Tenants in common – is it right for you ?

Tenants in common – is it right for you ?

Increasing numbers of homeowners are choosing to hold their properties as tenants in common to cut inheritance tax, avoid care home fees or protect their share. We explain how it works.

What is tenants in common? 

Typically couples own their home as joint tenants. This means that both own the whole of the home. If you own your home as joint tenants, then if one partner dies, the other automatically becomes the sole owner of the home.

With tenants in common each owns a set share – this can either be half each, or a defined percentage. A growing number of couples are now in second relationships with both parties having had children with a previous partner. With tenants in common one member of a couple can pass on their share of the home on death, say to their children, while the other member of the couple can continue to live there, passing on their half on death. It is also a way for couples who have put unequal deposits into a property to protect their share in case they split up, this can ease the fears of families gifting deposits to their children. For example, The property can be held as tenants in common, with a document showing one owner put in 70% of the deposit and one owner 30% and in the event of break-up and sale the initial deposits should be returned as such. Tenants in common can also prevent you have having to sell your home if you need to go into long-term care.

Why did tenants in common gain in popularity? 

The use of tenants in common arrangements by couples grew as a way of minimising inheritance tax liability.This enabled them to pass on the value of their home in two halves, with each member of the couple benefiting from their individual inheritance tax allowance in turn – effectively doubling the allowance. But in 2007, then Chancellor Alistair Darling announced that married couples and civil partners would be able to transfer their inheritance tax allowance to each other, removing the need for them to use tenants in common arrangements. The changes to inheritance tax meant that with immediate effect married couples and civil partners could pass on their individual inheritance tax allowance on death (£325,000 in 2012/13) - creating the ability to bequeath up to £650,000 tax-free. However, the rules do not apply to unmarried cohabiting couples or relatives living together.

How it works 

Due to the rising cost of housing, a property alone can push estates over the IHT threshold. If you own your home as joint tenants then both of you own the whole of the property, so when one partner dies, the other automatically becomes the sole owner of the home. With tenants in common, you each own a share of the property, typically split half and half.

There is no inheritance tax to pay on assets willed between husband and wife, so the surviving partner does not have to pay IHT. But when the second partner dies, those who inherit the estate, typically the children, would have to pay IHT. IHT is charged at 40% on any assets over the nil-rate band. When the Government introduced the ability to transfer inheritance tax allowances it only did so for married couples and civil partners.

Other joint owners can still benefit from tenants in common. By splitting the home in two, the half belonging to the first partner to die could be passed straight onto their children or any designated beneficiary. As long as the half is worth less than £325,000 then no tax will be due. When the second partner dies, their half, which is also inherited by children, may also be below the threshold, so again would miss IHT.

If you think that you, your partner and your family would benefit from an update of your existing Wills or new Wills to include severing the Joint Tenancy on your property to Tenants in Common get in touch we will be pleased to help.

Call us now on 01242 255 125 or email us at joan@graysgroup.co.uk. Further information can be found at graysgroup.co.uk.

Dying Intestate (without a Will), with an out of date or with a badly drafted Will

A badly drafted or out-of-date Will can do more damage than no Will at all!

A Will is a vitally important thing to write. But an incorrect, badly drafted or obsolete Will can be a huge headache.

A Will is an expression of your wishes regarding the management and distribution of your estate (your 'worldly goods') after you die. It's also a legal declaration in which you appoint one or more adults to manage your estate and transfer your property after your death.  Die 'intestate' (without a Will) and your property, personal possessions and other assets will be distributed according to intestacy law, rather than your personal wishes. In other words, all that you own will be at the mercy of a mishmash of laws created over several centuries.

Many Brits believe that when they die, their spouse or partner will receive all their wealth and goods. Actually, this is not the case. In fact, without a Will, your assets are distributed according to a strict legal pecking order.

The rules of inheritance

In England and Wales (the rules are different in Scotland and Northern Ireland), if you're married or in a Civil Partnership and have no children, then your husband, wife or same-sex Civil Partner will get:

• all your personal belongings, including cars and household articles;
• £450,000 tax-free (or your entire estate if valued at less than £450,000); and
• half of the estate above £450,000, also tax-free. 

The remaining half of your estate (if any) will be shared by:

• any surviving parents;
• if you have no surviving parents, then brothers and sisters;
• if you have none of the above, then your husband, wife or Civil Partner gets everything. 

If you're married or in a Civil Partnership and have children, then the rules are slightly different.

In this situation, your husband, wife or Civil Partner will get:

• all your personal belongings, including cars and household articles;
• £250,000 tax-free (or your entire estate if valued at less than £250,000); and
• a life interest in half of your remaining estate (on your death, this will go to your children). 

