CHAPTER ONE – REMINDER OF BASIC PRINCIPLES

What are legal rights?

Legal rights is a concept unique to Scots law. It is a form of “forced heirship” that applies in Scotland to prevent testators disinheriting certain parties from their estate and has been described as “a very important check on capricious or unjust testaments”¹. There is therefore no testamentary freedom as such in Scotland. However, legal rights are only calculated in relation to a deceased’s moveable estate, so testators are, to an extent, free to dispose of their heritable estate as they wish.

In some other jurisdictions, certain parties may (or may not) be able to make a claim that they ought to be entitled to a share of a deceased’s estate, and such a share may be at the discretion of a court², whereas legal rights are a set entitlement in Scotland. To some extent, this gives testators certainty as to what legal rights will be and allows testators the opportunity to undertake succession planning with legal rights in mind. However, there are a number of grey areas when it comes to legal rights.

Legal rights are a common law entitlement. Many of the cases are over 100 years old³ and there is very little modern authority to provide practitioners with guidance.

The Succession (Scotland) Act 1964 (hereafter, the “1964 Act”) governs the distribution of estates under intestacy and does provide some legislative guidance on legal rights, but there remain numerous points on which there is no definitive authority.

This book is designed to highlight some of the key practical areas and pitfalls that can crop up in practice that practitioners should be aware of.

When do legal rights apply?

Legal rights apply to all estates where the deceased was domiciled in Scotland at the time of their death.

This book does not cover issues of domicile, but practitioners should take care to consider scenarios where domicile is not clear cut.

Assuming the deceased was domiciled in Scotland, then:

• If the deceased died testate, legal rights should always be considered; but
• If the deceased died intestate, legal rights will only come into operation if prior rights have not exhausted the estate.⁴

Under s 10(2) of the 1964 Act:

“The amount of any claim to [legal rights] out of an estate shall be calculated by reference to so much of the net moveable estate as remains after the satisfaction of any claims thereon under the two last foregoing sections [i.e. prior rights].”

This means that any calculation of legal rights (for either a spouse / civil partner or issue) described in this book only applies to the estate left after prior rights have been deducted and it will not take into account any sums due to be paid from the estate in respect of prior rights.

Who is entitled to receive legal rights?

On a very simplistic level, the parties entitled are:

• Spouses or civil partners of the deceased; and
• Descendants of the deceased.

Under the current law, cohabitants and stepchildren do not have any entitlement to claim legal rights on their partner or step-parent’s estates.

The spouse or civil partner’s entitlement is referred to under the Latin maxim, “jus relictae” or “jus relicti”, meaning the surviving wife / husband’s entitlement respectively.

The share due to any “issue”⁵, meaning any descendant of the deceased, is referred to as “legitim”.

Chapter 2 of this book will go into further detail of the parties entitled.

How are legal rights calculated?

Legal rights are calculated on the basis of the “net moveable estate”. There are three key parts to this:

1. Ascertaining what the gross moveable estate is;
2. Valuing the gross moveable estate; then
3. Ascertaining the allowable deductions to reach the “net” value.

It should also be borne in mind that legal rights apply to the worldwide net moveable estate, not just the moveable estate situated in Scotland.

When considering whether an asset is moveable or heritable, practitioners should consider how the asset would be treated under Scots Law if it was situated in Scotland. There is some useful dicta in the case of Monteith v Monteith’s Trustees⁶ particularly around sums owed and secured on heritable property in England.

Chapters 5 to 12 of this book go into further detail on ascertaining the net moveable estate and the issues that can crop up in this regard.

Once the net moveable estate has been ascertained and agreed, the entitlement will then depend on who survived the deceased:

• If the deceased was survived by a spouse / civil partner only, their legal rights entitlement will be 1/2 of the net moveable estate;
• If the deceased was survived by any issue, but not by a spouse or civil partner, the legitim fund will be 1/2 of the net moveable estate;
• If the deceased was survived by both a spouse / civil partner and issue, then the jus relictae or jus relicti will be 1/3 and the legitim fund will be 1/3.

Once the legitim fund has been calculated, how that is divided up between the descendants of the deceased will depend on two key principles, namely representation and collation.

Representation

Under s11(1) of the 1964 Act, if a child predeceases their parent, but has descendants of their own, such descendants step into the shoes of their parent.

This applies through all generations, so a great grandchild could potentially be entitled to legal rights.

It is therefore worth bearing in mind that just because an executor or family members state that the deceased does not have any children, it does not mean the spouse or civil partner will automatically be entitled to 1/2 of the net movable estate.

Practitioners will need to clarify whether representation applies. There is a risk for firms if they fully distribute an estate and it later transpires there is a party entitled to legal rights under representation. It is the duty of the solicitor to ensure executors are properly advised on this concept and failing to do so can cause issues for firms.

Representation is discussed further in Chapter 2.

Collation

The second principle that may alter how the legitim fund is to be divided is that of collation. This only applies where two or more parties opt to claim their legal rights, in which case lifetime gifts can be taken into account in determining how the legitim fund is to be divided.

