How does jointly owned property pass on death?

A person’s home is often their most valuable asset, representing the bulk of their estate on death. It is therefore important for any homeowner to be clear as to how their property will pass on death, particularly where there is more than one owner. In such cases, there are two possible modes of co-ownership: “joint tenants” and “tenants in common”. Each of these modes is subject to very different succession rules on death.

Where a couple own a property as joint tenants, they are jointly treated as a single entity that owns the entire property — as opposed to being treated as two individuals owning separate shares of the property. One analogy might be to think of a cake which is jointly owned by two people, both of whom are entitled to eat the entire cake. Neither of them can point to any particular part of the cake and call it exclusively theirs. When one of the co-owners dies, the cake remains intact and stays with the surviving owner, who continues to be entitled to eat the entire cake. Thus, when one joint tenant dies, the property always passes by the “right of survivorship” to the surviving joint tenant — irrespective of the terms of the deceased’s will. Technically, there is no transfer of the deceased’s share to the surviving joint tenant, as the latter’s share never was separate from the deceased’s.

By contrast, where a couple own a property as tenants in common, they are each treated as owning separate shares in the property. The couple can agree between themselves whether these shares should be equal or unequal. When one of the tenants in common dies, their share will not automatically pass to the surviving co-owner. Instead, their share will pass under the terms of their will (or, if there is no will, under the intestacy rules). So to continue the analogy, where the “cake” is owned as tenants in common, it is carved up into distinct portions and neither co-owner can touch the portion belonging to the other. Upon the death of one co-owner, their executors can then pass that portion on to the chosen beneficiaries of the will.

This “carving out” of shares in the property as tenants in common can be particularly useful for someone who co-owns a property with a partner or spouse and has children from a previous relationship. In such cases, a careful balance may need to be struck: on the one hand, you would probably want to ensure that your other half can comfortably continue to live in the property if they survive you; on the other hand, you would probably also want to ensure that, once your partner has died or no longer needs the property, your share will ultimately pass to your own children.

Usually, the most effective way to achieve these objectives is, firstly, to hold the property as tenants in common (so that your share will pass via your will) and, secondly, to prepare a suitably drafted will that leaves your share on a trust giving your partner a right to live in the property for as long as they need, but with your share ultimately preserved for your children.

The benefits of incorporating this kind of property trust into your will are as follows:

1. Your partner will not be able to redirect your share of the property to any beneficiary of their will because your share will be protected by the trust.
2. Should your partner eventually need to go into care and undergo a financial assessment for care fee purposes, they will be treated as owning just their own capital share of the property and not the capital share protected by the trust. It follows that your share of the property will not be eroded by the survivor’s care costs.

If you have any questions or concerns in relation to the ownership of your property and how it will pass on your death, or if you would like more information on how you can safeguard your loved ones’ inheritance by incorporating a property trust into your will, please do not hesitate to contact our Private Client team for specific advice.