You have probably heard the term ‘estate’ when it comes to inheritance. It generally means the money, property, assets, personal belongings etc of someone who has died. Their estate will also include any debts or other liabilities (such as utility bills or credit card balances) which that person had at the time of their death.
A person’s estate, after it has been gathered and valued, is dealt with according to the terms of their Will (if a valid Will exists) or following the intestacy rules (if there is no valid Will).
When you are planning for the future however, it is important to remember that there are some situations where property and assets will not pass into your estate, and so it will not be subject to the provisions of your Will or the intestacy rules.
Property which is held jointly could pass outside of your estate when you die. This depends on the way in which the joint property is held.
This could be as:
- Joint tenants: Joint property held this way will instead pass to the other joint tenant(s). This is often called ‘survivorship’;
- Tenants-in-common: Your share of joint property held in this way will form part of your estate.
By the way, the word ‘tenant’ in this context does not mean any kind of rental arrangement – all joint property you own will be held in one of these ways.
The ‘technical stuff’
The law treats ownership of any property, money, assets etc in two broad strands. There is ownership of the ‘legal title’ or ‘legal interest’ and there is ownership of the ‘beneficial title’ or ‘beneficial interest’. If you own something on your own, outright, then you can be said to own both the legal and beneficial interests in it.
If you only own the legal interest, you may have authority to make decisions about the property and otherwise control it, but you are not ultimately entitled to its benefit. Trustees own the legal title to trust property but everything they do with it must be in the best interests of any beneficiaries.
Going back to joint tenancies and tenancies-in-common:
- With a joint tenancy, the legal and beneficial interests are split equally between the joint tenants. When a joint tenant dies, their share of both of these interests is passed to the remaining joint tenant(s). The last surviving joint tenant will therefore end up owning the whole of the legal and beneficial interests.
- With a tenancy-in-common, the legal interests held by all the tenants will be split equally between them. The beneficial interests can be held in unequal shares – something which is not possible under a joint tenancy. When a tenant dies the legal interest will pass to the remaining tenant(s) but their beneficial interest instead forms part of the deceased tenant’s estate. This means that they can leave their share of it to whoever they wish in their Will.
Money held in joint bank accounts
A recent case highlights how these rules also apply to funds held in joint bank accounts, not just land or other physical assets.
The case of Whitlock v Moree  UKPC 44 involved a joint bank account in the Bahamas. The account was set up by Mr Lennard and his friend Mr Moree. Mr Lennard was the only one who paid into the account.
Mr Lennard died leaving around $190,000 in the joint account. The beneficiaries of Mr Lennard’s Will claimed that this money should go back into his estate by way of a ‘resulting trust’ (more on this below). The court had to decide whether this was the case or whether the money passed instead by survivorship to Mr Moree as he was the only remaining accountholder.
A resulting trust is a legal mechanism which can be used when it is unclear how beneficial ownership should be arranged. A resulting trust may arise where it cannot be shown that the contributing party intended to make a ‘gift’. The beneficiaries of Mr Lennard’s Will argued that he had not intended to gift the money in the account to Mr Moree.
If a resulting trust did arise, it would mean that Mr Moree was effectively a trustee for the money in the joint account. The beneficiary of that trust would be Mr Lennard (as the contributing party). However, as he had died, his estate would be the beneficiary instead.
The majority of the court ruled, however, that beneficial ownership of the joint account had been determined. They were drawn in particular to the bank’s terms for the account which stated the money was to be held on the basis of ‘joint tenancy’. As noted above, when one person dies, property held as joint tenants will pass to the other joint tenant(s) by survivorship.
The court stated that this rule applied as much to ‘money in bank accounts as to other property such as land or houses. Any examination of the intentions of Mr Lennard or Mr Moree was irrelevant as they had both signed the bank’s terms of the agreement when they opened the account.
What could this mean for me?
When planning your future, look at how any jointly-owned property is held. Is it as joint tenants or tenants-in-common? Does this fit into your plans of how you wish to pass on the property when you are gone? If you are unsure about any of these things, seek specialist legal advice.
At Roche Legal, we are reassuring experts who specialise in Wills, trusts, and estate planning. We have also helped many clients to ‘sever’ joint tenancies where they would prefer to hold joint property as tenants in common. Please contact us if you would like advice, or if you wish to discuss any of the issues raised in this article.