Traditionally, when couples purchase a property, they do so as ‘Joint Tenants’.
When taking out a mortgage, I’m sure that lenders have been happy with that type of arrangement as both clients are then financially liable to ensure the loan or mortgage is repaid. The alternative, ‘Tenants in Common’ has been used where people may be ‘clubbing together’ to buy a property but they have no personal or financial relationship other than they are buying the property together. Under these circumstances, each person is responsible for their own share of the property and are not liable for the payments being made by others.
The majority of clients I see no longer have a mortgage and tend to own their property as Joint Tenants but I’m seeing more clients are now ‘splitting’ the ownership of the property into tenants in common, typically owning 50% each.
In the past, this was sometimes used as a means of mitigating inheritance tax but I’m seeing an increase, where clients and their beneficiaries would not be liable to this tax, but as an alternative, they are using this as a means of avoiding potential care costs. Under this type of arrangement, if one of the property owners died, they would then leave their share to perhaps their children with a life interest in the property for the surviving partner to remain in the property until their death or if they had go into long-term care. Therefore, the purpose is to ‘remove’ a percentage of the property from the surviving partners estate and this reduces their potential liability to care costs.
I’m not suggesting this is wrong, but it can cause problems when the survivor wants to take out Equity Release on their property as they are no longer the sole owner of the property as the beneficiaries, usually their children are also part-owners of the property.
Recently I had 2 such cases. The first was in her 80’s and unwell. She wanted to carry out some changes to her life ‘before it was too late’. Unfortunately, her former husband had left his share of the property when he died to his children from a previous marriage. These children had not been in contact for over 20 years and when approached, refused to allow any money to be taken from the property as this would be reducing their inheritance.
In the 2nd case, the client’s daughter had been the beneficiary of some type of trust and as she wanted her mother to raise money for her benefit, she was only too happy to make the legal changes to enable this to take place. Usually Equity Release takes no more than 6-8 weeks to complete, this took almost a year to sort out, cost a considerable amount extra in legal fees and thankfully, in this instance, everyone was on good speaking terms!
So I’m not saying that clients shouldn’t take steps to ensure children receive their inheritance but clients need to carefully consider their options before taking the legal steps to tie up their property.
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