“How is your joint property held” is a question we ask every client undertaking estate planning or making a will.
The answer can potentially have very significant consequences, particularly where the family home is the main asset.
For some, the ability to hold property as either joint tenants or tenants in common may be very familiar concepts. For others, the decision of how to hold the family home has often been made many years ago or was not something ever actively considered.
Other clients have undertaken estate planning many years ago, which resulted in their property being held as tenants as common. However, when the couple have moved, the new property has inadvertently been purchased as joint tenants, potentially undermining any estate planning they have put in place.
Where property is held as joint tenants, on the death of one owner, the property passes automatically to the other, regardless of the provisions of that person’s will.
But in contrast, where property is held as tenants on common, when one person dies, the share belonging to them passes in accordance with the terms of their will.
Many family homes are held as joint tenants, as this is often seen as the “default” for married couples and although this may work well for many people, it is not always the best option.
Considerations for the future
Consider a second marriage, where the first to die wishes to protect their share of the property for the children of previous relationships. If the home is held as joint tenants, the surviving spouse has complete control after the first death – they could give the property away or they could leave it in their Will to their own children or to a new spouse if they remarry. If they die without a Will, the laws of intestacy will decide who will inherit this on their death and this will not include step-children.
The possible unintended consequences of holding a property as joint tenants are clearly demonstrated by a recent case where a married couple were both found dead at their home. It was unclear who had died first and each had a daughter from a previous relationship.
The couple held their home (and their bank account) as joint tenants, meaning that whoever died second would inherit the other’s share.
Where it cannot be determined who has died first, the law considers this to have been the older person, in this case the husband. As a result of this, the wife was deemed hold all the assets at her death and her daughter inherited everything. The husband’s daughter inherited nothing. Had the property been held as tenants in common instead, each daughter would have received half.
How it affects estate planning
Holding property as tenants in common can also sometimes be useful even where the ultimate intended beneficiaries are the same for each joint owner.
Many people choose to include Nil Rate Band Trusts in their Wills on the first death, not least because this allows up to £325,000 to be held outside the Estate of the survivor, providing protection of this sum from care fees. If the main asset is the family home, it is often necessary to ensure that the share belonging to the first to die passes under their Will in order to have enough value to make full use of this Trust. This will not happen where property is held as joint tenants.
These are the key features of joint tenants vs tenants in common but whether they are pros or cons can be subjective and frequently depends on individual circumstances. It’s important to obtain legal advice before committing to one option over another so that you know that you’re making the right choice for you and your family.
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