No-one likes to think about their death, so it is perhaps understandable that many people put off drafting their will, and some die without having made a will. Death and intestacy If an individual dies without making a will, the estate is subject to distribution in accordance with the laws of intestacy, in the Administration of Estates Act 1925 (NB this article considers the law in England and Wales; different provisions apply in Scotland and Northern Ireland). This means that an individual’s estate might not be inherited by the ‘right’ beneficiaries.
Example: Married with Children
A married couple, Bill and Carol, live in London. They have two adult children, David and Ellie. The estates of Bill and Carol are each worth £1.5m. They assumed (incorrectly) that if they died without leaving a will, the estate of the first spouse to die would pass automatically to the surviving spouse.
Sadly, Bill died in January 2024, intestate. The law requires that Bill’s estate is distributed so that Carol receives all Bill’s personal belongings, plus a statutory lump sum of £322,000, and half of Bill’s residuary estate. The other half of Bill’s residuary estate passes for the benefit of David and Ellie. In the above example, the distribution of Bill’s estate could cause problems, e.g., if Bill owned the marital home and it constituted nearly all the value of his estate. Not only would the marital home fail to pass automatically to Carol, but there would be an immediate inheritance tax (IHT) liability on that part of Bill’s estate passing to David and Ellie (see below) in excess of Bill’s IHT nil rate band, if available. By contrast, if Bill and Carol had no children, on Bill’s death Carol would have received Bill’s entire estate (mainly comprising the marital home).
IHT and Death
On death, an individual is treated as making a transfer of their whole estate immediately before death, and IHT is charged accordingly. The IHT liability will depend (among other things) on the identity of the estate beneficiaries; in other words, whether the recipient is a ‘chargeable person’ (such as a son or daughter) or an ‘exempt person’ (such as a UK domiciled spouse, or charity). However, if (as in the above example) the deceased’s estate is not distributed as intended due to the intestacy rules, all is not necessarily lost. An ‘instrument of variation’ (IOV, commonly referred to as a ‘deed of variation’) could be considered. If certain conditions are satisfied (e.g., the IOV is made within two years of death), it is generally treated for IHT purposes as if a redirection of property that formed part of the deceased’s estate had been made by the deceased (IHTA 1984, s 142).
Practical Tip
Aside from IHT, there are several advantages of leaving a will, rather than dying intestate. These include the ability to choose executors and to act immediately after death; getting the beneficiaries’ identity right (i.e., in accordance with the deceased’s wishes) and at the right time or age; and being able to determine legacies (i.e., the recipient and amount), rather than having recourse to the intestacy rules. The drafting of a will (or an IOV, if appropriate) should be undertaken by a suitably qualified and experienced professional.
