Dealing with Property and your Home and Probate Issues |
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Digby Bew gives a detailed example of how a home can be owned and some of the probate issues associated with these.
Jack lives with his wife, Jill, in their matrimonial home,‘Dunfallin’. Although its antiquated water supply requires regular visits to a nearby well at the top of a neighbouring hill, the property’s sought-after rural location has seen a steady increase in its value over the years. Tragically, Jack trips and suffers a head injury whilst out fetching water, and despite Jill’s ministrations, involving the copious use of vinegar and brown paper, Jack dies. How is Dunfallin to be dealt with following Jack’s untimely death?
The first question is whether the property was owned solely by Jack. If so, ownership of the property will pass according either to the terms of Jack’s Will or, if none, the intestacy rules, which govern the devolution of assets when an individual does not leave a Will.
On the other hand, if Dunfallin is owned jointly by both Jack and Jill, then ownership of the property will pass automatically to Jill, as the surviving joint owner, and irrespective of any provision that Jack may have made in his Will about the property although one then also has to consider the manner in which the underlying value of the property itself (the beneficial interest) is to be dealt with, and this will depend upon whether the joint ownership is in the form of a joint tenancy or, alternatively, a tenancy in common, and, if the latter, as to the proportions in which the beneficial interest is divided as between Jack and Jill.
The basis of ownership of the property (solely by Jack or jointly as between Jack and Jill) can usually simply be determined by reviewing the title for the property. A search of the property’s address on the HM Land Registry website will reveal whether the title to the property is registered, as will generally be the case, and a copy of the registered title can then be purchased. Specialist advice is probably best taken at this point (and if the title to the property is not yet registered), but broadly the entries on the title register will be divided into three parts; the Property Register, the Proprietorship Register and the Charges Register. Ownership of the property is set out in the Proprietorship Register which will detail the legal owner(s) of the property; thus, if Jack is the sole owner of the property, his will be the only name appearing in the Proprietorship Register whereas, if the property is owned jointly by Jack and Jill, both of their names will appear in the Proprietorship Register, in which case one should also check to see if there is a further entry in the Proprietorship Register, which is described as a ‘Restriction’ and which is most likely to be in the following form:
‘RESTRICTION: No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises if to be registered unless authorised by an order of the court.’
If both Jack and Jill are detailed as the registered proprietors on the Proprietorship Register but there is no Restriction entered, then they will own the property as joint tenants; entry of such a Restriction is indicative of their owning the property as tenants in common.
Let us assume, however, that the title to the Dunfallin shows Jack as the sole owner of the property, and let us further assume that he has left a Will in which he has appointed Jill as the sole executor and left his entire estate to her. The property is therefore part of Jill’s inheritance under Jack’s will, but a process nevertheless has to be completed by which the title to the property is transferred from Jacks’ name into Jill’s own name, enabling her then to be able to deal with the property in her own right in the future. It would not be sufficient simply to approach the Land Registry with a copy of Jack’s death certificate and Will and ask for such a transfer into Jill’s name to be completed; after all, how, for example, would the Land Registry know that the Will produced to it was, indeed, Jack’s last Will?
Our assumption is that by his Will Jack has appointed Jill as the executor of the Will. In other words, Jill is given the legal responsibility, by the executorship office, for collecting in all of all assets standing in Jack’s sole name, and in that capacity is given initial, representative, legal ownership; she must then use the available value to pay taxes, debts and the expenses associated with the estate administration process; finally she must attend to the distribution of remaining assets under the terms of Jack’s Will to the entitled
beneficiaries.
Jill’s first step in this process will be to ‘prove’ the Will, by which she will apply to the Court for an order, know as a grant of probate which, among other things, will officially confirm her appointment as the estate’s representative to deal with the assets of Jack’s estate. Application for the grant of probate can be made personally at the Probate Registry or professional assistance obtained. Once she has the grant of probate, and assuming that she is able to meet all payments that have a call on the assets of Jack’s estate, she can then complete a form of Transfer, placing the property into her sole name, and which, when filed with the Land Registry, will enable the Proprietorship Register for the property’s title to be updated to now show her as the new sole owner of the property.
If Jack has not made a Will, and not therefore appointed an executor, or has left a Will but without an executor who is willing or able to act in that office, an application can nevertheless be made to the Probate Registry for the appointment of someone to take on the administration of the assets of Jack’s estate; in the case of an intestacy (where Jack has not left a Will), the application is for a grant of letters of administration, and in the case of an ‘executor-less’ Will, the application is for a grant of letters of administration (with will annexed).
