The BTO Personal team and Residential team get together in this blog to discuss the pros and cons of using survivorship destination in house titles.
Home ownership is likely to be one of the biggest investments you will make in your lifetime. It follows that it may also be one of the most valuable assets in your estate at death. Therefore, it is important how you take title to the property.
What is a survivorship destination?
Survivorship destinations are a clause often found in the title deeds to a property where there is more than one owner. To find this, look for the following wording, or similar: “The property is disponed to [Person 1] and [Person 2], equally between them, and to the survivor (or survivors) of them”.
At the time of purchase, the clause will be included in the Disposition which you sign, and you should have been consulted on this by your solicitor. If your title deeds include a survivorship destination and you or a co-owner were to die, ownership of the property would automatically pass to the survivor.
Should I have a survivorship clause?
- Certainty – Survivorship clauses offer certainty that ownership of your property will pass to your partner or co-owner regardless of whether you have a valid Will in place at the time of your death.
- Unmarried couples – Survivorship clauses are particularly useful for couples who are buying a property but who do not wish to marry. Cohabitants do not have any entitlement to each other’s estate, but a survivorship clause guarantees that a surviving partner would automatically gain sole ownership of the property.
- Does not pass through your estate – Survivorship clauses trump your Will provisions and intestacy laws (where you die without a Will). This ensures that neither you nor your partner would be subjected to legal rights claims against the property, which otherwise may have necessitated the sale of the home or the “buying out” of a claimant.
- Can be revoked – In the event of divorce, the clause is deemed to be automatically cancelled. Alternatively, co-owners can choose to revoke the clause by joint agreement.
- Cannot be revoked unilaterally – You and your co-owner must agree to revoke the clause before it can be. This can become problematic if one party wishes to revoke the clause but the other refuses (or is unable to consent due to incapacity as an example) to the revocation. This is in stark contrast with a Will, which can be drafted according to your own personal wishes and continually updated with relative ease.
- Separation does not affect the clause – In the event of separation from your co-owner, you may choose to update your Will if there are nominated as a beneficiary. However, the survivorship destination contained in the title deeds to the property will remain unaffected by this update unless you formally divorce. This means that despite a separation and updated Will, property could pass to an estranged spouse, even if they have not lived there for years.
- Trust provisions can be ineffective – The clause is problematic in the creation of trusts, as the property can be restricted from entering the trust.
- Potential negative tax consequences – There can also be tax consequences and financial costs to an inappropriate survivorship destination. It could affect the way that property is transferred on death, meaning that careful tax planning and specific bequests in a Will in order to minimise inheritance tax costs could be drastically affected.
The Conveyancer’s summary
When two or more parties are purchasing a property, it is our duty to inform them of the various ways that they can take title. This can be equally between them, equally and to the survivor of them or such other proportional split which may be based on each party’s contribution to the price.
Although survivorship clauses in title are somewhat unpopular with solicitors, due to their aforementioned lack of flexibility, it is still fairly common for clients to include them. Many clients may not fully appreciate the benefits of having a Will in place to deal with their affairs and some might wrongly assume that if their only asset is a property, and a survivorship clause is included in the Title, then there is no requirement for a Will.
However, as conveyancers, we must continue to stress the importance of having a Will in place as, ultimately, the whole property will form part of the survivor’s estate at some point in the future.