When planning your estate and drafting a Will, the type of property ownership you hold can significantly impact your intentions and the distribution of your assets after your death. In the UK, property can be owned in two main ways: as joint tenants or tenants in common. Understanding the difference between these forms of ownership and why you might want to sever a joint tenancy in favour of a tenancy in common when making a Will is crucial for effective estate planning.
Joint Tenancy vs. Tenants in Common
Joint Tenancy
In a joint tenancy, each co-owner has an equal share of the property. The key characteristic of joint tenancy is the right of survivorship. When one joint tenant dies, their share automatically passes to the surviving joint tenant(s), regardless of what is stated in the deceased's Will. This means that the property will not be part of the deceased's estate and cannot be bequeathed to someone else.
Tenants in Common
In contrast, tenants in common own distinct shares of the property, which may be equal or unequal. Each tenant in common can dispose of their share as they wish. When a tenant in common dies, their share of the property is distributed according to their will or the rules of intestacy if there is no will.
Why Sever a Joint Tenancy?
Control Over Property Distribution
One of the main reasons to sever a joint tenancy is to ensure control over how your share of the property is distributed upon your death. By converting to tenants in common, you can specify in your will who inherits your share of the property. This is particularly important in blended families or situations where you wish to leave your share to children, other relatives, or even charitable organisations.
Protecting Your Beneficiaries
Severing a joint tenancy can also protect your beneficiaries. For instance, if you wish to leave your share of the property to your children from a previous marriage, remaining as joint tenants would automatically transfer your share to the surviving co-owner, potentially disinheriting your children. Tenancy in common allows you to clearly outline your wishes and ensure your chosen beneficiaries receive their intended inheritance.
Protection from Care Home Fees
Another significant advantage of severing a joint tenancy is the potential protection it offers against care home fees. If you or your co-owner requires residential care in the future, owning the property as tenants in common can help safeguard a portion of the property's value. When the local authority assesses an individual's assets to determine their contribution towards care home costs, only the share owned by the person requiring care is considered. Therefore, by severing the joint tenancy and each owning 50% of the property as tenants in common, you can protect the other half of the property's value from being included in the means test.
This means that if the surviving co-owner ends up in a care home, their share would be the only part assessed for fees, therefore, potentially preserving 50% of the property's value for your beneficiaries. This protection can be a crucial aspect of long-term financial planning and ensuring your estate benefits your loved ones as intended.
Tax Efficiency and Estate Planning
From a tax perspective, severing a joint tenancy can offer more flexibility in estate planning. By holding the property as tenants in common, each co-owner’s share can be handled separately for inheritance tax purposes. This might provide opportunities to utilise available tax allowances and reliefs more effectively, potentially reducing the overall tax burden on your estate.
The Importance of Severing Joint Tenancy
Severing a joint tenancy to become tenants in common is a crucial step in ensuring your estate is distributed according to your wishes. It provides greater control over property inheritance, protects your beneficiaries, offers potential tax advantages, and grants flexibility in financial planning. When making a will, it is advisable to review your property ownership status and consider severing any joint tenancies to align with your estate planning goals.
At RJM Solicitors, we understand the importance of proper Will writing and estate planning to provide you with peace of mind. Our team of experienced professionals is dedicated to assisting you in crafting a comprehensive estate plan that safeguards your assets and directs them to the people you hold dear.
Don't leave your family's future to chance, contact RJM Solicitors today to take advantage of our expertise and safeguard your legacy for generations to come.
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