Intestacy law reform and the lessons from North America

Early this year the Scottish Government issued a consultation document with the objective of reforming the intestacy rules that are considered to be unfair. The Scottish Parliament passed the Succession (Scotland) Act 2016 covering matters relating to wills, but a further consultation has taken place on the law concerning intestacy, despite a report of the Scottish Law Commission in 2009.

That report criticised the current rules because of their complexity and because the types of assets in the estate affect the outcome. It proposed a simplified scheme for dealing with intestate estates: see Scottish Law Commission, Report on Succession (Scot Law Com no 215).

The consultation set out two possible models for amending the intestacy law. One was based on the US states' “community property approach”; the other on the “threshold” approach derived from rulings of the courts in British Columbia. Each of these needs to be evaluated to understand its practical dimension in distributing property of the deceased on their death.

Existing rules stipulate that after the payment of debts, what remains of the estate is distributed in accordance with the Succession (Scotland) Act 1964, s 2. After prior rights have been met, the estate is distributed according to legal rights, which can only be claimed from the deceased's moveable property, and then the scheme for the residue of the estate. The surviving spouse or civil partner's prior rights comprise the right to the home in which they are living up to a value of £473,000, furniture to a value of £29,000, and the sum of either £50,000 or £89,000, depending on whether the deceased left children.

Where an individual who was domiciled in Scotland dies intestate, a surviving cohabitee may bring a claim for financial provision from the deceased’s estate. However, these rights are not automatic but involve an application to the court under s 29 of the Family Law (Scotland) Act 2006, whereby a cohabitant, within the meaning of s 25, has a right to make a claim on their deceased cohabitant's estate within six months from the date of death, where there is no will. Cohabitants have no rights where the deceased left a will, and the Scottish Law Commission highlighted that s 29 needs to be reformed: Report on Succession, above.

There is an argument that the matrimonial property law that applies in the event of divorce should be reconsidered for inheritance law, on the basis that it would circumvent the present efforts to prioritise a spouse's entitlement on death. This may be more feasible way of distributing a family property between, for instance, the claims of a second spouse after a brief marriage in competition with children of a previous lengthy marriage that had been responsible for accumulating most of that property (D Reid, “From the cradle to the grave: politics, families and inheritance law”, Edinburgh Law Review, 12 (3) (2008), 391-417).

Selection of an overseas model

The choice facing the Scottish legislators is between adopting the community property regime that some states of the US have implemented, and the threshold option which is part of the intestacy rules in Canada.

(1) Community property model

The community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington. These jurisdictions initially treated widows differently from widowers: if the wife died first, all community property went to her husband, but if he died before she did, she could only claim half, and the rest could be bequeathed to whomever he pleased. These states eventually amended their laws to treat widows and widowers the same, and they have allowed a proportion of a deceased’s estate to be claimed by the surviving spouse in order to deal with it as family or community property.

The present state of the law represents a hotchpotch, with schemes that are individual and not built on a standard rule for the surviving spouse. They are instead given a share in the immovable estate which is a widow’s allowance, and in addition given a share after the Uniform Probate Code (UPC) 1990, which divided marital property based on an incremental percentage of the property that increased in proportion to the length of the marriage. In community property states, marital assets are typically classified as the spouse’s separate property, the other spouse's separate property or their community property. The distribution of property on intestacy is according to whether it is joint/marital property or personal property (Thomas M Featherstone Jr, Separate Property to Community Property: An Introduction to Marital Property law in the Community Property States, Sills Training for Estate Practitioners, Baylor University (2017))

This model also serves to provide some limited inheritance rights for stepchildren, but only where this would avoid the estate passing to the state as ultimus haeres. The provision applies where a parent (A) leaves property to their spouse (B, who is their second spouse) and A also has children from a previous marriage. If when B dies they have no children of their own, the portion of their estate which was inherited from A can pass to A's children, i.e. B's stepchildren. If B had their own children, the property would pass to them and A's children would not inherit.

