Inheritance and Trustee Powers Act 2014

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    As you can see from the certificate, I have studied the subject matter and passed with 100% so have, yet again, been awarded an hour’s CPD, this is so that you can have complete confidence in my ability to write your wills for you and point out issues that you may need to be aware of during the process.

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    Introduction of the Inheritance and Trustee Powers Act 2014

    The Society of Will Writers August 2014 CPD paper is intended to inform members of the changes in law which are being introduced under the Inheritance and Trustee’s Powers Act 2014’ (ITPA 14).

    The ITPA 2014 received royal assent on the 14th of May 2014 and will be in force from the 1st of October 2014 and this act brings significant changes which relate to estate planning. These changes are in relation to the following, i.e. the intestacy procedures/rules, the changes with regard to family provision claims against an estate and finally the changes of advancement powers of Trustees Act 1925 which have been amended.

    The main changes made by the ITPA 2014 are that it will amend already existing legislation as listed below:

    1) Administration of Estates Act 1925 (AEA 1925)
    2) Inheritance (Provision for Family and Dependants) Act 1975 (IPFDA 1975)
    3) Trustee Act 1925 (TA 1925)

    In summary, these amendments will simplify the sharing of assets upon an intestate’s estate. These changes will recognise more modern family structures upon intestacy and with regard to claims against an estate, will revise the definition of what is a ‘personal chattel’ and will revise powers granted to trustees in relation to how they apply income and capital for the benefit of the trust beneficiaries.

    The first change is with regard to the Intestacy rules which are mainly governed by the Administration of Estate Act 1925 under sections 46-48. The present law on the distribution of the estate upon a death intestate is laid out in a table in the Administration of Estate Act 1925. The aim of the ITPA 2014 is to simplify this table in the following ways.

    The first major change is with regard to the rules of intestacy and if the current system was based around a fair system which meets a modern society. The Law Commission considered the distribution of an intestate’s estate between certain beneficiaries under the existing rules to establish if this meets the needs of those family members left behind.

    The Law Commission on review of the current intestacy rules, examined the entitlement of each class as to who would receive a benefit from the intestate’s estate, as defined by section 46 of the Administration of Estate Act 1925 and considered if this was deemed to be a viable system which was robust enough to meet the needs of a modern society.

    The Law Commission on examining the rules decided that the current legislation did have some shortfalls, in that the system can in some circumstances cause potential classes either a loss of control or total exclusion.

    The first amendments to be introduced under the ITPA 2014 focused on the amount a remaining spouse would receive on their spouse’s death. The first category examined a surviving spouse of the deceased, where the deceased does not leave any children but the deceased does leave other family members and has been seen to cause problems in the past, however it was reported by Law Commission this only affected a small number of intestate cases.

    Under the current rules if an intestate dies leaving a spouse or civil partner with no issue their total estate will only pass to their spouse if the estate is under £450,000, if the estate is over the amount of £450,000 in the current rules the surviving spouse will share these funds between surviving relatives of the deceased.

    The major change under the ITPA 2014 is the entire estate will pass to the surviving spouse rather than giving a portion to the deceased’s surviving parents as is currently given. The above would mean a surviving spouse could in some events not inherit all of their spouse’s estate through the current rules of intestacy and to retain a full TRNB from the deceased estate.

    If the deceased is survived by a spouse and children or other issue (grandchildren for example) the surviving spouse will receive all personal chattels and a statutory legacy of £250,000 plus half of the residue of the estate above that statutory amount. This was still seen by the Law Commission to provide adequate protection for the spouse and the deceased children.

    The Law Commission also commented that interest which was accrued on the amount on the estate above the statutory figure should be fixed at the interest accruing at the Bank of England base rate at death from the date of intestate’s death, rather than the 6% interest rate which is deemed not to be achievable.

    The surviving children or other descendants will take the other half of the residue. Previously the half of the residue taken by the spouse was on a life interest trust (unless the surviving spouse elects to take the capital) whereas now that amount will go to the spouse absolutely without the need to make an election.

    The £250,000 statutory legacy to the spouse may be altered by the Lord Chancellor from time to time and must be reviewed every five years. Generally speaking it will increase in line with the Consumer Price Index and be rounded up to the nearest £1,000.

    The second category which was examined was the problems which occur with unmarried fathers of children, where the deceased’s parents were unmarried when a child dies intestate there is a rebuttable presumption that the deceased’s father and father’s family did not survive the deceased.

    The ITPA 2014 disregards this presumption where a person is recorded on the child’s birth certificate as a parent other than the mother. This being the case an individual with two female parents as a result of fertility treatment born on or after 6 April 2009 would have rights under an intestacy that they would not otherwise have had.

