetime do not form part of the succession estate.

The destination of this property is governed by other rules and therefore will not be distributed under the will or the intestacy rules.

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

This is helpful because it allows you to distribute some assets very early on in the administration of an estate.

The main types of property which will not pass to the succession estate are:

Question 8

Identifying the succession estate

Answer 8

The main types of property which will not pass to the succession estate are:

• Donationes mortis causa
• Discretionary pension scheme benefits
• Insurance policies written in trust
• Statutory nominations
• Property held as beneficial joint tenants
• Some other beneficial interests under trusts

Question 9

Donationes mortis causa

Answer 9

A donatio mortis causa (‘DMC’) is a gift made in contemplation of death. A valid DMC has 3 requirements:

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 10

Example

Answer 10

Kian is in hospital with a terminal illness. He hands his designer watch to his friend, Caitlyn and tells her that he wishes her to keep it if he dies. If Kian dies as expected, the condition is satisfied and Caitlyn becomes the owner of the watch (but if he recovers, she must return it).

Question 11

Example

Answer 11

The watch does not form part of Kian’s succession estate as it has already been validly disposed of.

Discretionary pension scheme benefits. If the deceased was a member of an employer’s discretionary pension scheme then payments made by the trustees will not be included in his or her estate for distribution purposes. These rules only apply to discretionary pension schemes.

Question 12

Pension Schemes

Answer 12

Many pension schemes allow 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 (although in practice they almost always make it).

As payment is entirely at the discretion of the trustees, the deceased is not deemed to have any entitlement to any payment from the scheme and any payment which is made does not form part of the deceased’s estate for distribution purposes.

The benefit of the discretionary pension scheme will be released upon the production of a death certificate.

Question 13

Insurance policies

Answer 13

Insurance policies must be looked at carefully to see whether the proceeds form part of the succession estate.

• If the deceased had a simple life insurance policy, the proceeds of the policy pass to the succession estate.
• If the benefit of the policy was written in trust for another person, the proceeds will not form part of the succession estate. The insured has no beneficial interest under the policy. The proceeds belong to the beneficiaries nominated in the policy and vest on the insured’s death.

Question 14

Life policies can be written in trust in three ways:

Answer 14

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

Question 15

Benefits are released on production of a death certificate.

Statutory nominations

Answer 15

A person can make a nomination in any of the following accounts:

Friendly Society.

Industrial Society.

Provident Society.

The amount nominated cannot exceed £5,000

On the death of the deceased, the monies in the relevant account(s) pass to the nominee rather than under the will or intestacy of the deceased.

The benefit of the nominated account will be released upon the production of a death certificate.

Question 16

Beneficial co-ownership

Answer 16

Joint Tenants

If the deceased was a beneficial joint tenant, the property will automatically pass to the other joint tenant(s) by survivorship.

It therefore does not pass into the succession estate

Tenants in Common

If the deceased was a beneficial tenant in common, they have a separate, divisible share in the trust property which is not extinguished upon their death.

This share will pass into the succession estate.

Question 17

Beneficial co-ownership: The family home

Answer 17

The most obvious (and typically the most valuable) type of property that a deceased owned jointly is the family home.

Land can only be registered at the Land Registry in the name of an individual or up to four joint tenants. It cannot be held as tenants in common at law.

It is important to consider not just the legal ownership but also the equitable and beneficial ownership of the land. Do the legal owners hold the land legally and beneficially, or do they hold it on trust?

Question 18

Beneficial co-ownership: The family home

Answer 18

Even if the land is held by the legal owners as joint tenants, they may have chosen to hold it on trust for themselves (and/or others) as equitable tenants in common.

Usually there will be an express trust declared over the land which sets out the equitable and beneficial ownership. This will be clear from the register of title and will be conclusive.

If there is no such express trust, there may still be an implied trust, so it is important to take particular care when advising on the beneficial ownership of the family home.

Question 19

Beneficial co-ownership: Bank accounts

Answer 19

Another asset which is commonly owned jointly is the deceased’s bank account.

The law relating to joint bank accounts is similar to family homes. The account holders will be legal joint tenants.