The rest of your estate will be shared by your children.

If you and your partner live together and aren't married or in a Civil Partnership, then things get even more complicated. In fact, without a Will, your other half won't automatically get any of your estate when you die. If you haven't provided for your partner, then his/her only option is to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975.

If you die without leaving a surviving spouse or Civil Partner, then your estate is distributed:

• equally among your surviving children (or to their children if they died while you were still alive);
• if you have no surviving children, then equally among your parents;
• if you have no surviving parents, then to your brothers and sisters (or to their children if they died while you were still alive);
• if you have no brothers or sisters, then equally among half-brothers and half-sisters (or to their children if they died while you were still alive);
• if none of the above, then equally among your grandparents;
• if you have no grandparents, then equally among your aunts and uncles (or their children if they died while you were still alive);
• if none of the above, then equally among half-uncles and half-aunts (or their children if they died while you were still alive);
• if none of the above, then to the Crown. 

Wow, how complicated was that? My brain needs a break!

Why make a Will?

Obviously, the best reason to make a Will is to ensure that you dodge intestacy and avoid the painful sharing-out described above. If you fail to make a Will, then your loved ones could receive less than you wanted, thanks to money going to family members who may not need or deserve it.

In addition, if you have been married more than once, then you may wish to leave something to your ex-partner, especially if you had children together and even if your ex is living with someone else.

Reducing your Inheritance Tax bill

Another important reason to make a Will is to minimise your Inheritance Tax (IHT) bill. Anything you leave to your spouse or Civil Partner is not usually liable to IHT. However, your other half's estate will be boosted by your estate and could be liable itself to IHT one day.

The first £325,000 of your estate is in the 'nil-rate band' for IHT, with tax charged at 0% (zero). Above this threshold, there is a flat rate for IHT of 40%, so you will lose two-fifths of all your wealth above this limit to the taxman.

What's more, if you want to make charitable donations after your death, or even leave your entire estate to charity, then you must make a Will. All charitable donations are free of IHT. If you donate a tenth (10%) or more of your estate to charity, then your IHT rate will also drop by a tenth, falling from 40% to 36%.

Finally, making a Will makes the whole process of administering your estate and applying for probate (the right to manage and distribute your estate) so much easier. Without a Will, this red tape piles up, creating yet more misery for mourning relatives.

When Wills turn toxic

A Will should be a 'living document' -- a contract that changes and evolves as your life and circumstances change. A badly drafted or outdated Will can be a time-bomb waiting to explode, blowing up your estate after your death.

What this means is that when you make major changes to your life, your will should change too. Otherwise, your Will could become obsolete, making the settlement of your estate a bureaucratic nightmare and causing family rifts among your relatives.

In particular, you should draft or redraft a Will (or add a supplement called a 'codicil') if you marry, enter into a same-sex Civil Partnership, separate or divorce, or if your Civil Partnership is dissolved. The birth of another child or children may also require you to redraft your Will.

If you make a major change to your housing circumstances (for example, moving from being an owner to a tenant or care-home resident), then you may no longer have a home to leave to your relatives. So selling your home or moving house could be another trigger to redraft your Will.

Where to get a Will

Most Brits wanting a Will ask a local firm of solicitors to draw one up. However, this is not always the best option, because firms often assign this task to the lowest-paid, least-experienced and least-qualified junior lawyers. Sometimes, these young legal eagles make horrible mistakes that don't come to light for years or even decades.

That's why we always recommend getting a Will from a member of STEP, the Society of Trust and Estate Practitioners. STEP members specialise in Wills, trusts and estates, making them experts in this field. Grays Ltd Wills Consultant Gill Hassaine is an accredited member of STEP so get in touch knowing that your new Will will be prepared by an expert.

Once you have a current Will, then keep it in a safe place and tell your executors and close relatives where it is.

FREE Wills Guide

If you would like further information on wills, we've produced a handy FREE guide, click here for more details.

To arrange a Will planning meeting with our Wills Consultant call us now on 01242 255 125 or email us at joan@graysgroup.co.uk.

What should be included in a will

You should give some thought to the major points which you want included in your will. You should consider such things as:

• How much money and what property and possessions you have, for example, property, savings, occupational and personal pensions, insurance policies, bank and building society accounts, shares.
• Who you want to benefit from your will. You should make a list of all the people to whom you wish to leave money or possessions. These people are known as beneficiaries. You also needs to consider whether you wish to leave any money to charity.
• Who should look after any children under 18.
• Who is going to sort out the estate and carry out your wishes as set out in the will. These people are known as the executors.

FREE Wills Guide

If you would like further information on wills, we've produced a handy FREE guide, click here for more details.


