Signing away family rights

Authors highlight an issue over renunciations of rights in an intestate estate which is causing difficulty in obtaining bonds of caution

The Journal, May 2008, page 54

Our firm acts for Zurich GSG Ltd who issue many types of surety bonds and guarantees. Since 2002, Zurich GSG Ltd have been providing individuals and professional firms with bonds of caution as required by the courts for executors in connection with the administration of intestate estates in Scotland.

Zurich have become aware of certain problems occurring as a result of parties executing renunciations of their succession rights. These problems can lead to a delay in bonds of caution being granted and, in a very few cases, no bond being issued at all. As a result, Zurich considered it would be useful if the profession were made aware of the problems which can occur and how best to resolve and avoid them.

As executry practitioners will know, in certain circumstances it may be preferable from a family’s point of view for an individual to redirect their succession rights in favour of another individual. It is quite common, for example, to arrange for a surviving spouse to inherit instead of an adult child, so that the surviving spouse is supported during their lifetime.

No significant problems occur when legal rights or prior rights are discharged. However, when a beneficiary renounces a share in the free estate (the “dead’s part”), problems can occur. There is strong authority to support the conclusion that rather than a renouncing beneficiary’s share passing to the free estate, that share would, in fact, transfer to the Crown as ultimus haeres. Zurich have advised us that there may be some confusion amongst the profession about this effect of a renunciation of succession rights.

Discharge of legal or prior rights

The consequences of a discharge of legal rights by a child or spouse are well established. If the discharge occurs pre-death, the discharging party is treated as having predeceased, with the effect that the shares of the other individuals entitled to legal rights are increased.

If the discharge is made post-death, the share of the discharging party falls into the free estate and is distributed according to the rules of intestate succession.

A spouse is entitled to discharge his or her prior rights. If this occurs, the entire moveable estate becomes available for satisfaction of legal rights. Thereafter, the estate (including any dwellinghouse which may have been subject to prior rights) is distributed in accordance with the rules of intestate succession.

Renunciation of succession rights

Regardless of the class of beneficiary concerned, where a beneficiary renounces entitlement to the estate under the rules of intestate succession, the share of the estate to which they would be entitled passes to the Crown as ultimus haeres. This is irrespective of whether the renunciation occurs pre- or post-death. The Queen’s & Lord Treasurer’s Remembrancer (QLTR) have confirmed that this is their understanding of the legal position. However, Zurich are concerned that a number of applicant solicitors may not be aware of this.

Where the renunciation occurs pre-death, both the Succession (Scotland) Act 1964 and the common law support the conclusion that the share of the estate renounced passes to the Crown. Under s 2 of the 1964 Act, each successive class of beneficiaries becomes entitled to the estate only if the intestate “is not survived by a prior relative”. By implication, if a prior relative does survive, the next class of beneficiaries is not entitled to the estate. As no class of beneficiary is entitled to the estate where a prior relative survives but renounces, the right to the estate would fall to the Crown.

The common law, in general, supports this view. There is some authority that prior to the assimilation of moveable and heritable succession in 1964, where a right in heritable property was renounced, this right would transfer to the next heir in line, with the Crown being the final heir only where no other heir was available. However, there is no such authority in respect of moveable property, which instead was dealt with more closely in line with what became the assimilated law in the 1964 Act. (For further consideration, see McLaren, Wills and Succession, paras 136-142 and 278; Johnston v Miller (1847) 9D 1389; Erskine, Institute (3rd ed), III.9.23.)

In respect of a post-death renunciation, the interest has, in contrast to a pre-death renunciation, already vested in the beneficiary. In such a circumstance the right of the more remote class of beneficiary to the free estate in fact never came into existence, with the result that there are no rights to revive when the beneficiary with the prior interest renounces the interest. The right to the estate would, in such circumstances, again fall to the Crown.

How to resolve the problem

Thus, where a party wishes to redirect their succession rights in favour of another individual, the appropriate way to achieve this would be by way of a deed of variation in favour of that other individual. However, where a renunciation has already been executed the situation is more complex, particularly since renunciations are generally irrevocable.

A deed which purports to transfer a right under intestate succession to another party may be reduced where the deed is of a gratuitous and unilateral nature and it is granted under essential error as to its effect (see McCaig v University Court of the University of Glasgow (1904) 6F 918, and Hunter v Bradford Property Trust Ltd 1970 SLT 173 (HL)). The relevant test is whether the error was such that were it not for the error, the party would not have executed the deed. It appears reasonable that where an individual renounces their rights under intestate succession with the intention that their rights transfer to someone other than the Crown, this test is met. An action of reduction of the renunciation would be the appropriate remedy in such circumstances.

The Crown’s position

In these particular circumstances it appears that an action of reduction would not be necessary. The QLTR has confirmed that if there are surviving blood relatives and the intention of the renouncing party is clear, the Crown will not assert its rights under the 1964 Act. In such circumstances the Crown will provide a letter confirming that it does not assert its rights to the estate, with the intention that its interest is subsumed into the free estate for distribution to the remaining claimants. The Crown has confirmed that an entry to this effect will be included in its published policies in due course.

The Crown’s response to this matter appears to ensure that the interests of beneficiaries are protected in the circumstances where others wish to redirect their succession rights to their benefit. However, the Crown does require that the intention of the renouncing party is clear.

Requirements for a bond

From Zurich’s point of view, if you are dealing with an intestate executry where a renunciation has been executed they will require:

• confirmation from the Crown that it will not assert its rights to the estate;
• indemnification of Zurich GSG Ltd’s liability by the beneficiary to whom the estate is to pass;
• a discharge of Zurich GSG Ltd’s liability by the beneficiary who has executed the renunciation.

In order that delays do not occur with the bond of caution, it would be advisable if the above were obtained prior to the application being made.

In the event that a party does wish to redirect their succession rights, renunciations should, at least for this purpose, be avoided and practitioners should arrange for that party to execute an appropriate deed of variation.