Hi All,
I’m currently acting in an intestate estate and there has been some discussion on entitlement to the estate in the below circumstances.
Estate is made of up shares in a company (not yet valued but assumed to be relatively low given the business type and ‘young’ age of the business), cash bank accounts (not exceeding £15k), and a rental property portfolio in the deceased’s name. The unencumbered value of the portfolio is about £1m but is heavily mortgaged so the equity within only amounts to around £200,000. Gross estate is assumed to be around £1,050,000 and net estate around £250,000. There are also pension death benefits (all of which appear to be nominated so should pass outside of the estate) and another rental property passing by survivorship to the spouse.
The Deceased is survived by a spouse and one child who is under 18.
Per s.34 AEA 1925. The estate is first applicable to payment of funeral expenses, debts, and testamentary expenses and per s.35 charges are to be paid out of the property charged, subject to any contrary intention.
I understand the spouse is due to receive the statutory legacy of £322,000 plus interest/ personal possessions (matrimonial home is in spouses name only). There is not enough cash to satisfy that legacy, nor would there be even if all properties were sold.
My view is that, where the rental properties are subject to the charge, in ‘usual’ circumstances the estate would sell the properties and after the mortgages/ other debts and expenses had been paid, the remaining sum would be due to the spouse. There would be no residue to divide 50/50 between spouse and child. On that basis the spouse is the only one entitled to the estate.
We were discussing whether, if there was scope for beneficiaries to take on the mortgages, that position would change and the child become entitled also. My opinion again was that it would not. The beneficiary would still need to take on the debt so in essence all they are taking is the equity. That is still below the current fixed net sum and so spouse remains the only one entitled. In any event a minor is unlikely able to enter into a borrowing agreement to take on a mortgage so I don’t think there would be an argument that they could take on debt of the estate to also inherit.
I did wonder whether I was missing something though so thought I would float it to the forum to see if anyone had any opposing views?
Thanks in advance.