Unofficially adopted children are unfairly missing out on inheritance

There’s no such thing as a typical 2021 family.

Some people marry, then remarry, gain stepchildren, adopt – every family unit is totally different. 

So it’s only natural to think laws and rules surrounding inheritance and wills would reflect this.

But this simply isn’t the case.

There are certain groups of people – including unofficially adopted individuals and stepchildren – who are missing out on the same inheritance rights as biological children. 

Annie*, 63, from North London, was raised by her biological uncle Jack*, 98 – after her mum and dad decided they didn’t want to look after her anymore.

Having been brought up by Jack since she was a baby, Annie very much views him as her own dad.

However, there was never any formal adoption.

Annie tells Metro.co.uk: ‘I was brought up by my paternal uncle (my biological dad’s brother) from a baby in the 1950s, due to my mother having severe postnatal depression and other mental health difficulties. I was never formally adopted as my uncle always thought my natural parents might one day be in a position to have me back. 

‘Due to my mother’s deteriorating mental health problems, it was felt advisable that all contact between my parents and me should cease – so the family were estranged in 1959.

‘I lived with my uncle until in my 20s at his home and he dealt with my own traumas of separation. He brought me up as a single dad and never married – he had his hands full with me. 

‘Since then, we have been very close, seeing each other several times a week and holidaying together yearly. We (I now have children) are his only family and he is ours. In the latter years I have been his carer because he is now approaching 100 with severe health needs.’

However, due to the way inheritance works for those who are not officially adopted, Annie will lose out when Jack dies – despite him leaving his family home to her in his will.

This is because of the Residence Nil Rate Band – which refers to the additional amount that could be passed on tax-free against the value of the family home.

Niamh Minihane, a partner at Gardner Leader in the inheritance protection team, breaks this down in a little more detail.

She says: ‘With the Residence Nil Rate Band, each individual has an allowance regarding inheritance tax and it’s called a Nil Rate Band.

‘Currently, the value is £325,000 – but if you have a property or if you’ve owned a property, and in your will you leave your estate to your direct descendant, then you may claim an additional threshold before inheritance tax of £175,000, bringing the total allowance to £500,000. 

‘This is known as the Residence Nil Rate Band. You do need to meet other certain criteria to claim this extra allowance.

‘However, the Residence Nil Rate Band – although includes step-children or foster children – it excludes people who haven’t got children but want to leave it to nieces and nephews or persons who they view as a child.’

With no legal legislation saying that Annie is Jack’s daughter – paired with the fact that you cannot adopt someone once they pass the age of 18 – this is why she misses out. 

So Annie will have to pay more inheritance tax than a biological child, inheriting their parent’s home.

Annie adds: ‘We both felt it was unfair that the family house he left to his “daughter” and “grandchildren” will have to be sold when he dies.

‘He lived there from a child and our long-term family home will be above the threshold of the inheritance tax law for people who are not formally adopted. 

‘He has been more of a father to me than many father, but in the eyes of the law he is no more than an acquaintance.’

Speaking about Annie’s situation, Niamh adds: ‘That relationship has formed between them and they consider each other father and daughter but, legally, she isn’t a direct descendant so his estate wouldn’t be entitled to the Resident Nil Rate band.

‘So as far as inheritance tax is concerned, then yes potentially there’s going to be more tax to pay than if she had been a legally adopted child.’

Annie is very aware there must be others in a similar situation to her. 

She adds: ‘I’m sure there are millions of people in the country who have been unofficially adopted who are not aware of this problem.’

But it’s not just the children that this issue is affecting.

Some parents are also worried about how these rules will affect children they’ve raised. 

Andrew*, from St Albans, met his former partner and raised her young son as his own. After getting married soon after, the couple then had a daughter together.

He says: ‘I raised my partner’s son as my own from the age of two. I never adopted him because he still kept a small amount of contact with his natural father and it didn’t seem important at the time.’

But Andrew explains that because he never formally adopted his son, this will cause problems when it comes to his will.

Andrew adds: ‘He and my natural daughter are very close, and my estate will be divided equally between the two of them, but it pains me that my son will pay a much larger amount of tax on his share of the inheritance than my daughter. 

‘It seems very unjust and I hope it doesn’t come between them when I die.  

‘I have considered changing my will to leave everything to my daughter, with a request that she splits my estate equally with her brother, but that would just burden him with a tax liability for a gift, rather than an inheritance.

‘Really, the main objection to doing this is that I never wanted my son or my daughter to be treated any differently and it is repugnant to have to look for loopholes in the tax laws, just so my two children can each receive their rightful due.

‘I know the argument that my son could benefit from the wills of two different fathers, and might possibly inherit more than my daughter at the end of the day, but in actual fact his natural father has been jobless and in poor health for years, owns no property and is not likely to leave him very much at all.’

There are also problems when someone dies without making a will – also known as Intestacy Rules.

If this is the case, it completely and utterly excludes unofficially adopted children and even stepchildren.

Niamh adds: ‘If you die without making a will, you have to follow the Intestacy Rules and that does absolutely not include stepchildren in any way whatsoever. 

‘If you die, they wouldn’t benefit. I was instructed to administer an estate where a parent died intestate and was raising a child that was not their own biological or adopted child (as their own and in accordance with the Intestacy Rules) her biological child inherited and the step-child was not included as a beneficiary.’

Niamh adds that these are issues that arise every day in her job and thinks the rules don’t really reflect typical families in 2021.

She adds: ‘It’s difficult as there are lots of people who have been raised as a child of the family and – although they will be mentioned in the will  and will receive inheritance – it will come with a price.

‘I think, as time goes on, because of the way dynamics of families are now, it’s just so complex and its’ very very common to have a second marriage and stepchildren, and I think it does need to be addressed to make sure that everybody’s treated fairly.’

*Names have been changed.

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