The Scottish legislature considered adopting this dispensation when the Succession (Scotland) Act 2016 was being enacted, and there was discussion about the role of the state as ultimus haeres in the context of survivorship in the event of a common calamity (Delegated Powers and Law Reform Committee, Stage 1 Report on the Succession (Scotland) Bill, 2015). The committee was not sympathetic to the Crown being the ultimate heir. This stems from unclaimed estates being investigated and advertised by the National Ultimus Haeres Unit, and then conveyed to the Crown through the Queen's & Lord Treasurer's Remembrancer for administration.

(2) Threshold property model

The Wills, Estates and Succession Act 2014 (WESA) of British Columbia regulates intestate succession. It operates on a threshold basis whereby, if the net value of the intestate estate is below that of the spouse's preferential share, the entire value of the intestate estate goes to the spouse. Under this statute, “spouse” encompasses not only persons legally married to each other but also those who had lived with each other in cohabitation for at least two years.

This intestacy framework is proximate to the Scots law of prior rights, and if a similar regime were to apply in Scotland a view would need to be taken about the appropriate level of threshold or preferential share that the surviving spouse would inherit. There is one major difference, which is that in British Columbia the level of the threshold or preferential share depends on whether the children are of both spouses, in which case the threshold is CAD $300,000 (approximately £174,180), or whether they are the deceased’s children from a previous relationship. In the latter case the threshold or preferential share is CAD $150,000 (£87,090).

The remainder of the estate is divided into two equal shares, one passing to the surviving spouse and the other to the deceased’s children. The surviving spouse also has the right to buy the family home within a certain period of time. It makes provision for children of the deceased who are not the children of the survivor by reducing the value of the survivor's share in intestacy and increasing the estate available for the children. If there are both kinds of children, the estate of the spouse who dies last will be distributed only to the lineal descendants of that spouse. In Peters v Peters' Estate, 2015 ABQB 168 CanLII the court decided that Ms Peters’ four stepdaughters, the children of her late husband, “are not her blood relatives, so they are not her lineal descendants. [Her son] is her only lineal descendant. Accordingly he is her sole beneficiary”.

There are particular rules which apply to the inheritance of the spousal home: in effect the surviving spouse may use their share to acquire the marriage home, in whole or in part. The application of this framework would need to be considered within the continuing distinction between fixed and moveable property. It is also considered the “preferential share” in the Canadian example, and in both cases the size of the preferential share or of the monetary value of prior rights is larger where there are no children. However, the preferential share in the British Columbia model applies to the whole of the estate, and unlike the position in Scotland there is no distinction between heritable and moveable estate.

The WESA does not make any provisions in relation to stepchildren or for blended families, and the result on intestacy could alter the balance against the children of the deceased. It has retained the scope of children who can inherit on intestacy by adopting s 1(b) of the Intestate Succession Act, which defined “issue” to include “all lineal descendants of the ancestor”. This by implication fails to recognise blended families as a significant and legitimate segment of Canadian society in intestate succession laws that not only authorise inequitable estate distributions but also affect social perceptions of the legitimacy and status of blended families (Jonnette Watson Hamilton, A Cautionary Tale for Step-Parents and Step-Children, University of Calgary, AB.Lawg.ca, posted 5 May 2015).

Equitable framework?

The Scottish Government's initiative to adopt a basis for its succession laws by borrowing from concepts that are prevalent in North America is intended to provide a more equitable framework on intestacy. The laws that apply in Scotland are decades old and there is a recognition that they need to change because of the circumstances of cohabitation and the rights of the cohabitee being usurped by the children of the deceased who may not have contributed to the property in the long span of family life. This is after payment of prior interests and the discharge of the preferential interests after death of the intestate.

The community property and threshold property frameworks both result in a family situation where the children common to both spouses are not treated more favourably than those who are children of the deceased. Both these models set out the estimated value attached to heritable property (e.g. the house). The current Scottish rules attach a significant and realistic value to the house which passes to the spouse, and to alter the current rules to fit in with the variables from across the Atlantic will require a revision of the threshold values regarding the spouse's inheritance rights.