The account opening documents will usually make clear that the account is held as beneficial joint tenants. Where there is an express declaration as to the beneficial ownership of the funds in the bank account, that will be conclusive

Question 20

Beneficial co-ownership: Bank accounts

Answer 20

If there is no declaration of beneficial ownership, it will again be necessary to consider whether an implied trust has arisen. Unlike in family homes cases, the doctrine of presumed resulting trusts may still apply here.

The key English law authority on beneficial ownership of joint bank accounts is Aroso v Coutts & Co [2002] 1 All ER (Comm) 241.

Question 21

Other beneficial interests in trust property

Answer 21

If the deceased was a beneficiary under a trust, their beneficial interest will not necessarily form part of their succession estate. It depends on the nature of the interest and whether it survives their death.

We have seen an example of this already with property held as beneficial joint tenants. The right of survivorship applies upon the deceased’s death, meaning their interest no longer exists and cannot be left in their will. In contrast, a tenant in common has a distinct share in the property, which survives their death.

Question 22

Life Interest and Remainder Interest

Answer 22

To take another example, if the deceased was a life tenant under a life interest trust, their beneficial life interest does not form part of their succession estate.

The life interest expires on their death and the remainder interest usually vests in possession.

In contrast, the remainder interest (the future right to receive trust capital) can survive the remainderman’s death 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 23

Distribution of trust property

Answer 23

When identifying a deceased person’s succession estate you would not usually include the value of assets held in a trust in which the deceased had a beneficial interest.

This is 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. For example: - The death of an object of a discretionary trust does not usually result in the distribution of trust assets

Question 24

Distribution of Trust Property

Answer 24

The distribution of the trust fund is at the discretion of the trustees. - The death of a life tenant may trigger a distribution of the trust fund to the remainder beneficiary, but the life tenant does not determine who the remainder beneficiary is i.e. the destination of the assets is not within the control of the life tenant.

An exception would be 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 25

Summary

Answer 25

In order to distribute a deceased’s estate, it is necessary to determine whether they have died testate, intestate or partially intestate.

If the deceased died testate, their will determines what happens to their estate.

If the deceased died intestate, the intestacy rules apply.

If the deceased died partially testate, the will applies to the extent possible and any remaining property is dealt with under the intestacy rules.

Question 26

Summary

Answer 26

The deceased’s succession estate comprises of all property that they own beneficially at the date of their death and are capable of passing to their personal representatives via will or the intestacy rules.

When identifying the succession estate, it is important to look carefully at the nature of any property held on trust, as well as pension scheme and insurance benefits, as these do not always pass to the succession estate. Nor do statutory nominations or donationes mortis causa.

Question 27

Intestacy

Property subject to the intestacy rules

Answer 27

The rules which determine how to distribute the succession estate depend on whether the deceased died testate, intestate or partially intestate.

Testate: The deceased has left a valid will which deals with all property forming part of their estate. The intestacy rules do not apply.

Intestate: None of their property is disposed of by will. The intestacy rules apply to their entire estate.

Partially intestate: Some, but not all, of their property is disposed of by will. The intestacy rules apply to any property which is not disposed of by will.

Question 28

Personal Representative

Answer 28

The personal representatives of an intestate deceased hold the undisposed of property on trust with power to sell under s 33 Administration of Estates Act 1925 (‘AEA 1925’).

Question 29

Entitlement to the estate

Answer 29

Entitlement to the estate on intestacy is based on which relatives survive the deceased. The statutory order of entitlement is set out in s 46 AEA 1925.

If the deceased has been survived by a spouse / civil partner (by at least 28 days) and/or issue, they are the only class of relatives that you need to consider. For the remainder of this element, we use ‘spouse’ as shorthand to mean ‘spouse or civil partner’.

If the deceased leaves no spouse or issue, it is necessary to consider a wider class of relatives. The intestacy rules set out a clear priority order for inheritance here.

Question 30

Issue/Children

Answer 30

Issue means children and remoter linear descendants e.g. grandchildren, and includes those who are legitimate (born to married parents), illegitimate (born to unmarried parents), legitimated (born to unmarried parents who later marry) and adopted children. It includes children who are conceived but not yet born at the date of death.

