March 2016 – Succession Law Changes – Part 2

Author: Mitchells Roberton
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The Succession (Scotland) Act 2016 (“the 2016 Act”) was passed by the Scottish Parliament last month and received Royal Assent this month. Last month’s Bullet Point Update commented on some of the Act’s provisions concerning wills. This month we look at some of the other provisions of the new Act.

Not much of the 2016 Act is in force yet and, as mentioned last month, it does not make sweeping changes to the general law of succession. Its focus is more on what might be viewed as points of detail. But details can be important and so this Bullet Point Update looks at some more of those that may be of interest.

“Liferent” trusts

  • Suppose Mr Brown has a son (A) and a grandson (mini-A) from a first marriage to Joan. Joan dies and, a few years later, Mr Brown marries Mary.
  • Mr Brown decides to make a will so that his executors will pay Mary the income of his estate during her life – what lawyers often call a “liferent” – and so as to ensure that, on her death, the capital of his estate – what lawyers often call the “fee” – will go to his son A whom failing his grandson mini-A. (Mr Brown is concerned that if he left his estate to Mary outright then, on her death, the capital might end up going to Mary’s own family under her will.)
  • Accordingly, suppose his will says: “I direct my executors to hold my estate in liferent [i.e. the income interest] for my wife Mary and my son A whom failing my grandson mini-A in fee [i.e. the capital].”
  • Before the 2016 Act problems could arise if Mary’s liferent terminated other than on her death. This could happen if, for example, Mary did not want the “liferent” because e.g. she had plenty of money of her own and so “renounced” (gave up) her liferent.
  • Before the 2016 Act even if Mary “renounced” the liferent the “fee” would not go to A immediately after Mary’s renunciation. He would still have to wait until Mary’s actual death and meantime there would be problems as to what to do with the income.
  • The 2016 Act alters this. It provides, in effect, that in a situation like that outlined above, where Mary renounces the liferent, the capital would then immediately go to A.
  • Like many of the provisions of the 2016 Act, this will be subject to the express terms of the will (or lifetime trust deed) in question.

Administration of executry estates and “caution” (pronounced “kay-shun”)

  • When a person makes a will they usually appoint “executors” to be in charge of the administration of the estate. If a person does not leave a will then the executors are appointed by the court and known as “executors-dative”.
  • Almost all “executors-dative” are required to find what is called “caution” (pronounced “kay-shun”) which is a form of guarantee protecting any creditor or beneficiary of the estate against loss caused by maladministration, negligence or fraud on the part of the executor-dative.
  • The guarantee is usually in  the form of a “Bond of Caution” from an insurance company and the whole process involves some expense borne by the estate.
  • A Bond is not however required in cases where the whole estate passes to the deceased’s surviving spouse under the law of “intestacy” i.e. the law that applies where there is no will.
  • The 2016 Act makes various changes in relation to “Bonds of Caution” including, in particular:
  • It makes it clear that where the whole estate passes to a surviving civil partner no Bond of Caution is required. This overdue change brings things into line with the position for surviving spouses.
  • It provides that where the total estate does not exceed £36,000 no Bond is required.
  • And it gives Scottish Ministers power to make Regulations to abolish the requirement for executors-dative to take out a Bond at all. The abolition of the requirement is something that many have advocated for some time.

Errors in distribution by executors

  • Executors have a duty to pay out the deceased’s estate to the right people. Often that presents no problems. But sometimes it does. Before the 2016 Act the protections given to executors were highly specific.
  • First, if an executor paid out (in good faith) in ignorance of an adoption order which would have affected the distribution they are protected from personal liability.
  • Secondly, there is equivalent protection in relation to ignorance of the existence of children whose parents have not been married to one another.
  • Under the 2016 Act these protections are expressed more generally. An executor will not be personally liable for any error in the distribution of any property if the error was caused by the executor not knowing of a person’s existence or of a person’s relationship with another person.
  • Such protection will apply as long as the distribution is made in good faith and “after such enquiries as any reasonable and prudent” executor would have made in the circumstances.

The review of the 2016 Act in this and the previous month’s Bullet Point Update is by no means comprehensive but it gives some idea of how some of the 2016 Act’s changes aim to improve succession law. A further Bill concerning more sweeping changes to the general law of succession may be in the pipeline soon.

Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Neil Mackenzie: njm@mitchells-roberton.co.uk

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