Inheritance issues for the LGBTQ+ community
What do LGBTQ+ families and individuals need to be aware of?
In some ways the law is still evolving to encompass the different forms of family that are now recognised including LGBTQ+ families. Individuals should be aware of their legal position under Wills and how they stand in relation to inheritance tax (IHT).
All couples who are married or in a civil partnership enjoy the same inheritance rights, including:
- the right to inherit a certain proportion of their spouse or civil partner’s estate under the intestacy provisions if they die without making a Will, and
- the ability to leave assets to their spouse or civil partner free from any IHT liability.
Families who are co-habiting are faced with the same inheritance issues regardless of their composition and some of these are looked at below.
Entitlement to inheritance
A major consideration is that without a Will, a co-habiting partner does not automatically inherit assets held in their partner’s sole name under the intestacy rules. It is therefore very important that a suitable Will is made to ensure the surviving partner is not disinherited and forced to apply to the court for financial provision. It should be noted that a Will signed before a marriage will be revoked by a subsequent marriage unless it has been specifically drafted ‘in contemplation of marriage’.
Inheritance tax
As far as inheritance tax is concerned, there are no IHT concessions for co-habiting couples. If all your assets are left to a co-habiting partner in your Will, the first £325,000 (the nil rate band) of an estate will be free from tax, but anything above that will be taxed at 40% (assuming there are no other applicable exemptions or reliefs). Unlike spouses and civil partners, co-habiting partners cannot transfer their unused nil rate band between them to potentially benefit from up to double the nil rate band on second death. This means that consideration should be given to using discretionary trusts to ensure that a surviving co-habitant can still benefit from their partner’s estate, but the assets do not form part of the survivor’s estate and so are potentially taxed twice.
For example:
Claire lives with her girlfriend, Kate and they have a son Harry. Claire has assets of £600,000; if she leaves those assets to Kate, this will incur an IHT bill of £110,000. On Kate’s death nine years later, IHT will be payable again on the same assets. Claire could instead consider leaving her assets to a discretionary trust under which both Kate and Harry could benefit. This will not reduce the IHT payable on Claire’s death but the assets in the trust will not be taxed on Kate’s death so avoid a double payment of tax. There is a potential charge to IHT on every ten year anniversary of the trust’s creation and when capital leaves the trust. This is at a current maximum rate of 6% and only applies to the amount over the nil rate band. This is most likely to be less than a 40% IHT charge on assets over the nil-rate band.
Children, guardians and parental responsibility
Many people appoint guardians in their Wills to look after children aged under eighteen at the time of their death. In order to have the legal right to appoint a guardian, a person must have “parental responsibility” for the child. A child’s mother (for the purposes, the individual who carried the child) will always have parental responsibility. If there are two male parents, a biological father will have parental responsibility if they are named on the birth certificate. As far as the partner who is not the legal mother or father is concerned, whether or not they automatically have parental responsibility will depend on the marital status of the couple, and on how the child was conceived; in particular whether the child was conceived as a result of treatment in a licensed UK fertility clinic. They may be able to apply for parental responsibility if this has not already been automatically acquired.
If one of the couple does not have parental responsibility then they cannot appoint a guardian for the child. If the couple wish the partner without parental responsibility to care for the child following the death of the parent with parental responsibility then they can appoint the partner as guardian in their Will. This will confer parental responsibility on the guardian when the Will comes into effect if the child is under eighteen at that time. Similar considerations also apply to any step children; the other partner would not automatically have parental responsibility unless there is a ‘parental responsibility agreement’, court order or adoption.
Domicile
A person’s domicile is vital for determining tax liabilities, succession and other rights. As a general rule a person is born with a domicile of origin which, if the child is legitimate (born within a marriage), will depend on their father’s domicile of origin. This rule causes potential difficulty when the child is legitimate but has no father, such as the child of two female parents or a child born via a surrogate with two male parents.
Inheritance and gender recognition
Since 2004 individuals have been able to apply for a gender recognition certificate, which recognises their change of gender for legal purposes. Occasionally a Will might leave a gift to an individual identifying the recipient by their gender (for example, a legacy of £5,000 to each of my nephews). If the Will was made before 4 April 2005 the Will is not affected by an individual acquiring a different gender, so a beneficiary who has changed their gender can still benefit from the £5,000 legacy. If the Will was made after 4 April 2005 the change of gender will affect the disposition of the estate. However, a court application may made to alter the disposition of the estate as the court sees fit, enabling the court to rectify a failed gift.
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