Don’t forget interest on a statutory legacy

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When a surviving spouse receives a statutory legacy under the intestacy rules it is important not to overlook their entitlement to interest, writes contentious probate solicitor Chris Green.

When a person passes away without leaving a valid will, the rules of intestacy come into action. These are default provisions which determine who is entitled to benefit from the deceased’s estate.

If the deceased was married (or in a civil partnership) at the time of their death and had children, then the intestacy rules currently (February 2020) specify that:

(i) their surviving spouse receives £270,000*; and

(ii) everything over and above that amount is divided into two equal portions, with one portion passing to the spouse and the other portion passing to the children.

The sum of £270,00 is known as the “statutory legacy”.

Section 46 of the Administration of Estates Act 1925 states, in relation to the statutory legacy:

“the residuary estate of the intestate (other than the personal chattels) shall stand charged with the payment of a fixed net sum, free of death duties and costs, to the surviving spouse or civil partner, together with simple interest on it from the date of the death”.

This last point is significant and can be overlooked by administrators, resulting in surviving spouses suffering substantial financial loss.

The importance of calculating interest on a statutory legacy was highlighted by a recent case.

The deceased had died in the 1980s, leaving a will and two daughters, A and B.

Under the terms of the will, he left a property on trust for the benefit of B for her lifetime. On B’s death, the trust was to be held for A’s daughter, C.

C died in 2004, while B died in March 2019.

When B died, the benefit of the Trust (worth about £260,000) then passed into C’s estate.

Under the rules of intestacy, the statutory legacy (which was £125,000 in 2004) passes to C’s husband. However, under Section 46, the husband is also entitled to interest at a rate of 6% on the statutory legacy from the date of death (i.e. 2004). That would amount to approximately £120,000 in interest.

There is, though, provision in Section 22(b) of the Limitation Act 1980 which limits the period for which interest can be claimed to six years, thereby reducing the interest amount payable to around £45,000.

Even in the simplest cases where the statutory legacy applies it is important to ensure that interest is factored in, especially as the statutory legacy is currently £250,000 – albeit the interest rate applicable is now based on the Bank of England base rate, rather than the higher figure of 6% which applied to deaths pre-2014.

 We handle a variety of disputes and issues surrounding the estate administration process, and are able to offer high quality, cost-effective legal advice. So, if you are dealing with an estate involving the intestacy rules or the statutory legacy and require guidance from specialist lawyers, then please contact our Contentious Probate Team on 0808 139 1606 or email us at [email protected]

*The statutory legacy was increased from £250,000 to £270,000 on 6 February 2020. the figure is meant to be updated every five years.