‘Testamentary freedom’ is not as ‘free’ as you might think in Scotland
‘Legal rights’ need to be considered when writing a will, says Alexis Graham
You might think that when you write a will you can divide up your possessions entirely as you like. In Scotland, however, you do not have complete ‘testamentary freedom’, as it is known. Spouses, civil partners or children and (in some cases) grandchildren are legally entitled to a certain share – and if the will does not provide this, they can make a claim against the estate. This name of this entitlement is so unspecific as to be potentially confusing: ‘legal rights’.
Legal rights apply only to a deceased person’s ‘moveable estate’, which, put simply, means everything apart from land or buildings. If the person is survived by a spouse or civil partner but no children, that partner can claim half of the moveable estate. In the opposite situation a child can claim half, and if there is more than one child this is divided equally between them. If there is both a partner and at least one child, the partner can claim one third and the child or children another third. (Again, with multiple children their share is divided equally between them.)
Whatever your view of the merits of legal rights in Scotland, there’s no denying that they can, in some situations, create problems. These can be particularly prevalent in complex family dynamics, for example where one or both spouses has children from a previous marriage. In this scenario, protecting and balancing the interests of all parties is crucial. And if the estate includes shareholdings, they will be counted as moveable assets, so a legal rights claim could have a significant impact on business succession planning.
Legal rights also add an extra task to the process of an executry – the legal process after someone dies that culminates in distributing their assets. Couples often have wills that state that when one of them dies, all or most of their assets go to the other. However, if they also have children, on the first death those children must be given the opportunity to claim their legal rights and, if they choose not to do so, to formally ‘discharge’ them.
More significantly, if children do choose to claim their rights in such a situation, this can undo well thought-out succession planning and potentially create inheritance tax liabilities that wouldn’t otherwise exist.
Critics of legal rights also point to the fact that, if a key aim is to protect children from being disinherited, they do so both ineffectively (because many people’s most valuable asset is their home, which is not included) and unfairly (because while biological and adopted children have legal rights, step-children do not). Both of these objections have only become more valid as the housing boom has led to people passing on more valuable properties, and ‘blended families’ with children from different relationships have become commonplace.
It is also possible, with careful planning, for someone to minimise the impact of legal rights. They can cash in their moveable assets and buy a property, put them in a trust, give them away during their lifetime, or even move to a different jurisdiction in which they have much greater testamentary freedom.
Whatever the specifics of the situation, specialist advice is critical.
Alexis Graham is a Partner, Private Wealth and Tax, Shepherd and Wedderburn