Cohabitation and intestacy - government consultation

Ricky Gervais' comments recently that he might marry his long-term partner for inheritance tax (IHT) reasons brought into sharp focus the difference between the treatment of married couples (and those in civil partnerships) and couples that choose to cohabit.  

While the nature of the relationship may in many ways be identical, how couples are treated when the relationship ends or when one of them dies, is completely different.  This is true not just in respect of tax, but how assets are shared between partners and whether they will be treated as next of kin for health or other purposes.

Concerns about a perceived lack of understanding among the population of how unmarried couples are treated led the government to publish a consultation which, among other things, considers potential reforms to the laws on separation and inheritance rights for former cohabitants.  

In this article, we will focus on the proposals in relation to succession rights when one member of a cohabiting couple dies without having made a Will.

What is the current legal position for cohabitants?

According to a government consultation published on 10 June, over 3.5 million couples live together without being married or in a civil partnership, and it is becoming increasingly common for cohabiting couples to bring up children without formalising their relationship.

Such couples may be as committed and strong as any other, but any relationship can break down and, of course, all long-term relationships will eventually end with the death of one of the partners.  Many people believe that if they are in a long-term committed relationship, they will be protected financially as "common law spouses".  While there are countries that recognise such relationships to a greater or lesser degree, the law of England and Wales does not.  

What provision is made by the law for a surviving partner on the death of their cohabiting partner?

Under the existing law, there is little or no provision for one member of an unmarried couple to inherit after their partner dies.  If a deceased partner has not left a Will, the intestacy laws do not provide for the survivor to inherit any of their property regardless of the length of their relationship or whether they have children together.  Instead, the deceased's children will inherit, or if there are none, their estate will pass to parents or other relatives of the deceased.  

The only recourse for a surviving cohabitant, whose partner left no Will or did not provide for them in their Will, is to make an application under the Inheritance (Provision for Family and Dependants) Act 1975 (the “Inheritance Act”) arguing that the Will or intestacy rules failed to make reasonable financial provision for them.  Such a claim requires either that they lived together as if they were spouses or civil partners for two continuous years immediately before death, or if shorter, that immediately before their partner's death, the surviving partner was being maintained, wholly or partly, by the deceased.  Any award is limited to maintenance needs only (although a court may interpret this generously), which is not the case for spouses and civil partners.

In contrast, the survivor of a married couple or civil partnership would inherit automatically under the rules of intestacy if the deceased died without making a Will.  If the deceased left no children, their spouse or civil partner would inherit the whole of their estate.  Where the deceased did have children, the survivor would inherit a fixed sum (currently £322,000), the deceased's personal chattels, and half of the remainder of their estate, the other half passing to their children, on statutory trusts if they are under 18.

What financial provision does the consultation propose where a deceased cohabiting partner left no Will?

The consultation proposes extending the same intestacy rights as spouses or civil partners to “qualifying cohabitants”. In doing so, they are recommending a “marriage-equivalence” definition, which approach is favoured as being clear, predictable and aligning with existing concepts used in the Inheritance Act and developed over years of case law.  Under the Inheritance Act, the court is required to assess a relationship holistically by reference to factors such as shared residence, financial arrangements, mutual commitment and the public presentation of the relationship. 

The consultation notes that granting inheritance rights on intestacy to cohabitants is a significant step.  It proposes that the proposed new rules would define cohabitants by reference to living in the same household, and doing so as spouses or civil partners for a continuous period of time. A minimum duration period is proposed - five years for the survivor of a couple without children, and two years for someone with a child they shared with the deceased that was living with them. 

The Government also proposes removing the existing two-year qualifying period for cohabitants with children to make claims under the Inheritance Act. This would enable partners from relationships of shorter duration, but where the survivor shares a child or children with the deceased, to be able to make a claim where they would otherwise be excluded from benefiting under the proposed intestacy rules due to the requirement to have lived together for at least two years prior to the deceased partner's death.

What other amendments are being considered?

Another amendment under consideration relates to the order of priority for applying for a Grant of Letters of Administration to administer the estate of someone who has died intestate.  Currently, cohabitants have no standing to make such an application, and where there is no spouse or civil partner, the law requires a relative to apply.  If changes are to be made to allow cohabitants to benefit from their partner's estate, it makes sense for the rules also to change to enable them to apply for a grant to administer it.  The Government proposes that qualifying cohabitants should have the same right to do so as a spouse or civil partner, to provide consistency and provide a clearer, more predictable process for the bereaved partner.

Are there any potential issues and anomalies arising from the proposed new rules?

The consultation is designed to address real problems that exist in a society that is increasingly moving towards different, less formal, family and relationship structures.  The fact that so few people understand how little financial standing they have following separation or after the death of a cohabiting partner, can result in a great deal of hardship, and the proposed new rules are intended to address this.  

However, there are many couples who choose not to marry precisely to avoid the financial commitment this involves.  Many of these may be older couples with children from previous relationships, who are financially comfortable, and happy to each leave their estate to their own children.  Currently, that is how their estate would pass provided they do not get married.  However, if the new rules are introduced as drafted, such individuals will need to take care to make a Will setting out their wishes clearly in order to avoid a cohabiting partner from inheriting all or a significant portion of their estate instead of their children.

For inheritance purposes, the proposed changes essentially reverse the information problem.  At present, the Government is concerned that people do not understand how vulnerable they are financially if they do not get married or enter a civil partnership.  If the rules change, the Government will need to ensure that people are made aware of, and understand, the increased importance of making a Will if they wish to benefit children or others who are not their cohabiting partner.

A further concern is the possibility of an increase in predatory relationships, where an individual could take advantage of an elderly or vulnerable person to form a relationship with them and, following their death, claim intestacy rights as a cohabitant.  If they are able to show they have lived with the deceased for five years or more, it may be difficult, and certainly expensive, for other family members to prove that they were not cohabiting as spouses or civil partners, or that the deceased did not have capacity to form such a relationship, and that the predatory individual should not inherit their estate.

What are the potential inheritance tax (IHT) consequences?

And finally, back to tax.  It would have made sense for the Government to have announced that the IHT exemption for property passing to spouses and civil partners would be extended to cohabiting partners who meet the relevant tests to inherit under the new rules.  Instead, the consultation expressly states that it does not address IHT as it is a matter that sits with another Government department.  

However, without such an exemption, changes which provide for a cohabiting partner to automatically benefit on intestacy are likely to give rise to a significant increase in IHT suffered by estates, as they pass, potentially quite quickly depending on the age of the surviving partner, through the generations.  If the Government is serious about recognising different types of family as deserving financial protection, it should provide equivalent protection from adverse tax consequences.  The wealthy and well-advised will ensure they make a Will to achieve the best outcome, or like Ricky Gervais, marry or become civil partners purely to benefit from the exemption, and it is likely to be the moderately well-off whose estates and families will bear any additional costs.  

What happens next?

Responses to the consultation are currently being reviewed by the Government.  We will monitor its progress and report further if there are any developments.  

In the meantime, however, whether changes are introduced or not, the best advice is always to write a Will setting out exactly how you wish your estate to pass after your death.  This applies regardless of the status of your relationship, if you are in one, and is especially true once you have children.   

If you would like advice on tax or estate planning, please get in touch with your usual Howard Kennedy contact, or a member of our Private Wealth team.   

Nothing in this client note constitutes legal advice to any person.