You have just bought your new home. It was a long and stressful process, culminating in the day of completion, picking up the keys and moving in. What an ordeal. Take a big sigh of relief, you are now the owner of a new home – you did it! And here’s to the next
chapter in your life.
But how do you own it? Many people will not be able to answer that question, because conveyancing solicitors are not always very good at explaining the different ways that you can own a property as a couple, and the reasons why owning property in joint names, whilst the default, is not always the best way.
So, what does home ownership have to do with estate planning and why is it so important when it come to writing your will? Everything, that’s what. I often find myself explaining this to solicitors because I want them to make their clients aware of the consequences of choosing
i) Joint Ownership, or
ii) Tenants in Common ownership when it comes to estate planning.
The law of Survivorship – when you own something jointly this means that together a couple owns 100%, and the law of survivorship means that when one person dies the survivor automatically inherits the deceased’s share of the property. This happens even without being included in a will. Great if you don’t have a will and you want your spouse or partner to inherit your home on your death, but this does rule out any other options for estate planning and brings the full value of the property into the survivor’s estate, which may not be helpful in the longer term. It is also not very clever to think that you don’t need a will!
If you own your property as Tenants in Common, the title documents registered with the Land Registry will have what is known as a Form A restriction. This means that the two named owners each have legal title to 50% of the property (or some other %, if so decided).
A subtle difference, you may think, but in the eyes of the law the distinction is huge, because owning your property as tenants in common will give you many protections and options:
- You can leave your 50% share of your property to anyone you choose, including the co-owner, but you must do this in a will, and keep your will up to date.
- You can give your partner or spouse rights to continue living in the house for a specified period of time, typically until death, but you can also choose a date such as when minor children reach a certain age, or when your spouse/partner remarries. To do this you need to request the establishment of a Property Protection Trust in your will, which means that on your death your 50% share will be placed in trust for your ultimate beneficiaries (often children) and you can grant your partner/spouse a life interest in the property meaning they can stay living there.
- By using a Property Protection Trust you can ensure that the value of your half of the property is not lost to your surviving partner’s new partner’s descendants in what is known as Second Marriage Syndrome. We have all heard stories of a family’s wealth being diverted to another bloodline because the right estate planning was not put in place. These trust arrangements are not as complex as you might think and can prevent huge family rifts that can occur when children are unintentionally disinherited by a parent’s new family or step family.
- When a property is owned as tenants in common it cannot be sold without the consent of both co-owners, and a Form A restriction alerts third parties to the existence of the tenancy in common and the need to pay purchase monies to all co-owners. This is a useful protection should one co-owner move out of the property during a relationship breakdown.
- Another little-known fact is that you can also ringfence a proportion of your property value from being claimed by the local government for funding of care fees. In the South East it is not uncommon for a care home resident to have to pay £50,000 a year in fees, and if there is not sufficient income or other assets in your name to pay for this, the family home that you had hoped to leave to your children or grandchildren can be sold and the proceeds used to fund the care. It is not expected that you pay for your spouse’s care, only your own. Therefore if you leave your share of the home entirely to your spouse/partner you could ultimately be funding their care. It is much more difficult, however, for the local government to claim rights over a property that is only part owned by the person requiring care, and if they do manage it they can only claim the % that is owned by the resident. Of course some people may feel that they do want to help fund their partner’s care because perhaps they feel that better quality care is accessible as a self-funder. This is perhaps a debate for another article.
I know that house purchasing can be a lengthy and tough process, but please do not fall into the trap of just nodding your head in exhaustion when your conveyancing solicitor asks you if you wish to own your property jointly. Think carefully about what that means to you and your
estate planning options.
As a side point, if your marriage ends in divorce don’t think that because you own 50% of the house on the title deeds that you will walk away with 50%, the division of assets in this scenario brings into consideration far more than what is written on the Land Register, and often this will be a matter for the courts. If you are not married, however, it is important that you agree a % split that reflects a fair contribution that you have made to the relationship as this does bear greater weight should a disagreement ensue.
Owning as Tenants in Common is about ring fencing your share and protecting what ultimately happens to your home. Surely every homeowner should be interested in doing that.
If you would like a complimentary video call appointment to discuss any area of wills or estate planning, please do not hesitate to get in touch with me, Emily Pool, on 07786 854048.