In Scotland, where two or more people buy a property together, they should be faced with the decision of whether to include a so-called “Survivorship Destination” or not. It is surprising how many property owners do not know how their title and interest in a property is held.
Ownership can be held with a Survivorship Destination or in “pro indiviso” shares. Putting it simply, the key difference is what happens when one of the co-owners dies. If title is held “jointly between X and Y, and to the survivor”, and X or Y die, then their half share of the ownership in the property automatically transfers to the named survivor. Where title is held pro indiviso, each half of the property is dealt with by the individual’s Will, or (where there is no Will), under the law regulating intestate succession.
As mentioned, where a title contains a Survivorship Destination, either party’s share, should the first of them die, will pass automatically to the survivor immediately upon death of the first party. There is no requirement for any other legal process to transfer the property and as such no additional costs associated with same.
It is relatively common for a husband and wife or unmarried couple to purchase a property in joint names with a survivorship destination. The inclusion of a Survivorship Destination provides security for the surviving spouse or partner as it cannot be overruled by a Will, even where the Will is written years after the purchase of the property. This is especially reassuring for property owners who are not married and therefore do not have the same legal protections and rights which a spouse has automatically. A Survivorship Destination cannot be altered without the agreement of all the owners.
Despite the advantages of automatic transfer of the property, Survivorship Destinations are not appropriate in all circumstances. The existence of this provision can have an inadvertent and unexpected adverse effect in terms of Inheritance Tax and care home cost planning, particularly if one or the other spouse/partner becomes incapacitated and revocation of the Survivorship Destination becomes impossible. Additionally, a Survivorship Destination only deals with what happens to the ownership of the property on the first death and does not make any provision for what should happen to the property when the surviving owner death. As such, care should be taken when including such a provision in the title and, where it is already in place, consideration may need to be given to its removal (a so called “evacuation of the survivorship”) where appropriate.
Pro indiviso shares
Owning the property pro indiviso provides each of the title holders with more flexibility with regard to what happens with their share of the property upon their death. You may still choose to pass your share of the property to the surviving co-owner by provision in your Will. However, there may be benefits to dealing with the property differently.
Holding title to your property in pro indiviso shares can help protect you from possible future care home costs. It can be a way to avoid a share of a property being automatically inherited by a surviving co-owner when that happening is not in the best interests of the survivor or either party’s family / beneficiaries. One solution is for your share of the family home to pass to the next generation on your death either outright or through a Trust. This means that on first death, the deceased’s one half share of the property will pass to the beneficiary(ies) of choice who will then own the one half share of the property. The survivor continues to own their own one half share. Therefore, if the survivor ends up in care having to pay for their care, only half of the property will be considered by the council when calculating those costs. The second half of the property is owned by the beneficiaries and will not be used to pay for the care home. However, it is important that individuals consider the risks of transferring assets to your family members whilst a surviving spouse or partner still require the use of the assets.
Which option is best?
Both Survivorship Destinations and pro indiviso titles have their benefits, and it really depends on the specific circumstances as to which is more suited to a person’s needs and aims. If you own your property jointly you should find out how your title is held and determine whether this reflects your true wishes. A solicitor would be able to confirm how title is held by looking at the title Deeds. In order to evacuate a Survivorship Destination, you require the permission and signature of both owners of the property. As such, if you are wanting to protect the family home from possible future care homes, it is important to do this sooner rather than later. How a title to property is held is also an important consideration when seeking to mitigate any Inheritance Tax liability.
In either case, it is important that you have a Will in place to ensure that your property and any other assets pass to beneficiaries of your choice. Even where you have a Survivorship Destination in your title deeds , this does not make provision for what happens to the whole property when the survivor dies If there is no Will in place, your assets will be dealt with by the laws of intestacy and this could mean that your assets are inherited by people you would never have chosen or would specifically wish to disinherit.
If you already have Wills in place, make sure you are reviewing these periodically to ensure that they still reflect your current circumstances. If anything significant has altered in terms of your personal circumstances or relationships, you should take advice.
If you have questions about property Titles in a Will, or if you have any questions about drafting a Will please contact Graeme Dickson in our Private Client team on 03330 430150 or by email at firstname.lastname@example.org or contact a member of the Private Client team.