Assets passing by survivorship - considered as 'inherited'?

Trusts Discussion
1

Hi all,

I currently have a contentious probate matter which I’ll try to make as short as possible.

Husband and wife owned property 1 and property 2 as joint tenants (both properties were next door to each other, and, without looking at the title, could be assumed to be on one title but were two separate ones).

Husband severed the joint tenancy on property 1, not on property 2. Property 1 now owned as tenants-in-common; property 2 still owned as joint tenants.

Wife died first, then husband died. Property 1 passes under the terms of the wife’s will (to the husband). Property 2 passes to the husband by survivorship.

Under the husband’s will, it provides that any assets he has “inherited” from his wife are to be split equally between his two children, and any solely owned assets go to his son.

My question is, as property 2 passed to the husband by survivorship on the wife’s death, does this count as him having ‘inherited’ from his wife, or are assets passing by survivorship as having reverted to the surviving owner by right, and so not ‘inherited’.

I’ve looked in the usual books, and can’t see any guidance or case law on Lexis - any help would be appreciated.

Thank you in advance,

Josh

2

I would suggest that under a joint tenancy between H and W the surviving joint tenant automatically “inherits” the other joint tenant’s interest.

For RNRB purposes, IHTA 1984 s 8J(2) provides that an inheritance occurs “if there is a disposition … whether effected by will… or otherwise”. In this context “or otherwise” includes property passing by survivorship.

Malcolm Finney

3

I respectfully disagree on the basis that, under a joint tenancy, both joint tenants are considered to own the whole of the asset. Technically, there is no inheritance as such as the survivor has not gained/received an asset (albeit their interest might be considered more valuable as the deceased can no longer sever and walk away with a share).

The concept of “shares” of a joint tenancy is only a fiction for inheritance tax purposes. I am not sure you can translate that back into the law of property/succession.

All that said, given it is clearly a mess rather than a cunning plan, I would have thought it essential to try to establish what the parties were trying to achieve and, if that can be identified, that might be the better construction of the wording (if you can escape the four corners doctrine).

2 Likes
4

I note Andrew’s careful faultless legal analysis but I’m not sure that is where H was a coming from.

I would have thought that in H’s mind his intention was that if only he had owned an asset then he wanted the asset to pass to his son. H would I suspect (presumably not a lawyer) have assumed that Property 2 had been owned by himself AND W (without necessarily appreciating the difference between joint tenants and tenants in common) and “inherited” by him on W’s death and thus would have intended that Property 2 should pass to his two children.

But who knows??

Malcolm Finney

5

I believe that the right of survivorship operates so that a deceased’s former equitable interest does not become part of his real and personal estate: AEA 1925 ss 1(1) and (3), 3(1) and (4). He was not “entitled to it at the date of his death”. He cannot leave it by his Will. It is thus not available to pay his debts: ss32,34, Sch 1 Part II. So the deceased joint owner, here the wife, strictly, has nothing for anyone to “inherit” and the survivor, here the husband, does not strictly “inherit” the share which passes to him by operation of law and not by will or intestacy. So in my view it became property “solely owned” by him.

This assumes that the term is not defined or, on a proper construction, is to be given any different contextual meaning. Cases show that, upon probative evidence adduced, the deceased used a term, here the term “inherited”, as a label to include the other half of the formerly jointly owned property. There may be evidence here of why formal lifetime severance was only effected as to Property1, especially given their physical configuration, as long as this was intentional and not through confusion about the the title numbers. Was any advice given at the time or is there any other evidence for not severing Property 2?

(The deceased may be jointly and severally liable for a debt charged on the joint property. The liability will be for the entire debt, and devolves on his PRs, and if the security is insufficient his estate will have to pay the excess, unless he has an expressly agreed contractual right of contribution).

IHT is different because of of s4(1) IHTA as the charge is based on a fictional transfer of the value his estate immediately before his death:s4(1). So her joint interest was chargeable because she owned it beneficially at that moment but of course exempt as spouse transfer. Furthermore, the subsequent decrease in a person’s estate’s value caused by the survivorship transfer is to be ignored:s171(2). In s142(1) the words “or otherwise” permit post-death notional severance and variation of a deceased’s share (as if a tenant in common).

At general law a will cannot effect a severance but there are decided cases which indicate that mutual wills, properly so called and not merely mirror wills, can effect severance if the operation of the doctrine is inconsistent with the right of survivorship. This is based on there being a lifetime agreement of the kind that underpins the doctrine. Other cases indicate that it may be successfully argued on appropriate facts that severance occurred by mutual conduct of joint owners during their lifetime inconsistent with a joint tenancy subsisting at the first death.

