Statutory Legacy – All Change

The marketplace is awash with research that shows over 60% of UK adults do not have a will. This means that if these adults die, they will die intestate, and their estate will be distributed according to the law of intestacy. In short this means that your estate will not be distributed in the proportions that you would have wanted. Perhaps that is the cost or price of not deciding or as often echoed by leading SE London business guru, “ignorance is not bliss, it costs the community dearly”.

The truth in this comment becomes somewhat clearer when placed in the context that one in three families in the UK are blended. This is a shift from the era of the nuclear family. Blended families are combinations of parents and/or partners with children from previous relationships. This is important given the change that took place with the statutory legacy on 23rd July 2023.

The statutory legacy is the the fixed net sum which the surviving spouse or civil partner is entitled from the estate of their deceased spouse or civil partner if they die without a valid will (intestate). Last month this was increased from £270,000 to £322,000. The increase especially in this period of economic challenges is wholly good news to help out families. Moreover, this is exactly the rationale behind the increase by the government increase of £52,000 in accordance with statute governing the statutory legacy.

However, one person’s gain is another person’s loss. This is exactly what may arise with this increase in the statutory legacy, if the 60% or so adults don’t make wills especially those in blended families.

This is readily evident from a recent blended family case prior to the July statutory legacy change. A spouse who died intestate was the sole owner of the £1m marital home. The deceased had two adult children from a previous relationship. The couple did not have any children together, nor did the surviving spouse have any children from any previous relationships.

The surviving spouse received a statutory legacy of £270,000. In addition, the spouse also was entitled to 50% of the remaining £730,000 from the deceased’s estate. In total the spouse received £635,000. The deceased’s children have received in total £365,000 to share.

The impact of the increase in the statutory legacy on 23rd July 2023, would have resulted in the surviving spouse receiving a larger sum from the estate of her deceased spouse and less to the deceased’s children.

The surviving spouse would have received the increased statutory legacy of £322,000 plus 50% of the remaining £678,000. A total of £661,000. The children would have received only £339,000. The change in the statutory legacy has led to the surviving spouse receiving an additional £26,000. However, this has left the children £26,0000 worse off! Hence reflecting one person’s gain is another person’s loss.

The increase in the statutory legacy is most welcomed to assist surviving spouses and household as they come to terms with their loss. The legislation like most legislation concerning finances leaves one group in a less advantageous position. However, members of blended families can avoid the negative effects of the new statutory legacy by being proactive and making a will. Thus reducing the 60% of UK adults without wills.

The major benefit of having a valid will especially for blended family members is, on your death your assets go directly in accordance with your personal requests and not determined by statutory legislation.

On reflection, maybe policy makers may accept the decades of the static £325,000 nil rate band plus the accelerating house prices in London and the south-east has dragged more UK adults’ estates into the IHT net when they die. It is just a thought.