New intestacy and trust rules have come into effect

Thu 09 Oct 2014

The Inheritance and Trustees’ Powers Act 2014 (ITPA 2014) which came into force on 1 October 2014 includes changes affecting how:

• intestate estates are distributed; and
• trustees can distribute income and capital to beneficiaries

These changes apply to individuals domiciled in England and Wales at date of death.  The changes are of no relevance to intestate deceased individuals domiciled in Scotland or Northern Ireland, or to trusts established under the laws of Scotland or Northern Ireland.

Intestacy rules

These are the main changes that have possible tax consequences:

New definition of chattels: “personal movable property”

This change has potentially the greatest effect because certain items which would have passed to the surviving spouse or civil partner under the old law do not do so now. The term “personal movable property” replaced “chattels” in the Administration of Estates Act 1925.

The change in the definition of chattels may affect the tax liabilities.

This affects married couples with children because investment assets that do not fall within the statutory legacy will form part of the residuary estate. This could be particularly important in the case of individuals who own movable property solely as an investment (which could include, say, classic cars, works of art, stamp or coin collections or antiques) and have not made wills.

”Chattels” definition affects wills as well as intestacies

Individuals whose wills dispose of their chattels on the assumption that the term includes all their investment assets now such assets risk falling into residue which may even mean that intestacy rules apply.

Trustees’ powers of appointment

Trustees now have greater freedom to distribute trust assets. In particular trustees:

• may distribute all, rather than half of a beneficiary’s presumptive share; and
• are no longer obliged to consider the beneficiary’s wider circumstances when deciding whether to pay out income.

Some trusts already contain specific provisions giving trustees those powers but not all.

Is your will up to date?

These changes reinforce the need for individuals to:

• have properly drafted wills;
• review them regularly; and
• review them whenever a significant life-event occurs, such as marriage, divorce, having children, retirement or starting a business: in fact any event that has an effect on the nature or size of their wealth and whom they may wish to pass it on to.