I mention these for completeness as it is precisely in contentious probate that such cases, which are highly fact- and evidence-dependent, will be cited (often out of desperation). Evidence that there was no Form A restriction on the register for Property 1 is significant though not conclusive. Similarly, in the other direction, if the wife’s will specifically bequeathed her interest to a third party but even perhaps as here to her husband. She may just not have not been advised, properly ot at all, or misunderstood advice, that she had nothing to bequeath but it might evidence a lifetime agreement to sever, at least if corroborated by other evidence particularly on the part of the husband.

Jack Harper

6

I had not seen Malcolm’s post before replying but his not being a lawyer may well indicate that H as a lay person in his own mind understood that he “inherited” Property 1 from his wife, that being his non-technical understanding of the effect of the right of survivorship, given that it operated upon and in consequence of her death. It would require positive evidence to that effect. Were there other assets apart from Property 1 which he “inherited” under her will and that his own will beqeathed to the two children? Was that pursuant to an understanding with his wife? That might not amount to mutual wills/conduct but it might shed light on how he personally interpreted “inherited”.

Jack Harper

7

I could have added that to my comments on s142. I do not accept that one can read into a Will a technical definition from a tax Act unless there is evidence that the testator understood he was using the word in that precise context. I do concede that it is possible that a testator who had been advised of RNRB could do so.

Jack Harper

8

Interestingly (or not) I just came across the following appearing in HMRC “Tax on Money, Property and shares” namely,

’ Joint tenants
You automatically inherit anything you owned as ‘joint tenants’.

However, I completely agree with both Andrew’s and Jack’s flawless analysis.

Nevertheless, I am still not convinced that’s how the courts would interpret H’s will as per my post above.

Malcolm Finney

9

As you say Malcolm, it might take the Court to sort this out or some settlement to avoid that.

It is easy to be wise after the event but I hope I would have not fallen into this trap as a draftsman. If a client instructed me that he wanted to leave property “inherited” from his wife in a particular way, having established that he owned property jointly with her by my questionnaire, I am reasonably certain my draft would have made clear what he wanted to do about that.

Most property solicitors regard it as best practice to provide clients with a handout explaining joint ownership but of course that would have happened if at all on purchase. I think it is at least best practice to refresh a client’s memory on taking instructions for a Will. It might be more serious than that on the facts if that is not done.

Often clients will indicate that they do not know if they are tenants in common or not, let alone what it means, and an HMLR search is desirable verification. A form A or nonewould be a big hint if no more. A current declaration of what they wish to be is sometimes in order, even if they do not want a change, for the avoidance of doubt. If both co-owners are alive it needs to be explained to one or both clients that if they are joint tenants they cannot actually leave their share by Will. This will be counter-intuitive to the non-technically savvy.

Jack Harper

10

I think the Carr-Glyn case makes interesting reading in this regard.

Malcolm Finney

11

Very much to the point https://www.bailii.org/ew/cases/EWCA/Civ/1998/1325.html

Jack Harper

12

I appreciate that I am coming late to this discussion, but surely the starting point for construction is the dictionary definition, and not how the word might be interpreted by various statutes which do not directly apply.

The New Collins Concise English Dictionary (Collins) defines “inherit” as: “to receive (property, etc.) by succession or under a will”.

I have seen reference in older tomes to a co-owner “succeeding” to property by survivorship, which would suggest that such property would be “inherited” under the Collins definition.

To my mind, this may be a case where the testator has created their own dictionary, but the will drafter has failed to identify the meaning intended by the testator.

As Andrew Goodman earlier observed - it essential to try to establish what the parties were trying to achieve – so I suggest a review of the will file to see if there is any indication there as to the testator’s expectation/intention.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

13

Hi all,

Thank you all for your responses to this. It’s obvious it’s not necessarily clear-cut, and is arguable either way.

To add to some of the background, the Will file only refers to the title of property 1 being severed. There is no mention of property 2. When the will was written, our client is of the opinion that his father had full capacity (knowing the will writer, I don’t believe they would have done the will without having full confidence in the capacity), and that he knew that property 1 and property 2 were on separate titles. To me, on this basis, the testator didn’t intend to sever property 2’s title.

Property 1 was severed so that if the testator died before his wife, his 50% share would go to his son, rather than to his wife.

In the will also, the testator also makes clear that he is giving different levels of legacies to his two children, given their different financial situations, so intended that his son should receive more, so perhaps believed that property 2 would pass to his son entirely, and not form part of the assets inherited from his wife.

Thanks again all!

Josh Hayward

14

Property litigation practitioner here. I agree, at least on first principles, which of course should not be relied on for tax purposes. It’s not a “disposition” when A becomes sole owner of property of which A and B were joint owners when B dies.