Remember to Sever the Tenancy
Property Trusts and more specifically Life Interest Trusts are one of the more common type of trust put into a modern day Will. There is really no doubt that having a property trust in your Will is an extremely useful provision. Whilst the Trust ensures that your spouse can remain living in your home and receive any income once you pass away, it also ensures that your property is protected for your children for the future.
There are important things to remember when drafting a Will to include a Property Trust, which are crucial further on down the line. Namely, where there is a Property Trust included, a Severance of Tenancy will also need to be carried out, or the Trust will not take effect when you die and when your Will eventually comes into force.
Why is this?
Put simply, there are ultimately two ways of owning property, Tenants in Common and Joint Tenants. Most properties are owned as Joint Tenants initially, however, in order to set up this trust a property must be owed as Tenants In Common, which means that both parties own defined 50/50 shares in the property. Where a property is owned as Joint Tenants, there are no defined shares and subsequently, upon the death of one of the joint owners, the whole property automatically passes to the survivor by survivorship. Alternatively, with Tenants in Common, as both parties own defined 50/50 shares in the property, each may gift their share however they wish and leave instructions in their Will to that effect.
Where do the problems lie?
It is far more frequent that you may think, to reach the administration process once the first spouse passes away, with a Life Interest Trust in their Will, but to find that the tenancy was never severed, ultimately meaning that the Trust will fail.
There are ways of remedying the mistake, by way of Retrospective Severance, which is effectively a Deed of Variation treating the property as though it had been severed in the first place. However, this can be costly and of course incurs unnecessary costs from your estate.
It is also a frequent occurrence whereby a Will is drafted to include a Life Interest Trust and the tenancy is correctly severed at the time, but the parties then move to a new property and do not make a point of having the new property owned by way of Tenants in Common, rather than the more common Joint Tenants.
Ultimately, it is important to make sure that the correct provisions are in place whilst you are alive, in order to avoid extra costs and unnecessary action during the administration process when you die.
For further information on property ownership and severance of tenancy, you can visit the Government website by using the following link:
Estate Case Manager
SWW Trust Corporation