Chapter 15 will explain collation in more detail.

How are legal rights treated?

There is authority that legal rights are treated as a “debt”, albeit postponed in favour of other creditors.

In Naismith v Boyes⁷ Lord Watson commented:

“The legal claims of the widow and children are not, strictly speaking, rights of succession … They are in the nature of debts which attach to the free succession after the claims of onerous creditors have been satisfied.”⁸

Subsequent cases have upheld this position, describing legal rights as “simply a claim of debt exigible from the deceased’s estate”⁹.

Although treated as a debt, legal rights are not deductible for inheritance tax (IHT) purposes; they are merely treated as a debt for succession purposes.

Because legal rights are treated as a debt on the estate, it follows that the executors have a duty to pay that debt before fully distributing the remainder of the estate.

How are claimants treated?

Whilst practitioners often use the phrase “legal rights claimants”, it should be borne in mind that legal rights are an entitlement under the law and are not “claims”.

For intestate estates, the right to jus relictae, jus relicti or legitim will form part of the entitlement that a beneficiary under intestacy is entitled to.

In testate estates, however, where a party opts to receive their legal rights, the position is different.

As legal rights are a debt on the testate estate, which, as stated is not a right of succession, legal rights claimants are not “beneficiaries” of the testate estate, as such, but rather creditors.

This position was confirmed in Moss’ Trustees v Moss¹⁰:

“A widow is entitled on her husband’s death to one-third of the free moveable estate left by him; for that amount she is creditor on the estate. She is not a beneficiary…”¹¹

Because of the nature of legal rights in testate cases, executors do not owe the same duties to legal rights claimants as they would to a beneficiary under the terms of the Will. The duty owed is to notify any potential claimant of an entitlement to legal rights¹² and to arrange payment of the debt once the sum owed has been agreed.

How are legal rights to be paid?

Legal rights are met from the estate in the same manner as other debts, which was confirmed in Tait’s Trustees v Lees¹³:-

“the claim of the widow for jus relictœ must be made up, so far as the residue is concerned, out of the residue; next, if the residue be insufficient, then out of the fund which otherwise would be available for the general legacies; and lastly, if both these are inadequate, then to the extent required out of the subjects of the special bequests. This is the ordinary rule of ranking…”¹⁴

Cameron’s Trustees v Maclean¹⁵ confirmed that legal rights are to be met from this order of payment, and that a party cannot insist on being paid from the moveables, alone¹⁶.

A legal rights claimant is therefore only entitled to receive a cash sum equivalent to the amount of their jus relicti or their share of the legal rights fund. A claimant has no entitlement to any specific asset within the deceased’s moveable estate¹⁷.

How are legal rights dealt with?

In testate cases, a person who is entitled to receive legal rights can:

• Accept their legal rights entitlement;
• Discharge their legal rights entitlement (in life or on death); or
• Leave their legal rights entitlement undischarged.

These options will be discussed further in Chapter 13.

If a legal rights claimant is also entitled to receive a legacy or share of the estate under the terms of a Will, then they will need to elect whether to take their legal rights or their inheritance from the Will. This is the principle of approbate and reprobate, which is discussed further in chapter 14.

In intestacy cases, the entitlement to legal rights is automatic, but may still be disclaimed or varied in the same manner as any other entitlement to an estate.

What if legal rights are not dealt with?

This is an issue that will only apply in testate cases.

If legal rights are neither accepted nor discharged, long negative prescription applies, which means that they will automatically prescribe after the expiry of twenty years¹⁸.

Under the Prescription and Limitation (Scotland) Act 1973, the prescriptive period starts on the date “when any right to which this section applies has become exercisable or enforceable”¹⁹.

Generally, prescription will therefore run from the date of death.

In Campbell’s Trustees v Campbell’s Trustees 1950 SLT 82, Lord President Cooper stated:

“It is sufficiently plain that the normal terminus a quo for the running of the negative prescription against a claim of legal rights is the date of death of the deceased.”²⁰

That said, if a person is not capable of exercising or enforcing the claim as at the date of death, there can be scenarios where the “clock” for prescription does not start until later.

This can be seen in the case of Mill’s Trustees v Mill’s Executors²¹:

“Had the present been the normal case therefore prescription would have extinguished the second parties’ claim. But the Lord President [in Cambell’s Trustees] goes on in the immediately succeeding passage in his opinion as follows: ‘I say nothing of the specialties which may arise where a claim for legal rights is made in a case of supervening intestacy first emerging sometime after the date of death of the deceased in consequence of subsequent unforeseen events.’ In my opinion, a case of supervening intestacy does raise special problems which take the case out of the ordinary rule for fixing the terminus a quo for prescription. …

In the light of this solid body of authority it seems to me to follow that in ascertaining the terminus a quo from which negative prescription is to run the material date is not the date when the right in question vests or accrues, but the date when a claim was first enforceable by an action.”²²

The key part from the judgment is that the “material date” is when a claim is “first enforceable”. This will be particularly important in relation to minor or incapax parties, which are discussed later, where a claim may not be enforceable at the testator’s date of death.

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