    Also the Law Commission also examined the definition of personal chattels and as a starting point Administration of Estate Act 1925 under section 55 (1) (x) currently contains a list of items which are to be regarded as personal chattels.

    The current definition includes things as varied as “Carriages”, “stable furniture” and “scientific instruments”. The Law Commission regarded the old definition to be outdated and therefore the ITPA 2014 has boiled this provision down to simply “Tangible movable property”.

    The Law Commission is looking to substitute a new definition of personal chattels. This is now defined as tangible moveable property except for property: (a) consisting of money or securities for money, (b) used at the death of the intestate solely for business purposes, (c) held at the death of the intestate solely as an investment.

    The type of examples which fall under the excluded personal chattels within the new definition of personal chattels will be either business or as an investment. So, for example, if the deceased were a fisherman the fishing boat used in his business would not pass to his wife on death if he was to die intestate, whereas if the boat were one owned purely for personal use this would pass to her under intestacy. This point was established in the case of Re MacCullochs Estate to establish how the court should interpret if chattels are actually business assets.

    Alternatively if the deceased had purchased a valuable bottle of wine in the hope that it would increase in value and so could be sold to realise a profit, this would be an item held as an investment and therefore would not pass to the spouse. Compare this to the situation whereby the deceased simply loved to drink wine for recreation; those bottles she would have drunk for her own enjoyment will pass to her spouse upon her death intestate. The definition of Chattels within Administration of Estate Act 1925 is applied to wills also and will therefore need to be considered by those drafting them in the future.

    The new definition of personal chattels is defined under section 3 of the ITPA 2014 and is shown below:

    Definition of “personal chattels”

    For paragraph (x) of section 55(1) of the Administration of Estates Act 1925 (definitions) substitute—“(x) Personal chattels” means tangible movable property, other than any such property which—

    1) consists of money or securities for money, or
    2) was used at the death of the intestate solely or mainly for business purposes, or
    3) was held at the death of the intestate solely as an investment:”.

    If a will or codicil containing a reference to personal chattels defined (in whatever form of words) by reference to section 55(1)(x) of the Administration of Estates Act 1925 was executed before the coming into force of subsection (1), then unless the contrary intention appears, subsection (1) is to be disregarded in interpreting the reference to personal chattels.
    Section 4 of the Act will make amendments to the Adoption and Children Act 2002, the effect of which will be to remove the present legal anomaly which can deprive adopted children of an inheritance to which they are already entitled, before their adoption, or a contingent basis. This change will, of course, only affect those who are adopted after the death of a parent.

    The Law Commission also examined Inheritance (Provision for Family and Dependants) Act 1975 and examined if there needs to be any reform in this area, the following are the suggestions which came from the Law Commission.

    The first change is with regard to the longstanding ambiguity within the authorities as to whether it was possible to bring a claim under the 1975 Act before a grant of representation, this has now been removed. Section 4 is amended to expressly spell out that a claim can be brought before the grant.

    The amendments within the new act are to resolve the so-called “negligence trap” in section 9 of the 1975 Act. This has also been removed. Section 9 is the provision which allows the deceased’s severable share in property held under a joint tenancy (and which has necessarily therefore passed by survivorship) to be treated as part of the deceased’s net estate for the purpose of facilitating financial provision.

    The power in section 9 is only available if the application for provision was made within 6 months of the grant of representation and so even if the court extends time under section 4 (allowing the claim generally to be brought more than six months after the grant) the court cannot exercise its section 9 discretion.

    This distinction between sections 4 and 9 has caught out many unwary practitioners and will now be removed. The 2014 ITPA changes will now permit the court to exercise the section 9 power even where the application was made more than six months after the grant of probate (if the court has given permission for the application to be made under section 4).

    The new law also now recognises that a family unit may exist outside of what we consider to be traditional family roles. The ITPA 2014 now allows for an IPFDA 1975 claim to be brought by a person who was treated as a child of the deceased person regardless of whether that relationship had arisen because of the marriage of any person in that unit or not.

    This includes the situation where the family consists simply of the deceased and that person. So, we can imagine a situation whereby the deceased was the unmarried partner of the parent of that child. The child will now have a right to make a claim against the estate as though they were a child of the deceased even if their own parent had passed away prior to the death of the deceased.

    In relation to married couples the “deemed divorce” provisions in subsection 3(2) (requiring the court, in claims by a spouse, to have regard to the award that a court would have made in proceedings for “ancillary relief” i.e. had the marriage ended in divorce) words are added to make clear that this exercise is not to be regarded as setting either a lower limit or an upper limit on the level of any award under the 1975 Act. This was, already the position which was developed in case law as established in Baker v Baker (the divorce comparison case) as taking some form of legal footing.

