It is usually never a good time to die, but did you know that the exact time of day of your death could have major consequences for who inherits your estate? This is a genuine and very real problem for [married] couples who jointly own property and die in a common accident. The operation of Property Laws of Succession in relation to joint assets, combined with a ‘rule’ to determine who is deemed to die first in an accident, creates unexpected results and has devastating financial consequences when couples die either Intestate (without a Will) or with poorly drafted wills that each have different beneficiaries.
A common example will show the various permutations that can so easily occur. Husband (H – aged 66) and Wife (W – aged 65) have no children and die in a motorway crash. They have no children. H has no surviving parents, but a brother he has not seen or spoken to for 25 years. The W has a sister. They own their home (worth £275,000) and very modest savings of £25K each in ISA’s. The house is held as ‘Joint Tenants’ at the Land Registry. They have made home-made wills leaving everything to each other provided the other survives by 28 days. They have each provided for a final distribution if they are the survivor. H has requested all his wealth goes to the Donkey Sanctuary. The W has named her nephews and nieces, as their mother (W’s sister) has dementia and lives in a care home.
What happens if the ‘motorway pile up’ scenario happens and both die on the M62? Three possibilities (and two outcomes) exist:
1. Emergency services arrive on the scene and both H & Ware pronounced dead at the scene. As the order of deaths cannot be determined, the law assumes that the eldest died first. As the house is owned as Joint Tenants, it automatically passes to the ‘survivor’ a spilt second before death of the first and in this case accordingly, the house is technically inherited by the W under Property rules. Distribution is therefore H’s £25K ISA passes to the charity (as his bequest of residue to W fails as she does not survive him by 28 days). On the other hand, the W passes £300K to her nephews and nieces, being both her £25K ISA and the entire value of the house which she is deemed to inherit under Property Rules (again she passes nothing to H because of the 28 day survivorship period)
2. Emergency services arrive on the scene and W is pronounced dead at the scene, but the H is still alive and is air-ambulanced to Aintree A&E, but sadly dies 24 hours later due to the severity of his injuries. As the house is owned as Joint Tenants, it automatically passes to the survivor which is now the H. Distribution is therefore H’s £25K ISA and the £275K house passes to the charity (as his bequest of residue to W fails as she does not survive him by 28 days). On the other hand, the W now only owns her £25K ISA that passes to her nephews and nieces.
3. Finally, turning up at the scene, emergency services declare the H dead and it is the W who is rushed to A&E to sadly die the following day due to injuries. We have the same outcome as example 1 above – the house is inherited by the W and passes solely to her nephews and nieces.
Neither H nor W will have contemplated these outcomes.
Would the position be any different if H and W had not made wills? The situation would be even more disastrous! If the only change of circumstances is the lack of wills, the scenarios now produce the following distributions:
1. Both H & W dead and order unclear. W is assumed to inherit house under Property Rules and her £300K passes to her sister under the intestacy rules, to be used to pay her care home fees with the nephews and nieces seeing nothing. H’s £25K goes to his brother.
2. W dead at scene and H dies following day. H passes £300K to his estranged brother and W passes £25K effectively to the care home!
3. H dead at scene and W dies following day. Same outcome as 1 above
Three solutions exists:
a) Change the legal ownership of the house from a Joint Tenancy to a Tenancy in Common. This technical change effects inheritance outcomes and has no bearing upon day to day ownership and your ability to sell or mortgage your home. Both H and W will then be deemed to own a 50% share of the proceeds of sale. As such the ‘share’ of the property will be treated exactly like the cash ISA’s and regardless of the above scenarios, each will see £162,500 pass to their nominated beneficiaries under their will
b) Change the ultimate beneficiaries under the wills from each party only dealing with their own family, to a combined distribution within each will – i.e H & W each state that their final distribution will be 50% to the Charity and 50% to the nephews and nieces. By each will being a ‘mirror’ of the other, the order of deaths becomes academic
c) Combine both of the above solutions – a belt and braces approach that also provides effective tax and care home planning.
The observant reader of this article will have noticed a major ‘flaw’ in the wills H & W have written. No accident occurs and one party dies of natural causes and their spouse inherits everything. Straight forward and entirely in accordance with their wishes. However, when the survivor dies a decade later, the combined wealth is passing solely to one side of the family. Had both contemplated £325K only passing in accordance with the wishes of the survivor to the exclusion of the wishes of the first to die? We are again in the territory of ‘chance’ with the role of the dice determining who will eventually inherit.
Ask yourself whether your will is water-tight or does it have spurious outcomes based upon orders of death over which you have no control? If so you need your wills professionally examined to remove these anomalies. Don’t tell your beneficiaries that they are well provided for so long as you die at the right time of day!
Head of Private Client at Gregory Abrams Davidson
123 Penny Lane, Liverpool, L18 1DF
Telephone: 0151 733 3353 – Fax: 0151 282 8202