July 15, 2008 | posted by Pam Atherton in House prices, Investments, Taxation |

The antiquated rules which apply to the estates of people who die intestate urgently need updating if they are to reflect today’s property values and lifestyles.

 Currently, if you die intestate (without a will) in England or Wales, and are legally married or in a registered civil partnership, your spouse or partner will inherit only the first £125,000 of your estate, plus possessions. Different rules apply in Scotland and Northern Ireland.

 If there are children, your spouse or civil partner will receive the first £125,000, personal possessions and the right to income from half of the rest of the estate. The rest passes to the children.

If there are no children, but your parents are still alive, your spouse or civil partner will receive the first £200,000 of the estate, plus half the balance, and the rest goes to your parents.

The same applies (as above)  if your parents are dead, but you have siblings.

It is only in the unlikely event that you have no surviving parents or siblings that your spouse or civil partner will receive everything.

These rules have meant that bereaved spouses have been left with inadequate funds to live on because their deceased spouse’s estate over £125,000 has gone to the children who may have to pay inheritance tax at 40 per cent.

This has recently led to a mother having to sue her own children for a larger share of the assets because her husband died intestate and the bulk of his estate passed to her two dependant children.

According to the National Consumer Council, only one in five parents writes a will, demonstrating the degree of ignorance in the general population about the law of intestacy.

However, the position is even worse for the unmarried partners of individuals who die intestate. In this case, if there are no children, the estate goes to the parents, or if they are not alive, to any brothers and sisters.

If you are not married and have children, the estate is shared between offspring. This often comes as a complete shock to individuals who may have been in an enduring relationship and have children, but who never got married or registered a civil partnership.

The surviving partner is entitled to nothing. The term ‘common law’ wife or husband has no standing in terms of inheritance rights.

The £125,000 limit was set in 1993 and has long been overdue for updating, given the huge increase in UK property values in the last 15 years and the fact that 40 per cent of children in the UK are born out of wedlock.

Another pitfall is that it is only spouses and civil partners who have any exemption from inheritance tax, so if dependant children inherit directly from a deceased parent, they may well  be liable to pay inheritance tax at 40 per cent, which might trigger the sale of the family home.

For more on inheritance laws visit: The Society of Trust and Estate Practitioners website: www.step.org

Read our guide on inheritance tax:http://www.defaqto.com/consumer/investments/tax/inheritance-tax.aspx