If the legal ownership of Dunfallin is in the joint names of both Jack and Jill, the title process is considerably simpler since all that is required is to be able to demonstrate the death of a joint owner; the survivor succeeds to ownership of the property in their own right without any further formality. Thus, Jill simply sends the death certificate to the Land Registry and the Proprietorship Register is updated to show Jill now as the surviving, sole, legal owner of the property.
However, in that case, there remains the additional question of what to do with Jack’s beneficial ownership of his share of the value of the property; this is not necessarily determined in the same way as ownership of the property itself, and has to be considered by reference to the form of joint ownership of Jack and Jill’s respective shares in the underlying value of the property, technically known as the property’s equitable interests. When the property was originally purchased, Jack and Jill’s solicitor will have asked them whether they wished to own their equitable interests as joint tenants or tenants in common. More often than not, they will have opted for a joint tenancy; as indicated above, if the equitable interests are held on a joint tenancy by the joint owners, then, on the death of one joint tenant, the deceased’s equitable interest passes to the survivor automatically and irrespective of anything that the deceased joint tenant’s Will might say in that respect.
But, it might be that Jack and Jill both wanted to be able to control what is to happen to their respective equitable interests in the
property after a death, perhaps for tax or asset protection reasons; in that case they would have opted for their joint ownership of the equitable interests to be in the form of a tenancy in common, which also enables them to agree an unequal division of entitlement in the value of the property. If ownership of the equitable interest is as tenants in common between Jack and Jill, then, whilst they remain joint owners of Dunfallin whilst they are both alive, and, on the death of one of them it is the survivor alone who retains the sole power of dealing with the property, nevertheless, each of their equitable interests is a discrete asset belonging to that individual and therefore passing under his or her Will, or as the case might be.
Let us assume, therefore, that, rather than leaving his estate in his Will to Jill in her own right, Jack had provided that after his death, his estate should pass into a trust in which Jill might potentially benefit but where the decision as to how that trust might eventually be distributed would be left to trustees appointed in Jack’s Will; and further that Jack and Jill own Dunfallin as tenants in common in equal
shares.
On Jack’s death, ownership of Dunfallin belongs solely to Jill although if she did wish to deal with the property in the future, perhaps deciding to downsize and sell the property, she would need to appoint an additional person to act with her in undertaking that transaction; however, this would remain solely her choice and, pending that decision, she would continue to be able to live, undisturbed, in the property as her home. What has changed, following Jack’s death, is that the equitable interests are now divided equally between Jill and the trustees of Jack’s Will Trust. Thus, should the property be sold in the future, Jill would only be entitled to one half of the net proceeds of the property’s sale in her own right and the other half would have to be accounted for to the trustees of Jack’s Will Trust. It might be that they would wish to assist Jill in the purchase of her new home from the Trust’s share of the proceeds of the sale of Dunfallin, but this would have to be their decision in exercise of the various discretionary powers that Jack’s Will will have given to the trustees in those circumstances.
This sort of ring-fencing can be particularly advantageous when considering family estate planning; without compromising the survivor’s security of occupation in the family home, such an arrangement could be used to facilitate future inter-generational gifting whilst side-stepping challenges that are otherwise posed by the inheritance tax gift with reservation of benefit rules and the pre-owned assets income tax charge; equally value is protected in such a structure against claims that might otherwise be made against that value were the value to belong to the survivor in their own right. Furthermore, a valuation advantage can be obtained on the survivor’s later death in the valuation of the survivor’s own equitable interest in the property for inheritance tax purposes where it should be possible to obtain a discount of, perhaps, 10% - 15% against the strict mathematical equivalent of the proportionate share.
Perhaps Jack and Jill, in the distant past, had purchased Dunfallin as joint tenants, but have since seen the advantages offered by
ownership of the property as tenants in common with appropriately structured Wills for estate planning purposes. It is always possible subsequently to convert a joint tenancy into a tenancy in common; the most common, but not the only, method is by one joint owner serving a notice of severance on the other as provided for in section 36(2), Law of Property Act 1925. But even here there can be difficulties for, whilst the giving of such a notice is a unilateral act, which does not in any way depend upon the agreement of the recipient, nevertheless the notice still needs to be served with section 196, Law of Property Act 1925providing that such a notice is effectively served if either:
- left at the last-known place of abode or business in the United Kingdom of the person to be served;
- sent by registered post to the person to be served at their place of abode or business.
Although Henderson J.’s decision Quigley v Masterson [2001] EWHC 2529 (Ch) illustrates that, in appropriate circumstances, the court can assist and ‘... should lean in favour of severance when it properly can’, nevertheless an important process which has a fundamental bearing on the way in which a deceased joint owner’s equitable interest in a property devolves needs proper, and thorough, attention and should not be left unresolved.
