Disinherited? What are your rights?
A Canadian case has led to a will being written as it was ‘unfair’ to one child. What would happen in Scotland in that situation?
The British Columbia Supreme Court has decided that a father’s will should be varied to reflect his ‘moral obligation’ to his adult daughter when there was an unequal division of the estate between her and her brother.
Could that happen in Scotland? Can you disinherit a child under Scots law? What are the rights of a child or spouse/civil partner in an estate? What happens if you get less from an estate that hoped? All that, and may be more in this blog.
What happened in Canada?
The deceased left a will splitting the estate 50% to his son and dividing the other 50% equally among his daughter and her children. The daughter was disappointed by this division and sought under the law of British Columbia to ask the court to vary the will and the division of the estate. The variation was sought on the basis that the father had failed to discharge his moral obligations to his daughter. The relevant legislation allows a court to consider whether or not a deceased has made “proper maintenance and support for a spouse or child” and if they have not, the court may set out a division of the estate which it thinks is “adequate, just and equitable in the circumstances”.
The court weighted up a number of factors including provision made for the son outside of the estate, the relative financial positions of the son and daughter and also that the daughter is disabled. The son argued that making provision for the grandchildren was right and given the daughter’s apparent inability to manage money, this ensured the grandchildren would receive an inheritance.
The court decided that the father had not fulfilled his primary moral duty to support his children. It was irrelevant that the deceased had benefited both sides of the family equally. The court ordered, based on this moral duty and the children’s respective health and financial circumstances, that the estate should in fact be divided as follows: one-half to the daughter; one-third to the son and one-twelfth to each of the grandchildren.
Could this happen in Scotland?
The short is ‘no’. It is not possible in Scotland to ask the court to alter an estate on the basis that it was an unfair division. Yes, if there are allegations that, for example, the deceased did not have capacity or there was undue influence, a court challenge can be raised to strike down the will. But that is on the basis the will is invalid rather than it containing an unfair division. Of course, the reason to seek to challenge a will’s validity could be due to perceived unfairness.
So, spouses/civil partners and children are left ‘high and dry’ in Scotland?
The short is answer is ‘no’. Unlike jurisdictions such as British Columbia or England, Scotland has, like France, a system of ‘forced heirship’. Scottish forced heirship is known as ‘legal rights’. Legal rights creates automatic, fixed entitlements for spouses/civil partners and children. Legal rights apply irrespective of the terms of the will. Systems like England and British Columbia have court based discretionary processes to offer some protection from disinheritance.
What are the legal rights entitlements?
If a deceased is survived by a spouse/civil partner and children, the spouse/civil partner is entitled to one-third of the net moveable estate and the children, as a group, are similarly entitled to a one-third share.
If a deceased is survived by only a spouse/civil partner, then the spouse/civil partner is entitled to one-half of the net moveable estate.
If a deceased is survived by only children, then the surviving child/children is entitled to one-half of the net moveable estate.
It is also worth noting that a legal rights entitlement is one of cash. The positive is that avoids a force break-up or sharing of assets, but it might create a pressure to fund the cash requirement.
Those entitled can also take their time to decide what to do. If someone entitled legal rights felt they were receiving too little from the estate, they might simply prefer to cause a little nuisance. They can wait 20 years to make a decision(!) and all that time the estate needs to be ready to settle the entitlement should it be asserted.
The moveable estate is essentially all assets excluding land and buildings. Care should be taken with land that is held in a company as it will be treated as moveable. Partnership agreements should also be reviewed to confirm how land held in a partnership is to be treated for legal rights purposes. In some cases it will be important to not accidentally and unthinkingly enlarge the amounts that someone is entitled to under legal rights by restructuring land and buildings into a company.
But I want to prefer one child over another!
While a will would allow someone to say their entire estate is to pass to one particular child, that is still subject to legal rights entitlements. So, to pass more of an estate to one child, it may be necessary to take action during life to restructure their estate or alter how the preferred child inherits (part of) the estate. Because legal rights is based on the value of the moveable estate held in the deceased’s name immediately before death, moving assets out of their name or otherwise reducing the value of the net moveable estate will be key to minimising or avoiding a child’s legal rights entitlement. The use of pensions, trusts, policies and contracts can all be part of the planning to control legal rights. The impact (and advantages) associated with some tax rules also need considered with legal rights planning.
Those with assets such as large investment portfolios, cash or private business holdings should take particular care with legal rights.
I don’t like legal rights: I’ll emigrate to avoid it!
A potentially bold option. But as we have seen with Canada and noted in passing about England, most countries have some system to protect those you are (in whole or part) disinherited. Systems like British Columbia or England have the uncertainty of a discretionary court approach: everything is up for grabs and in the air. Scotland and others have more rigid entitlements, but at least you can try and plan around the rules in the knowledge that there is no British Columbia-esque legislation to unpick an estate.
As an aside, I am part of the writing team for the book, International Succession and it is notable that each chapter on each country covered in the book looks in detail at rules on disinheritance.
One for another blog perhaps, but worth reflecting on the point raised that the Canadian case’s deceased apparently wanted to ensure some inheritance passed to his daughter’s children and also to recognise her issues with financial management. If protecting family wealth and holding it safely for (but away from the own hands of) a beneficiary is desired, then a mix of lifetime planning and the right will is required in Scotland. There can also be legal and even emotional value in preparing a letter of wishes to accompany a will and other steps in that situation. A letter of wishes can provide guidance on your aims and also help with any explanation of those aims.
Voluntary variation: deeds of variation
We have previously talked about the valuable ability to vary an entitlement in an estate following a death. This can have various succession and tax advantages.
For help and advice on succession issues including legal rights or being a disappointed beneficiary, get in touch with Alan Eccles: firstname.lastname@example.org / 0141 221 6020