Question 31

Entitlement of spouse and issue

Answer 31

If the intestate leaves a spouse but no issue, the spouse inherits the entire succession estate absolutely.

If the intestate leaves issue but no spouse, the issue inherit the entire succession estate on the statutory trusts.

If the intestate leaves both spouse and issue, the position is more complicated and depends upon the nature and value of the assets forming the succession estate.

The spouse’s entitlement is dependent upon them surviving the deceased by 28 days (s 462A AEA 1925).

Question 32

Entitlement of spouse and issue

Answer 32

If the spouse does not survive by 28 days, the rules apply as if the deceased was not survived by their spouse. (This means the spouse has no entitlement under the intestacy rules and therefore cannot pass their interest to their own estate.)

This rule is specific to spouses. There is no requirement for any other beneficiary to outlive the deceased by 28 days.

If the intestate leaves a spouse and issue, their entitlements are:

Question 33

Spouse

Answer 33

Personal chattels absolutely.

Statutory legacy of £322,000 free of tax and costs plus interest from the date of death to the date on which payment is made.

One half of the residue (if any) absolutely.

Question 34

Issue

Answer 34

Other half of the residue (if any) on the statutory trusts.

Surviving the deceased

As we have already seen, the spouse’s entitlement under the intestacy rules is dependent upon them surviving the deceased by 28 days (s 462A AEA 1925).

If the spouse does not outlive the deceased by 28 days, the rules apply as if the deceased was not survived by their spouse at all

Question 35

The rule is specific to spouses

Answer 35

This rule is specific to spouses. There is no requirement for any other beneficiary to outlive the deceased by 28 days.

Different rules apply to the issue, who take their interests on the statutory trusts (s 47 AEA 1925).

If they do not survive the deceased, their own issue may still inherit their entitlement under the ‘substitution limb’ of the statutory trusts.

If they do survive the deceased, there is no requirement that they do so by 28 days, but they will need to satisfy the ‘contingency limb’ before obtaining a vested interest.

Question 36

The Statutory Trusts

Contingency Limb

Answer 36

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 37

Substitution Limb

Answer 37

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 (i.e. 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, e.g. before reaching 18.

Question 38

Example 1

Answer 38

A dies intestate, leaving an estate worth £500,000. A has no children but is survived by a spouse, B.

B inherits A’s entire estate under the intestacy rules.

Question 39

Example 2

Answer 39

A dies intestate, leaving an estate worth £500,000. A leaves no spouse but is survived by her daughter, B (18).

B inherits A’s entire estate under the intestacy rules. B’s interest has vested because B is 18.

Question 40

Example 3

Answer 40

A dies intestate, leaving an estate worth £500,000. A leaves no spouse but is survived by her daughter, B (14).

B inherits A’s entire estate under the intestacy rules. B’s interest is contingent upon reaching age 18

Question 41

Example 4

Answer 41

A dies intestate, leaving an estate worth £500,000. A leaves no spouse but is survived by her sons, B (18) and C (14).

B and C share £250,000 each on the statutory trusts. B’s interest has vested. C’s interest is contingent upon reaching age 18.

Question 42

Example 5

Answer 42

A dies intestate, leaving an estate worth £530,000 (including personal chattels worth £10,000). A is survived by a spouse, B and daughter, C (18).

Spouse’s entitlement

B receives:

A’s personal chattels (worth £10,000)

Statutory legacy: £322,000

Half the residue: £99,000.

Question 43

Residue Calculation

Answer 43

£530,000 (net estate) - £10,000 (personal chattels) - £322,000 (statutory legacy) = £198,000

Half residue: £198,000 / 2 = £99,000

Issue’s entitlement

C receives the remaining £99,000. C’s interest has vested because C is 18.

Question 44

Example 6

Answer 44

A dies intestate, leaving an estate worth £500,000. A leaves no spouse but is survived by daughter, B (50). A’s son, C died last year, leaving a son, D (16).

Issue’s entitlement

B and C are A’s issue and entitled to share the estate equally on the statutory trusts.

