A person’s will can deal with most property that they own at the time of their death. However, there are a number of assets that would not pass into a person’s estate at their death.
Life policy proceeds
Life policy proceeds may form part of a deceased’s estate and can be gifted by their will. However it is relatively common for these to be placed into trust so that they do not form part of the deceased’s estate. The intentions behind this are:
- As the proceeds are outside of the estate, they do not need to pass through probate and therefore the beneficiaries can receive the proceeds sooner.
- By placing the proceeds in trust, those proceeds will not be taken into account when inheritance tax is calculated (unless it is in trust to pay off a mortgage).
If life policy proceeds are in trust, clients should contact their policy providers in order to change their beneficiaries.
Death in service benefits
Similar rules apply to death in service benefits. These may form part of the estate. Alternatively it may be held in trust and will pass outside of the estate. In such case, clients should contact the provider of the death in service benefit to nominate their beneficiaries.
The deceased can name whoever they want to benefit from the benefits, however the trustees of the death in service benefit have a discretion as to who will receive the benefit. They are not bound to follow the wishes of the deceased, but in most cases will.
Pension benefits will pass outside of the will and cannot be gifted by the will. Clients should contact their providers to name who they would like to receive any pension benefits.
Property held as Joint Tenants
Where an asset is held by multiple people as Joint Tenants, they are not seen as having their own ‘share’ in the asset and instead they all own the whole asset together.
On the death of a joint tenant, their interest passes automatically to the surviving joint tenant(s) outside of the will. When one joint tenant remains, they will own the asset absolutely. This is known as passing by survivorship.
If a client wishes to deal with their interest in an asset held as joint tenants in their will, they would need to firstly sever their Joint Tenancy to Tenants in Common.
The family home, investment properties and joint bank accounts are commonly owned as joint tenants.
Interests under a trust
If a person has an interest under a trust, for example they are the life tenant of a life interest trust or a potential beneficiary under a discretionary trust, their interest cannot be gifted by their will as the trust owns those assets. It should be noted however that a life tenant’s interest would be taken into account when inheritance tax is calculated.
Property held in a fiduciary capacity
Any assets a person holds as an executor or trustee does not form part of their estate at death.
Nominated assets are not as commonplace as they used to be. They were intended as an alternative for making a will for those who could not afford a will or whose estate could not easily afford a grant of probate.
These are assets that a person owns and can dispose of by nominating a beneficiary when they die. This is usually by making some type of nomination to the body holding the asset. The asset would pass directly the beneficiary as soon as the body holding the asset is informed of the death.
The most common example of statutory nominations found now are that some registered Friendly Societies and Trade Unions allow statutory nominations to be made for sums less than £5,000.
Donatio mortis causa
Gifts made donatio mortis causa are gifts made immediately before a deceased’s death. These gifts will not pass into a person’s estate and instead to the intended beneficiary.
In order for a gift to qualify, there are four conditions that must be satisfied:
- The gift was intended to be conditional on the deceased’s death
- The gift was made in contemplation of death
- Before death, the deceased parted with the gift in some manner.
- The subject matter of the gift is capable of passing by donatio mortis causa