May 2012
Disclaimer:
Jack lives with his wife, Jill, in their matrimonial home,‘Dunfallin’. Although its antiquated water supply requires regular visits to a nearby well at the top of a neighbouring hill, the property’s sought-after rural location has seen a steady increase in its value over the years. Tragically, Jack trips and suffers a head injury whilst out fetching water, and despite Jill’s ministrations, involving the copious use of vinegar and brown paper, Jack dies. How is Dunfallin to be dealt with following Jack’s untimely death?
The first question is whether the property was owned solely by Jack. If so, ownership of the property will pass according either to the terms of Jack’s Will or, if none, the intestacy rules, which govern the devolution of assets when an individual does not leave a Will.
On the other hand, if Dunfallin is owned jointly by both Jack and Jill, then ownership of the property will pass automatically to Jill, as the surviving joint owner, and irrespective of any provision that Jack may have made in his Will about the property although one then also has to consider the manner in which the underlying value of the property itself (the beneficial interest) is to be dealt with, and this will depend upon whether the joint ownership is in the form of a joint tenancy or, alternatively, a tenancy in common, and, if the latter, as to the proportions in which the beneficial interest is divided as between Jack and Jill.
The basis of ownership of the property (solely by Jack or jointly as between Jack and Jill) can usually simply be determined by reviewing the title for the property. A search of the property’s address on the HM Land Registry website will reveal whether the title to the property is registered, as will generally be the case, and a copy of the registered title can then be purchased. Specialist advice is probably best taken at this point (and if the title to the property is not yet registered), but broadly the entries on the title register will be divided into three parts; the Property Register, the Proprietorship Register and the Charges Register. Ownership of the property is set out in the Proprietorship Register which will detail the legal owner(s) of the property; thus, if Jack is the sole owner of the property, his will be the only name appearing in the Proprietorship Register whereas, if the property is owned jointly by Jack and Jill, both of their names will appear in the Proprietorship Register, in which case one should also check to see if there is a further entry in the Proprietorship Register, which is described as a ‘Restriction’ and which is most likely to be in the following form:
‘RESTRICTION: No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises if to be registered unless authorised by an order of the court.’
If both Jack and Jill are detailed as the registered proprietors on the Proprietorship Register but there is no Restriction entered, then they will own the property as joint tenants; entry of such a Restriction is indicative of their owning the property as tenants in common.
Let us assume, however, that the title to the Dunfallin shows Jack as the sole owner of the property, and let us further assume that he has left a Will in which he has appointed Jill as the sole executor and left his entire estate to her. The property is therefore part of Jill’s inheritance under Jack’s will, but a process nevertheless has to be completed by which the title to the property is transferred from Jacks’ name into Jill’s own name, enabling her then to be able to deal with the property in her own right in the future. It would not be sufficient simply to approach the Land Registry with a copy of Jack’s death certificate and Will and ask for such a transfer into Jill’s name to be completed; after all, how, for example, would the Land Registry know that the Will produced to it was, indeed, Jack’s last Will?
Our assumption is that by his Will Jack has appointed Jill as the executor of the Will. In other words, Jill is given the legal responsibility, by the executorship office, for collecting in all of all assets standing in Jack’s sole name, and in that capacity is given initial, representative, legal ownership; she must then use the available value to pay taxes, debts and the expenses associated with the estate administration process; finally she must attend to the distribution of remaining assets under the terms of Jack’s Will to the entitled
beneficiaries.
Jill’s first step in this process will be to ‘prove’ the Will, by which she will apply to the Court for an order, know as a grant of probate which, among other things, will officially confirm her appointment as the estate’s representative to deal with the assets of Jack’s estate. Application for the grant of probate can be made personally at the Probate Registry or professional assistance obtained. Once she has the grant of probate, and assuming that she is able to meet all payments that have a call on the assets of Jack’s estate, she can then complete a form of Transfer, placing the property into her sole name, and which, when filed with the Land Registry, will enable the Proprietorship Register for the property’s title to be updated to now show her as the new sole owner of the property.
If Jack has not made a Will, and not therefore appointed an executor, or has left a Will but without an executor who is willing or able to act in that office, an application can nevertheless be made to the Probate Registry for the appointment of someone to take on the administration of the assets of Jack’s estate; in the case of an intestacy (where Jack has not left a Will), the application is for a grant of letters of administration, and in the case of an ‘executor-less’ Will, the application is for a grant of letters of administration (with will annexed).
