The Hidden Dangers of Cohabitation: What Happens if You Die Without a Will?
Rights of Cohabitees: What You Need to Know
Last year the UK government rejected recommendations to reform the current position on cohabitation law and decided not to extend the inheritance tax treatment of spouse and civil partners to cohabiting partners. Considering that cohabiting couples are currently the fastest-growing family type in the UK, the lack of reform leaves many families with expensive probate claims and huge inheritance tax bills in the future. In this article, we'll explore the current state of cohabitation law and its implications for cohabiting couples.
Intestacy and Inheritance: Who Gets What?
If you're cohabiting with someone and you pass away without making a will, your cohabiting partner may be left with nothing unless you jointly hold assets that pass by survivorship rules. In such cases, all other assets would be distributed according to the rules of intestacy. It's important to note that only spouses, civil partners, and blood or adopted relatives can benefit under intestacy.
To determine who would inherit your estate under intestacy, you can access our intestacy flowchart here. It will help you understand the distribution of assets and who would be entitled to what.
Varying Inheritance and Bringing Claims
In some cases, adult beneficiaries may be willing to vary their inheritance to include your cohabiting partner. However, this is not guaranteed, as it requires the agreement of the beneficiaries. Their decision may depend on their own financial circumstances and their relationship with your cohabitee.
It's important to note that children under 18 cannot give up any part of their inheritance. Even if your partner is administering the estate on their behalf as the surviving parent, they cannot receive any direct benefit. In such situations, your cohabitee may have no choice but to bring a claim against your estate under the Inheritance (Provision for Family and Dependants) Act 1975 (“the Inheritance Act”). However, this is an expensive and time-consuming process, and it may strain their relationship with your relatives.
Webster v Webster: A Landmark Case
In Webster v Webster, the court held that the intestacy had not made reasonable provision for the long-standing partner of the deceased. Under intestacy, the estate was to be distributed between the deceased’s five children. The partner had been cohabiting with the deceased for 27 years and the court ordered the family home to be transferred to her outright. It did not however consider that she had acquired an actual beneficial interest in the family home on the basis of the financial contributions she had made over 20 years before the death which she could not substantiate.
The court held that it was important to establish a clean break between the surviving cohabitee and the deceased’s children and for the family property to be transferred to the partner outright, not least because of the woman's poor relationship with the three children from the deceased's earlier marriage. It was further ordered that the outstanding mortgage over the property was to be redeemed from estate funds as an estate liability. Despite the award, it was estimated that the deceased’s death had left the cohabitee £15,000 a year worse off compared to the standard of living she had enjoyed prior to his death.
Inheritance Act Claims: Eligibility and Court Determination
To bring a claim under the Inheritance Act, a cohabitee must have lived in the same household as their partner for a continuous two-year period leading up to the deceased's death. Each case is treated as being fact-specific and your partner’s future would ultimately be determined by the court.
Protecting Your Cohabitee: Making a Will
The best way to provide for your cohabitee's future is by making a will. However, you should carefully consider the potential inheritance tax (IHT) consequences if your entire estate is left to your cohabitee.
Inheritance Tax Considerations
Under the current UK IHT rules, each person has an inheritance tax allowance of £325,000, also known as the 'Nil Rate Band' (NRB). The value of your available NRB upon death can be affected if you made gifts within the seven years prior to your death, as those gifts would be considered part of your estate for tax purposes.
You may also qualify for an additional inheritance tax allowance called the 'Residence Nil Rate Band' of up to £175,000 if you pass on your home to direct descendants (e.g., children or grandchildren). However, this allowance is lost if the entire estate is left to a cohabitee, and children only inherit after the cohabitee's death. Any value of your estate above your available inheritance tax allowances would be subject to a 40% IHT charge.
In contrast, assets passing to a spouse, either during their lifetime or upon their death, are exempt from IHT. Additionally, any unused inheritance tax allowances from the first spouse's death can be transferred for use upon the survivor's death.
Protecting Your Cohabitee: Our Services
Until cohabitation laws are reformed, cohabiting couples face the risk of lengthy litigation claims if a will is not in place. If you are concerned and wish to discuss what you should do to protect your cohabitee, our Private Client department specialises in preparing wills, advising and implementing inheritance tax planning as well as the following:
- Creation and termination of trusts
- Administration of estates
- Lasting powers of attorney
- Applications to the Court of Protection
- Contentious probate issues
To learn more about our services, please visit our ‘Private Wealth’ section, or contact us.