For a confidential chat about your will or to book a Will planning appointment at your home call us now on 01242 255 125 or send an email to joan@graysgroup.co.uk.

The risks of not having a Last Will and Testament

Here are a few examples of what can go wrong if you do not make a will:

• David’s parents died within a few months. He and his sister were left a large sum each. Unfortunately, this meant that David was no longer eligible for state benefits, a situation that could have been avoided if his parents had set up a Discretionary Trust in their wills, giving him income payments that don’t affect his benefits.
• Ivy had 6 grandchildren. She wanted them each to have something from her house as a memento, but as she hadn’t made a will, everything was sold and the grandchildren had nothing to remember her by.
• Helen’s career took off after her separation from Mike. Unfortunately she died in a car crash before she had made a new will, leading to a lengthy and expensive legal case for her family.
• Asha and Steve had been living together for years but hadn’t married, so when Asha died of cancer Steve found he had no rights to her assets and had to leave their rented house.
• Alan had children from a previous marriage. When he died, Kath inherited everything as he had not made a will. A Trust in his will would have protected the inheritance of Alan’s children.
• Harry had to go into a care home as he couldn’t manage by himself any longer. The fees were so high that his house was sold and when he died there was nothing left for his son to inherit, so he couldn’t give his father the wonderful send-off Harry had planned.
• Susan had no family and wanted to leave everything to her best friend Amy, who had nursed her through her illness; however, as Sue hadn’t written a will, she died intestate, and with no relatives, all her estate went to the Crown, against her wishes.
• Benjamin hadn’t written a will but before he succumbed to dementia he had been adamant he wanted a natural burial in a wicker coffin with no ceremony. His wife Avril had pre-deceased him though, and his only surviving relative, a distant cousin, Seb, organised a grand church funeral he would have hated.

These are all scenarios that could easily be avoided by writing your last will and testament.

It’s bad enough when someone dies, but to then have to deal with settling someone’s estate with no clear idea of what assets there are or what their wishes would have been is a very big headache indeed, especially added to grief and possibly fear of their own future. And these sorts of headache tend to be time consuming and expensive. So take that step and arrange to have your will written for you in your own home to give you and your loved ones peace of mind.

FREE Wills Guide

If you would like further information on wills, we've produced a handy FREE guide, click here for more details.

To arrange a Will planning appointment at your home call us on 01242 255125 or email us at joan@graysgroup.co.uk.

Bernard Matthews' mistress in row over will

Bernard Matthews, the turkey magnate, created a crisis on his death. It emerged that he had a mistress, and that he wanted her to have his £12 million St Tropez villa.

Three of his children are fighting his wishes. So what is happening, and what does it tell us about money and death?

Personal Life

Bernard Matthews made an impressive £40 million fortune from his turkey empire. However, his personal life was less straightforwardly successful. Early on he married Joyce, who helped build his empire. While he was with her he adopted three children, Kathleen, Jason and Victoria.

Later, he had a relationship with Dutch aristocrat Cornelia Elgershuizen - who gave girth to his son George. And after that he started a long-term relationship with Odile Marteyn. However, he never divorced Joyce, and Marteyn remained his mistress until his death two years ago at the age of 80.

The Estate

The law doesn't make allowances for complexity, so under French law, after his death, his St Tropez property would be split, and most of it would belong to his adopted children.

Matthews tried to pre-empt this, by writing to his children in the years before he died and explaining that he wanted Villa Bolinha to go to Marteyn. In his letter he wrote: "Odile has supported me unfailingly for many years and particularly so during my recent illnesses. Without such support, I might not have been able to continue directing our family company for our mutual benefit."

The letter continued: "In reaching my decision I have taken into account the fact that each of you is very well housed with at least one property each and that, directly or indirectly, I have provided financially for each of you over a very long period of years."

The Battle

The majority of his estate went to his son George, who accepted Matthews' wishes for the villa. However, the other three children decided not to follow his directions, and the case has now come to court. They are asking for their share of the villa (around 56%), and want the inheritance tax due on the French property to be paid from his English estates (owned by George).

The judge ruled that there was nothing Marteyn could do to hold onto their share of the villa. However, he denied the children the opportunity to claim that the inheritance tax should be paid from his other properties outside France.

Learning from this

It is a complicated state of affairs. The family set-up itself is far from traditional. Matthews cannot have created a harmonious situation when leaving £1 million in cash and a £12 million property to his mistress, the bulk of his fortune to his son by birth, and nothing to his adopted children (beyond the generous gifts he gave during his lifetime).

Any complex situation, with divided loyalties and long-running emotional issues is never going to be entirely straightforward. However, there are two vital things we can take away from this when it comes to money and death.