If the legal ownership of Dunfallin is in the joint names of both Jack and Jill, the title process is considerably simpler since all that is required is to be able to demonstrate the death of a joint owner; the survivor succeeds to ownership of the property in their own right without any further formality. Thus, Jill simply sends the death certificate to the Land Registry and the Proprietorship Register is updated to show Jill now as the surviving, sole, legal owner of the property.
However, in that case, there remains the additional question of what to do with Jack’s beneficial ownership of his share of the value of the property; this is not necessarily determined in the same way as ownership of the property itself, and has to be considered by reference to the form of joint ownership of Jack and Jill’s respective shares in the underlying value of the property, technically known as the property’s equitable interests. When the property was originally purchased, Jack and Jill’s solicitor will have asked them whether they wished to own their equitable interests as joint tenants or tenants in common. More often than not, they will have opted for a joint tenancy; as indicated above, if the equitable interests are held on a joint tenancy by the joint owners, then, on the death of one joint tenant, the deceased’s equitable interest passes to the survivor automatically and irrespective of anything that the deceased joint tenant’s Will might say in that respect.
But, it might be that Jack and Jill both wanted to be able to control what is to happen to their respective equitable interests in the
property after a death, perhaps for tax or asset protection reasons; in that case they would have opted for their joint ownership of the equitable interests to be in the form of a tenancy in common, which also enables them to agree an unequal division of entitlement in the value of the property. If ownership of the equitable interest is as tenants in common between Jack and Jill, then, whilst they remain joint owners of Dunfallin whilst they are both alive, and, on the death of one of them it is the survivor alone who retains the sole power of dealing with the property, nevertheless, each of their equitable interests is a discrete asset belonging to that individual and therefore passing under his or her Will, or as the case might be.
Let us assume, therefore, that, rather than leaving his estate in his Will to Jill in her own right, Jack had provided that after his death, his estate should pass into a trust in which Jill might potentially benefit but where the decision as to how that trust might eventually be distributed would be left to trustees appointed in Jack’s Will; and further that Jack and Jill own Dunfallin as tenants in common in equal
shares.
On Jack’s death, ownership of Dunfallin belongs solely to Jill although if she did wish to deal with the property in the future, perhaps deciding to downsize and sell the property, she would need to appoint an additional person to act with her in undertaking that transaction; however, this would remain solely her choice and, pending that decision, she would continue to be able to live, undisturbed, in the property as her home. What has changed, following Jack’s death, is that the equitable interests are now divided equally between Jill and the trustees of Jack’s Will Trust. Thus, should the property be sold in the future, Jill would only be entitled to one half of the net proceeds of the property’s sale in her own right and the other half would have to be accounted for to the trustees of Jack’s Will Trust. It might be that they would wish to assist Jill in the purchase of her new home from the Trust’s share of the proceeds of the sale of Dunfallin, but this would have to be their decision in exercise of the various discretionary powers that Jack’s Will will have given to the trustees in those circumstances.
This sort of ring-fencing can be particularly advantageous when considering family estate planning; without compromising the survivor’s security of occupation in the family home, such an arrangement could be used to facilitate future inter-generational gifting whilst side-stepping challenges that are otherwise posed by the inheritance tax gift with reservation of benefit rules and the pre-owned assets income tax charge; equally value is protected in such a structure against claims that might otherwise be made against that value were the value to belong to the survivor in their own right. Furthermore, a valuation advantage can be obtained on the survivor’s later death in the valuation of the survivor’s own equitable interest in the property for inheritance tax purposes where it should be possible to obtain a discount of, perhaps, 10% - 15% against the strict mathematical equivalent of the proportionate share.
Perhaps Jack and Jill, in the distant past, had purchased Dunfallin as joint tenants, but have since seen the advantages offered by
ownership of the property as tenants in common with appropriately structured Wills for estate planning purposes. It is always possible subsequently to convert a joint tenancy into a tenancy in common; the most common, but not the only, method is by one joint owner serving a notice of severance on the other as provided for in section 36(2), Law of Property Act 1925. But even here there can be difficulties for, whilst the giving of such a notice is a unilateral act, which does not in any way depend upon the agreement of the recipient, nevertheless the notice still needs to be served with section 196, Law of Property Act 1925providing that such a notice is effectively served if either:
- left at the last-known place of abode or business in the United Kingdom of the person to be served;
- sent by registered post to the person to be served at their place of abode or business.
Although Henderson J.’s decision Quigley v Masterson [2001] EWHC 2529 (Ch) illustrates that, in appropriate circumstances, the court can assist and ‘... should lean in favour of severance when it properly can’, nevertheless an important process which has a fundamental bearing on the way in which a deceased joint owner’s equitable interest in a property devolves needs proper, and thorough, attention and should not be left unresolved.
May 2012
Disclaimer: