It is widely accepted that the law governing succession to a Scottish individual’s property is outdated and that reform is required to reflect changes in society.
The current position
The Scottish law governing the distribution of an individual’s personal estate has remained largely unchanged over the last 50 years. Statutory default rules in the Succession (Scotland) Act 1964 set out the distribution of an individual’s estate if they were to die with no will in place. Common law also provides a degree of protection from disinheritance under the deceased’s will for the deceased’s surviving spouse and children.
How the succession rules will apply in practice to an individual’s estate will depend upon a number of factors, including where the deceased was legally domiciled, the moveable assets (i.e. chattels, cash, investments, etc.) and heritable assets (i.e. land and buildings) in the deceased’s estate, the deceased’s marital status and family circumstances and the existence of a valid will.
A Scottish domiciled individual can’t leave his property entirely as he or she wishes and Scots law provides protection to a surviving spouse and children. Leaving aside for present purposes the position where the deceased dies without a will, where an individual’s estate is subject to the Scottish rules of succession the surviving spouse/civil partner and children have an automatic entitlement to “legal rights” which if exercised will override the terms of the will. The surviving spouse and children must, however, decide whether to benefit under the terms of the will or make a legal rights claim as it is not possible for them to benefit twice.
Legal rights are an extremely important concept in Scottish succession law and Scots law is almost unique in restricting succession rights to the moveable-only assets of a deceased’s estate.
A surviving spouse is entitled to one-third of the net moveable estate where there are surviving children with the proportion increasing to one-half where there are no children. Children are also entitled to claim the same proportions in the deceased’s net moveable estate with the level increasing again from one-third to one-half if there is no surviving spouse. Legitimate, illegitimate and formally adopted children are all given the same rights to the deceased’s estate. A formally adopted child may, however, only claim their legal rights over their adopted parents’ not their natural parents' estates.
Legal rights are in the nature of a debt on the estate to be satisfied from the deceased’s moveable estate only and should be taken into account when calculating any inheritance tax due. The claimant cannot demand the transfer of specific assets or part of the estate to satisfy their legal rights claim.
This is in contrast to the rules of succession for England and Wales where there is no automatic entitlement to benefit under the deceased’s estate where they have left a will. It is instead open to certain family members or other dependents of the deceased to make a claim through the courts under the Inheritance (Provision for Family and Dependents) Act 1975 to benefit from the estate on both intestate and testate succession.
The succession rules for Scottish domiciled individuals therefore enable land and buildings to be passed by will without challenge, as legal rights in Scotland currently only apply to the deceased’s moveable assets. In the extreme case a deceased may have owned little other than heritable property, leaving less to be subject to legal rights.
When announcing its forthcoming legislative programme on 26 November 2014, the Scottish government stated that it would:
“Introduce a Succession Bill to ensure that the law in this area is fairer, clearer and more consistent. We also plan to consult in the coming year on further legislation on succession which will aim to radically overhaul the current law in this area. As part of this modernisation the distinction between movable and immovable property would be removed to give children, spouses and civil partners appropriate legal rights over both forms of property. This should ensure a just distribution of assets among a deceased's close family to reflect both societal change and expectations. These changes will be an important aspect of our series of measures in respect of Land Reform.”
This bill is likely to be based on the 2009 report of the Scottish Law Commission (SLC) which proposed sweeping reforms to the Scottish law of succession.
There will be new rules to set out what a surviving spouse and children can inherit in the event of someone dying without having left a valid will in place. The SLC proposed that legal rights of a surviving spouse and civil partner will be revamped and called a “legal share” amounting to 25% of what he or she would have inherited if the deceased has died without a will. Legal rights of children may be replaced, but no firm recommendation was made as to what by, the decision to be left to the Scottish parliament. One option put forward was that all the deceased’s children would, like a surviving spouse/civil partner, also have the right to a legal share being 25% of what they would have received on intestacy.
What has caught national media interest is the proposal that the deceased’s moveable and heritable property would both be taken into account when establishing the surviving spouse and children’s entitlements to a legal share, and that there should be no special exclusion from claims to legal share for businesses such as farms and estates. Perhaps in those circumstances the best that may be enacted is that executors would have power to apply to the Sheriff Court for legal shares to be paid in instalments.
This has raised serious concern amongst some farm and estate owners who see the measure as likely to lead to larger areas of land which have high capital values but generate low levels of income being unable to support multiple owners and the levels of investment required, and farms and estates being broken up into smaller units to pay out in cash the claimants of legal shares. On the other side of the debate, this is welcomed by the Scottish government and others as an important contributor to increasing the spread of ownership of land in Scotland.
The assimilation of moveable and heritable property for succession claims may equally prove problematic where someone dies leaving a house and little else in the way of other property. Under legal rights as they currently operate, a surviving spouse might inherit the house through the will, ensuring ongoing security in the family home. That may not be possible where children claim legal share and the value of the family home is taken into account.
The Scottish government will be consulting on the terms of the bill once it is published. It is hoped that these more difficult issues relating to succession claims can be resolved in the light of that consultation.
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For further advice, please contact Colin Henderson or Martin Campbell, or speak to your usual Anderson Strathern contact. We would strongly recommend that you seek specialist advice tailored to your own circumstances before taking any action.