Five ways to reduce the risk of Inheritance Act claims

Who can claim under the Inheritance Act 1975?

The Inheritance Act recognises five broad categories of potential claimant:

1. The spouse or civil partner of the deceased
2. The former spouse of the deceased
3. A child of the deceased
4. A cohabiting partner of the deceased
5. Any other person who was financially dependent on the deceased

Although IPFDA claims may be brought by individuals falling within these categories, there are steps that can be taken during your lifetime to reduce the risk of a claim being made against your estate.

Claims by a husband or wife of the deceased

Claims by a deceased person’s surviving husband or wife (or civil partner) are generally assessed by reference to the “deemed divorce” test, which considers what financial provision the surviving spouse might reasonably have received had the marriage ended in divorce rather than death. This can often amount to around half of the estate, but may be more in a smaller estate where a 50% division of the matrimonial assets would be insufficient to maintain the surviving spouse at the standard of living to which they were accustomed. In the case of a long marriage, the surviving spouse would normally be expected, at a minimum, to retain the family home.

The most obvious way to avoid a spousal claim is not to marry. If the claimant was in a relationship with the deceased but they were not married, this will usually limit any claim to maintenance. A lower level of award is generally made to cohabiting partners than to spouses.

An alternative option is to enter into a prenuptial or postnuptial agreement setting out the agreed financial arrangements between the parties. Although such an agreement is not binding on a court when determining the level of provision to be made on death, it is likely to carry significant weight when the court assesses the level of any award.

Another option is to divorce and obtain a final order from the court that includes a statement under section 15 of the Inheritance Act confirming that no further claims may be made in addition to the financial settlement reached in the divorce proceedings. There are numerous examples of claims being made where parties had been separated for a significant period but had not formally divorced. In many cases, the parties are unaware that a surviving spouse may still have a substantial claim against the deceased’s estate under the Inheritance Act if the divorce proceedings have not been formally concluded and the parties are still married at the time of death.

Claims by children

A parent cannot generally avoid financial obligations that may arise under the Inheritance Act, but steps can be taken during their lifetime to reduce the likelihood of a claim by a child, including an adult child.

One option is to place assets into trust so that they fall outside the estate, particularly where there are significant concerns about potential Inheritance Act claims by children. Alternatively, assets could be transferred to the intended beneficiaries during your lifetime. Trust assets and lifetime gifts may then fall outside the estate, but you would lose control over those assets once they have been transferred. It is also important to be aware that the Inheritance Act contains provisions that allow the court to treat transferred assets as part of the estate of the deceased if the main reason for the transfer was to avoid an Inheritance Act claim. Legal advice should therefore be obtained before considering these options.

Claims by cohabitees

For cohabiting partners, one option to reduce the likelihood of an Inheritance Act claim is to enter into a cohabitation agreement setting out what has been agreed if the relationship comes to an end.

A cohabitation agreement will not prevent the court from making a different award under the Inheritance Act, but its terms are likely to be treated as a relevant factor when the court assesses the level of any award or the maintenance to be provided.

Any cohabitation agreement setting out how assets built up during the relationship should be distributed is more likely to be considered by the court if it was entered into recently and properly reflects the parties’ current circumstances.

Significant life events may undermine the relevance of an agreement if the relationship has moved on. Any cohabitation agreement should therefore be reviewed and updated at regular intervals to reflect changes in the parties’ circumstances.

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Five general principles applicable to all potential Inheritance Act claims

1. You should always consider including a gift to someone who is likely to make a claim under the Inheritance Act if they are not provided for. If the potential claimant has no assets and has “nothing to lose” by bringing a claim they may be encouraged to bring a claim. If the potential claimant is provided with a gift under the terms of the will then the distribution of the gift could be delayed until the six-month limitation period to bring a claim has expired. The gift could also be used to discharge any costs order made against them if they bring a claim and are unsuccessful.
2. You could provide a letter of wishes to be attached to the will. The letter should clearly record the reasons why you have excluded someone from the estate. Those reasons can then be made clear to the court if any claim is made and the court will consider those reasons when they determine the level of award that should be made. It is important to update the letter of wishes and the will if your circumstances change.
3. Consider transferring assets during your lifetime. Caution needs to be exercised to ensure this option is appropriate but it can be an effective strategy to reduce the size of your estate that could be subjected to a claim under the Inheritance Act.
4. Consider obtaining a life insurance policy. A suitable life policy could be purchased to provide for a specific beneficiary of the estate. Life insurance policies are usually provided outside the estate and so are not usually considered part of the estate that can be subjected to an Inheritance Act claim.
5. Consider talking to the potential claimant and clearly explain your wishes and why you provided a nominal amount or made no provision available for them in the will. A potential claimant may be reluctant to issue a claim if you have clearly explained during your lifetime how you would want your assets to be distributed in the event of your death.

Inheritance Act claims can often be seen as a potential claim that may be made in the future but with careful planning and the correct legal advice measure can be put in place to try and minimise the prospect of a successful claim being made or could avoid a claim altogether.

If you’d like advice regarding any of the above, please get in touch with our Contentious Probate team.