Law

The first is that the law does not take account of what we want. English law is a bit different to that in France, because if you state what you want, and give strong reasoning for any unusual decisions, then in by far the majority of cases your wishes are honoured. However, if you die without a will then your estate is divided according to the laws of intestacy, and here you run the serious risk of a horrible surprise.

Under these rules, generally your spouse will get the first £250,000 of your estate and a life interest in the rest. The rest will tend to be divided between children or surviving parents, depending on your precise situation. If you are unmarried, you may well find that your partner is left with nothing.

Families

The second rule is that money does strange things to people - especially those going through the trauma of bereavement. You may think you know your family and friends, and that you know how they will act after you pass away. However, history is littered with court cases from surviving families who chose instead to fight over the estate.

It means we cannot rely on anyone to sort things out for us after we have gone. It is up to us to decide what we want, and to write a will to ensure this is exactly what happens - no matter how complex our personal and family lives.

FREE Wills Guide

If you would like further information on wills, we've produced a handy FREE guide, click here for more details.

If you would like help on deciding what you want in your will contact us now for a confidential meeting on 01242 255 125 or you can email us at joan@graysgroup.co.uk.

Who are Executors?

Executors are the people who will be responsible for carrying out your wishes and for sorting out the estate. They will have to collect together all the assets of the estate, deal with all the paperwork and pay all the debts, taxes, funeral and administration costs out of money in the estate. They will need to pay out the gifts and transfer any property to beneficiaries.

Who to choose as executors

It is not necessary to appoint more than one executor although it is advisable to do so, for example, in case one of them dies. It is common to appoint two, but up to four executors can take on responsibility for administering the will after a death. The people most commonly appointed as executors are

• Relatives or friends
• Professional adviser or accountants

It is important to choose executors with considerable care since their job involves a great deal of work and responsibility. You should always approach anyone you are thinking of appointing as an executor to see if they will agree to take on the responsibility. If someone is appointed who is not willing to be an executor, they have a right to refuse.

FREE Wills Guide

If you would like further information on wills, we've produced a handy FREE guide, click here for more details.

For further information on executors or to arrange a Will planning meeting call 01242 255 125 or email us at joan@graysgroup.co.uk.

What is the ‘Pay when you die scheme’?

At the moment up to 40,000 people per year are forced to sell their homes to pay for care costs. However, as of July this year it was announced that a new scheme is coming into action by 2015. This new scheme called ‘pay when you die’ is aiming to allow elderly people to stay in their homes and receive care rather than having to sell their homes to pay for care costs. Health secretary Andrew Lansley said: “Our plans will end the scandal of people being forced to sell their home to pay for their care. From 2015, everyone will be able to get a loan instead of having to sell their home while they are alive. I recognise that we can go further. We can enable people not to lose everything they have worked and saved for if they need care for several years.” In other words, watch this space. What the scheme will do is enable people to get a loan to cover the costs of their care from their local authority whilst they are alive and this money is then recovered from their estate when they die.

The White Paper also set out plans to:

 

• Abolish the postcode lottery for social care by bringing in a national threshold for access
• Introduced rules that will make it harder for councils to permit home help visits of only 15 minutes
• Announced plans to provide millions of pounds to help people stay in their own homes
• Stated that the government is considering free social care for the terminally-ill to help them stay at home. 

Ministers also want to cap the amount the elderly and disabled have to pay for their care but have yet to come to any agreement as to how best to do this. Michael Kitts, partner, government and public sector, at PricewaterhouseCoopers, says some progress has been made, but 'many questions remain unanswered' and the issue of future funding has not been properly addressed. ‘There is still lots of uncertainty. For example, the level, and application of any cap on care costs; how residual costs beyond the cap are funded by local authorities and others, and the practical details of loan schemes, such as how local authorities can fund the cost of care, which will be an immediate requirement, pending the agreement of any loan. But local authorities cannot wait until all of this becomes clear to take action. The demographic shift and demand for care services is not going away. By 2033, a tenth of the population will be over 75.'

In the meantime Andrew Lansley also said they were going to implement ‘consistent criteria for access to care and support, and we’re going to build quality into this system where we stop contracting by the minute and we give quality ratings on care providers and we’re going to give people much more control of their own care – personal budgets for everybody and information and advice to help them to secure to care and support they need’.

So it seems that there may been cause to belief that care costs will get easier to manage, however, there is still a way to go. But for now it is reassuring to know that at least we are heading in the right direction. For more in depth advice on this new scheme and on how it may affect you do not hesitate to get in touch with one of us and we will try and answer our questions as thoroughly as possible.


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For further information and advice on this scheme please call 01242 255125 or email us at joan@graysgroup.co.uk. Visit www.graysgroup.co.uk to see our range of services.