Succession planning under scrutiny

For those of us domiciled in Scotland, the way in which we plan to pass property on after death is likely to be significantly affected as a result of proposed changes to our succession law. In November 2014, the Scottish Government announced that it would introduce a Succession Bill to ensure that the law in this area is ‘fairer, clearer and more consistent.’ While this is the aim, some of the changes proposed are likely to require many of us to review the terms of our wills and so-called succession plans.

It is widely accepted that our succession law has been in need of reform for several years, as has been highlighted by the Scottish Law Commission’s Reports in 1990 and 2009, which form the foundations for the proposals now being put before the Scottish Parliament. The last changes to our legislation on succession were made in 1964.

The first stage of the reforms, introduced on 16 June 2015 in the form of the Succession (Scotland) Bill, are generally welcomed by those working in the field as it is recognised that some of the technical aspects of our succession law are in need of modernisation. Furthermore, these changes should not disrupt or upset any succession planning that individuals may have already undertaken.

The proposals are too numerous and detailed to do justice to them here but some of the more interesting changes include proposals to amend the law to ensure any testamentary provision in favour of a former spouse will be automatically revoked by divorce, including the appointment of a former spouse as an executor. There could also be provisions to allow Scottish courts to rectify a will that does not represent the testator’s intentions, within a six-month time limit. There is currently no process for rectifying even simple typographical errors in a will.

Some of the proposals are more controversial and will mean people will need fresh legal advice in order to make informed decisions.

In the second stage, the Scottish Government has indicated it will remove the distinction between heritable and moveable property which will have a substantial effect on our protection from disinheritance law.

Currently, every child, spouse and civil partner has a claim on the deceased’s estate, despite the terms of any will. The claim is known as ‘legal rights’ and is valued with reference to the deceased’s moveable property (for example money held in a bank account) at the time they pass away. This means the deceased is free to determine who will inherit their heritable property (land and buildings), in many cases the bulk of their wealth.

The Scottish Law Commission has reported that there is no justification for continuing to make a distinction between these two classes of property. By removing the distinction, legal rights would be calculated with reference to both the deceased’s heritable estate and their moveable estate which, whilst helping to promote equality of opportunity amongst all of the deceased’s children, could mean that farms and country estates will be broken up or sold in order to settle the claims. However, Scottish Government advisors have said that as many large farms and estates are already held in ‘immortal’ corporate structures or trusts, the proposed amendments will not affect the succession of the property, leaving however the concern that relatively small family farms will be affected. In addition, the change in the law may affect a surviving spouse or civil partner’s ability to live on in the family home, the value of which could be relevant when calculating the claim the deceased’s children have on the estate.

To add to the proposed changes to the protection from disinheritance law, changes to the law on how a deceased’s estate is distributed when they die without a will and what claims a cohabitant has on the estate of a deceased will also be considered later this year.

What remains to be seen is whether, in consulting on the more significant changes later this year, the issue of how our law interacts with the new EU Succession Regulation (which will come into force on 17 August 2015) will be addressed.

Whilst these significant changes will not happen overnight, whatever your circumstances, once the amendments have been enacted and the law is clear, it would be wise to revisit your own plans for succession together with your solicitor in order to confirm that your intentions will still be realised or, if not, establish what can be done to try and ensure that they are.

• Elizabeth Sparks is a trainee solicitor at Balfour+Manson LLP www.balfour-manson.co.uk