Wed 26 Jul 2023

Trusts and Succession (Scotland) Bill - proposed changes to Scottish Succession Law.

The Trusts and Succession (Scotland) Bill was introduced to Scottish Parliament on 22 November 2022 and proposes to modernise and update the law on trusts, and succession in Scotland.

Whilst the Bill doesn’t represent a drastic overhaul of the Scots law on succession by any means, there are two key changes to be aware of:

  1. A change to the priority of inheritance of the residue in intestate estates; and
  2. The effect of special destination clauses for divorced, annulled or dissolved marriages and civil partnerships has been clarified.

What happens if I die without a Will? The priority of inheritance of the residue in intestate estates may be about to change

When a person dies without leaving a Will, their estate is called "intestate". Surviving spouses are entitled to prior rights and legal rights, and surviving children are entitled only to legal rights, as discussed in one of our previous articles on prior rights. Once those proportions of the estate are accounted for, everything else left over is called the "residue".

The current law which sets what happens to the residue of intestate estates is set out in the Succession (Scotland) Act 1964. It provides a list of priority of who may inherit the residue of a deceased's estate. At present, the priority is: children or grandchildren, parents and siblings, and only then would it be a surviving spouse/ civil partner.

The Bill would see this list of priority re-arranged, so that the surviving spouse/ civil partner would take precedence but only after any surviving children and grandchildren. The rest of the list would remain the same.

This new proposed position is probably a lot closer to what many would expect the law to be; few people would envisage their siblings or parents inheriting before their spouse. However, this assumes that everyone who is legally married remains in a happy, enduring relationship. Many couples choose to separate, but never quite get round to making their divorce, or dissolution, legal. This means that in the absence of surviving children, even if estranged, a surviving spouse could inherit not only prior rights and legal rights, but also the residue of the deceased's estate; a position which may be far removed from the deceased's intentions.

This serves as a significant reminder of the importance of having a Will, clearly setting out who you wish to inherit your property. If you don't choose, the law will choose for you.

Special Destinations and Divorce: The Law of Unintended Consequences

Not everyone is aware that your title deeds can overrule what is stated in your Will.  However, if you own property jointly with someone else, it is possible that title is taken on the basis of the property passing to the surviving owner after the first person dies, by the inclusion of what is termed a "special destination" or commonly, a "survivorship clause".  The wording in the title is typically that the property is owned by A and B "and the survivor of them".  Those four crucial words though have quite a major effect.  In short, if A leaves a Will in which they state that their half share of the property should pass to anyone other than B, then the wording in the title deed trumps A's Will, and B will inherit the property, with A's beneficiaries in their Will left wanting.  The same would be true of B if they died first.

Full instructions should be taken by the conveyancing solicitor before inserting such a clause, but it is worth having that checked when you come to make a Will.

Until fairly recently, the effect of divorce for a person domiciled in Scotland didn’t carry much weight in terms of what happened to your Will or any such survivorship clause you might have had in your title deeds with your ex.  That's why we have always worked closely with our Family Law colleagues to make sure anybody separating or divorcing from their partner carries out a thorough review of their succession planning arrangements.

The advent of the Succession (Scotland) Act in 2016 brought significant changes. Previously, where a Will provided for the deceased's ex-spouse or civil partner, this remained valid, even though the parties had divorced. This could have the most devastating effect if the deceased's Will left everything to the ex-partner - who would be entitled to that inheritance, even if parties were estranged following their divorce. After the welcome introduction of the 2016 Act, divorce now has the effect of revoking any provisions in favour of a former spouse or civil partner, unless there is specific provision in the Will to the contrary, bringing the position on divorce more in line with what parties may expect on separation.  This leaves sufficient flexibility for couples who remain amicable following their separation to benefit each other in their Wills, whilst affording significantly more protection to families who would otherwise lose out to former partners.

The 2016 Act also sought to bring about the situation where survivorship clauses were also automatically dealt with on divorce by stating that, if one divorcee dies, then the person they divorced is deemed to have died before them.  In short, the legislation was intending that we treat the special destination as not being effective.

However, this actually caused great confusion and unintended results, due to the fact that if we follow the wording quite literally i.e. we are to deem B to have died before A, and we do that where there is a survivorship clause in their title, then B would have already passed their half share to A when they suffered their "deemed" death (despite being alive and kicking even after the death of A) and A's beneficiaries can scoop the whole property.

As such, the Trusts and Succession (Scotland) Bill has now been tabled to the Scottish Parliament to rectify this drafting error and now states clearly that B is only deemed to have survived A in respect of A's interest in the property. If enacted, this should mean that A is able to pass on their half share of their property under their Will while B is able is to keep their half share of the property and pass it under their own Will. 

We would still always recommend that the title to jointly held property is reviewed on divorce or separation and that your Will is reviewed at that time too.  Above all else, it is vital that you have a Will in place at all times to ensure that your estate is dealt with in the way you intend, albeit that certain rights in your estate may still subsist. See our article on legal rights.

If you would like further advice about this Bill, or your succession planning, please contact our asset protection team.

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