Each is entitled to £250,000.

B’s interest is vested because she is over 18.

As C predeceased A, D inherits C’s share via the substitution limb of the statutory trusts.

D’s interest is contingent on reaching age 18.

Question 45

Example 7

Answer 45

A dies intestate, leaving an estate worth £500,000. A leaves no spouse but is survived by her daughter, B (50). A’s son C died last year, leaving a daughter, D and son, E (18).

Issue’s entitlement

B and C are A’s issue and entitled to share the estate equally on the statutory trusts.

B receives £250,000: vested because she is over 18.

As C predeceased A, D and E inherit C’s £250,000 share via the substitution limb of the statutory trusts.

D receives £125,000: Vested because she is over 18.

E receives £125,000 contingent on reaching age 18.

Distribution where intestate dies without leaving spouse / civil partner or issue

If the intestate is not survived by a spouse / civil partner or issue, section 46 AEA 1925 sets out the following order of entitlement to the succession estate:

Question 46

Parents

Answer 46

Siblings of whole blood (share both parents) on the statutory trusts

Siblings of half blood (share one parent) on the statutory trusts

Grandparents

Uncles and aunts of whole blood (whole blood siblings of a parent) on the statutory trusts

Uncles and aunts of half blood (half blood siblings of a parent) on the statutory trusts

The crown as bona vacantia

Where there is more than one person in the relevant category (e.g. if the intestate is survived by both parents), the succession estate is divided equally.

Question 47

Example 1

Answer 47

A dies intestate, leaving no spouse or issue. A is survived by mother, B and sister, C.

B is highest in the statutory order so is entitled to the entire estate. C has no entitlement as siblings rank below parents in the statutory order.

H dies intestate, leaving no spouse or issue. A is survived by his grandfather, D, aunt F and cousin, G.

D inherits the entire estate under the intestacy rules. F and G have no entitlement because they are lower in the statutory order.

Question 48

Example 2

Answer 48

D dies intestate, leaving no spouse or issue. D is survived by brother, F. D’s sister E died last year, leaving children, G(7) and H (18).

If E and F had both survived D, they would share the estate equally on the statutory trusts.

F is over 18 so the contingency limb is satisfied. F has a vested interest in half the estate.

As E predeceased D, the substitution limb applies.

G and H take E’s half share equally (i.e. they each receive a quarter of the estate).

H has a vested interest as they are over 18. G’s is contingent because they are under 18.

Question 49

Putting it all together

Answer 49

You should now be able to put all these rules together and work out how to distribute any intestate estate. Use the following structure:

Step 1

If there is a surviving spouse, work out their entitlement first.

Step 2

If the deceased left issue, work out their entitlement (if any).

Step 3

If the deceased did not leave a spouse or issue, identify who is next in the statutory order and work out their entitlement.

Question 50

Example 1

Answer 50

A dies intestate. She is survived by her spouse, B and children, C (21), D (18) and E (16). A’s net estate has been valued at £579,000 and includes personal chattels worth £5,000.

Stop and calculate how A’s estate will be distributed before moving on to the next page, where you can check your analysis.

Question 51

STEP 1: Spouse’s entitlement

Answer 51

A was survived by her spouse, B. If B survives A by 28 days, B receives:

Personal chattels: £5,000

Statutory legacy: £322,000

Half of the residue: £126,000

Residue calculation

£575,000 (net estate) – £5,000 (personal chattels) - £322,000 (statutory legacy) = £252,000

Half residue = £252,000 / 2 = £126,000

In total B receives assets worth £5,000 + £322,000 + £126,000 = £453,000

Question 52

STEP 2: Issue’s entitlement

Answer 52

A’s issue take the remaining half of the residue on the statutory trusts.

Each of C, D and E (A’s children) each have an interest in one third of the remaining £126,000 (i.e. £42,000 each).

C (21) has a vested interest. The contingency is satisfied because C is over 18.

D (18) also has a vested interest. The contingency is satisfied because D is 18.

E (16) has a contingent interest. E’s interest will vest upon reaching age 18.