    However the Law Commission was keen to make the practitioner aware of the above and to ensure this point should be considered to be the lower level of an award and not relied upon as absolutely payment to the spouse.

    The act also looked to examine the relationship held between a dependant as previously, a person making an IPFDA 1975 claim as a dependant of the deceased would need to show that the deceased had contributed significantly to the relationship between them to the point that, in general terms, the deceased had “put in” to their relationship greater than 50% of the contributions between the two, financially speaking.

    The implementation of ITPA 2014 means that this “balance sheet” approach is no longer necessary – the test will now revolve around whether or not the deceased made a substantial contribution to the needs of the individual making the claim. Naturally this does not extend to a commercial situation where the deceased’s contributions were for valuable consideration such as if the claimant was a lodger of the deceased.

    There has also been changes to the following section 1(3) of the 1975 Act which has also been amended to remove the need for a “balance sheet” assessment of the respective contributions of the deceased and the applicant. Subsection 1(3) operates with, and qualifies, section 1(1)(e) which permits a person to make an application under the Act if immediately before the death of the deceased he was being maintained, either wholly or partly, by the deceased.

    The amended section 1(3) provides that a person shall be treated as being maintained by the deceased if the deceased was, otherwise than for full valuable consideration, making a substantial contribution towards that person’s reasonable needs.

    The authorities on the words “otherwise than for full valuable consideration” presently require the court to balance the contribution made by the deceased towards the needs of the applicant against any benefits flowing the other way (even if the applicant and the deceased were living in an interdependent domestic relationship). If the “balance sheet” shows that the applicant contributed more to the deceased than vice versa, then the applicant cannot be said to have been maintained by the deceased and a claim brought under section 1(1)(e) will fail.

    The amended section 1(3) will still require the deceased to have been making a substantial contribution towards the reasonable needs of the applicant but the words “otherwise than for full valuable consideration” are now omitted. A narrower exception is retained for any contribution that was made for full valuable consideration pursuant to an arrangement of a commercial nature. Contributions made between people in a domestic context, however, should no longer be weighed against one another.

    Paragraph 5 of Schedule 2 to the ITPA 2014 Act makes a number of amendments to the all-important section 3 of the 1975 Act. Section 3 is, of course, significant because it sets out the matters to which the court is to have regard when considering claims under the Act and so is invariably central to the determination of any claim.

    The Law Commission also looked at the powers under the Trustee Act 1925 (TA 1925) with regard to both income and capital advancements as mandated under sections 31 and 32 of the 1925 act.

    The power given under the current act allows the trustee to apply half of the income and capital of a beneficiary’s entitlement under a trust for the maintenance of that beneficiary, this has been extended by ITPA 2014 to apply to the whole of that beneficiary’s entitlement to all of the trust assets.

    The above provision would not really contain much for the modern will writer, as most wills and trusts have included an express clause which override the current provisions under section 31 and 32. Those individuals who use the STEP provisions be it the 1st or the 2nd edition already include provisions which override the fore mentioned effect of section 31 and 32 of the Trustee Act 1925. The change in the legislation is aimed mainly for the statutory trusts which are included under the effects of intestacy.

    This change will affect trusts created after the commencement date of 1 October 2014. This means that, should they consider it prudent, Trustees may apply the entirety of a trust allowance toward the schooling of a beneficiary without the obligation to retain half of those assets for the beneficiary to take at a later date.

    Conclusion

    The overarching considerations to come from these changes are varied. However, there are some primary practical considerations to be borne in mind. Such as where wills are drafted following the commencement date, the drafter should consider whether the definition of chattels fall within Administration of Estate Act 1925 and is sufficient to the end that the testator wishes to achieve – for example bearing in mind the illustrations of the fishing boat or the valuable wine given above, a testator would now need further drafting to achieve the application of those items should he wish them to pass alongside his other personal possessions.

    Those without wills should consider whether they would be happy for their estate to be distributed in line with the new intestacy rules. Perhaps taking into account that, should their parents survive them, those parents would receive nothing should the deceased also leave a surviving spouse.

    Individuals should also now consider who may be deemed to be their dependant, and therefore eligible to make a claim under IPFDA 1975 against their estate. It may be that the testator should now make a statement of non-provision in order to explain why such a person has not been made any allowance for under a will.

    The above is simply an overview of the main changes brought about by ITPA 2014. There are some further alterations which are simply too detailed to go into here but this article should act as a flag to those who think they may be affected to seek further advice or for advisers to take instructions on the matters discussed.

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    About Matt Walkden

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