When a person owns assets solely, they will be free to leave those assets to whoever they choose in their will. When two or more people own assets jointly however, this may not always be the case. When dealing with property in a Will, how jointly owned assets are owned needs to be ascertained as it can have an effect on what assets are giftable in the will.
When dealing with jointly owned assets it will normally be property and land which is being considered, which is what the majority of this article will be discussing. This may not always be the case however, for example jointly held bank accounts.
Jointly owned property overview
All jointly owned property is held on a trust of land. The legal title (the trustees) will be who is named as the proprietors on the land registry. The equitable title (the beneficial interest in the property) is separate from this. In the absence of any evidence to suggest otherwise, it will be that the owners of the legal title are holding the equity on trust for themselves.
This will be the situation in the majority of cases, but this may not always be the case. For example, other evidence may show that the owners of the legal title are holding on trust for themselves in unequal shares or holding on trust for other people.
There are two different ways that the equity in the property can be held; joint tenants and tenants in common.
Joint tenants is the more common and standard way for jointly owned property to be owned. Under a joint tenancy, each owner does not have their own share in the property and all are equally entitled to the whole property.
When one of the owners dies, the deceased owner’s interest in the property passes to the surviving owners. This is known as the right of survivorship. The deceased’s interest is not giftable by their will. When one owner remains, they become the sole owner of the property and their interest will be giftable by their will.
There is a benefit to holding assets as joint tenants. It does mean that probate is not required to transfer the property to the surviving owners. Of course, if the surviving owner is not who the testator wishes to benefit in their will it would not be advisable to hold as joint tenants.
It is important to note that even though a deceased’s joint tenant’s share is not giftable by their will, it is still taxable as part of their estate for inheritance tax. The deceased is treated as having an equal share in the property.
Tenants in common
If owners hold the equity as tenants in common, each owner has their own distinct share in the property. Each owner is therefore able to gift their share via their will.
Where property is held as joint tenants and the testator does not wish for their equitable interest to pass to the surviving owners, for example if they wish for it to pass to someone else or pass to a trust, they would need to change the ownership of the equity from joint tenants to tenants in common. This is known as a severance of the joint tenancy.
This can be completed either with the agreement of all equitable owners (a mutual severance) or if all the owners are not in agreement, a severance can be made by notifying the other owners of their intention to sever the tenancy (a unilateral severance).
Tenants in common is slightly more complex, but in some circumstances this is a much-needed way of owning the property. The term ‘severing the tenancy’ is a fairly literal statement as you are severing the bond of joint tenants that tie these shares together, meaning each proprietor can distribute their share of the property as they wish. When using Trusts in a Will over property, the property must be owned as tenants in common, otherwise the deceased’s share of the property will pass to the survivor(s) automatically which would cause the Trust to either fail, or the property not entering the Trust.
When WillPack draft Wills with a Trust for property, as part of the service we will search the Land Registry to check on the ownership, and if the property is held as joint tenants we will provide the appropriate forms for your clients to sign and date so that the title will show the property being owned as tenants in common. These forms should be sent back to us to forward on once they are signed.