Question 53

Example 2

Answer 53

A dies intestate. She is survived by her spouse, B and two adult children, D and E. Her daughter, C died last year, leaving two children, F (18) and G (4). A’s net estate has been valued at £596,000 and includes personal chattels worth £10,000.

Stop and calculate how A’s estate will be distributed before moving on to the next page, where you can check your analysis.

Question 54

STEP 1: Spouse’s entitlement

Answer 54

A was survived by her spouse, B. If B survives A by 28 days, B receives:

Personal chattels: £10,000

Statutory legacy: £322,000

Half of the residue: £132,000

Residue calculation

£596,000 (net estate) – £10,000 (personal chattels) - £322,000 (statutory legacy) = £264,000

Half residue = £264,000 / 2 = £132,000

In total B receives assets worth £10,000 + £322,000 + £132,000 = £464,000

Question 55

Issue Entitlement

Answer 55

A’s issue take the remaining half of the residue on the statutory trusts.

D and E (A’s surviving children) each have a vested interest in one third of the remaining £132,000 because they are over 18 (£44,000 each).

As C (A’s deceased child) predeceased A, the substitution limb applies to C’s 1/3 share.

F (18) has a vested interest in half C’s share (£22,000).

G (4) has a contingent interest in the other half of C’s share (£22,000). G’s interest will vest upon reaching age 18.

Question 56

Distributing Assets

Answer 56

As we have already seen, if the deceased was survived by their spouse, the spouse will be entitled to receive the personal chattels.

The remaining beneficial entitlements (i.e. the £322,000 statutory legacy) and the residue are distributed at the discretion of the personal representatives.

There is no obligation to distribute particular assets to particular individuals. It is up to the personal representatives to appropriate assets as they see fit, in fulfilment of the individuals’ entitlements.

There is a statutory definition of ‘personal chattels’ in s55 AEA 1925.

It means “tangible movable property” but excludes the following:

Question 57

Money or securities for money

Answer 57

Property used by the intestate at their death solely or mainly for business purposes

Property held at the death of the intestate solely as an investment:

Appropriation of the marital home

The surviving spouse of the intestate will clearly be concerned about what happens to their shared home.

If they held the home as beneficial joint tenants, this is not a problem because the right of survivorship will apply.

If the deceased was the sole owner of the home, or a beneficial tenant in common, the deceased’s interest will form part of the succession estate and will be distributed in accordance with intestacy rules

Question 58

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

Answer 58

However, they may make an election which enables them to appropriate the home in full or partial satisfaction of their statutory entitlements (Schedule 2 Intestate Estates Act 1952).

In effect, they have the right to ‘buy’ the deceased’s share of the property from the personal representatives using the money they would have received from the estate.

The surviving spouse / civil partner must make an election in writing to the personal representatives within 12 months of the date of the grant. During that period the personal representatives cannot normally sell the home without the spouse’s consent.

Question 59

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

Answer 59

Where their entitlement under the intestacy rules is lower than the value they are appropriating (e.g. where the home is the only or main asset of the estate) the spouse / civil partner must pay the difference from their personal funds. The home is valued as at the date of appropriation not the date of death.

There are some restrictions on the right to appropriate. 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 60

Summary

Answer 60

The intestacy rules are relevant where the deceased has not left a valid will (intestacy) or their will does not dispose of their entire estate (partial intestacy).

S 46 AEA sets out the statutory order of entitlement to the estate:

The deceased’s spouse and issue are the highest ranking class of relatives.

If the deceased left a spouse but no issue, the spouse inherits the estate.

Question 61

Summary

Answer 61

If the deceased left issue but no spouse, the issue inherit the estate on the statutory trusts.

If the deceased left a spouse and issue, the spouse is entitled to the personal chattels, a statutory legacy of £322,000 and half the residue (if any). The issue receive the other half of the residue (if any) on the statutory trusts.

If the deceased leaves no spouse or issue, the estate passes to the relative(s) who rank highest in the statutory order. Relatives other than parents and grandparents take on the statutory trusts.

The deceased’s spouse has a statutory right to appropriate the marital home in satisfaction of their entitlement under the intestacy rules.