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What is Included in The Estate?

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Not everything in someone’s house when they die is theirs or theirs alone. Similarly, not everything which is registered in their name is theirs.

This can cause problems both for will executors and beneficiaries:

There may be no indication at all amongst the deceased’s belongings that an item was not theirs - however if they sell it or distribute it, they will need to account to the real owner.

Inheritance Tax Treatment

It is important to realise that whether or not something is included in the estate for purposes of inheritance is not the same as whether or not that thing is included in the estate for inheritance tax purposes. HMRC have many rules relating to jointly owned and trust property which are designed to make sure that IHT is payable on the value of the property that the deceased enjoyed the use of immediately prior to death (and in some circumstances, earlier).

Jointly Owned Property

In general, anything can be owned by more than one person. A commonly known occurrence is when a husband and wife buy a house together. When they buy the house, they will be asked whether they wish to own the property as ‘tenants in common’ or ‘joint tenants’ - a record of which should be made at the Land Registry but this is not definitive proof that this is the way the property was held on death.

Joint ownership always gives rise to a trust (trusts are mentioned below). There can only ever be a maximum of 4 legal owners of land but there may be many more joint ‘owners’.

Joint Tenants

A joint tenancy is where two or more people own one thing together. They both own the whole thing and are entitled to use it as their own, subject only to the other owner’s ability to use it. They cannot mortgage it without the other’s consent and when one dies, because they already own the whole thing, they are left as the sole owner, regardless of any Will. The easiest way to look at this situation is that the two owners act as one person in their ownership.

Tenants in Common

A tenancy in common is created where two or more people own shares in something. Those shares might be equal or unequal. Each person’s share is a part of the ‘equity’ in the property and that share can be mortgaged (though not a legal mortgage) or sold. This share can also be passed by a Will.

Other Trusts

As described above, joint ownership gives rise to a trust. They can own the property ‘on trust’ for themselves as the beneficiaries (or ‘beneficial/equitable owners) or themselves and other people. They could also be the legal owners but have no beneficial interest whatsoever - they might not own any of the equity. This can also occur where there is only one legal owner, though this is not advisable for trust property.

For example, where a house has been left to someone’s five-year-old child in a Will, that child cannot legally own the house for many years. Someone else should be registered as the legal owner, though the equity is ultimately the child’s.

This situation can also arise for other reasons, including commercial. Where property is held ‘on trust’ for someone else, it does not form a part of their estate.

There are circumstances other than a ‘bare trust’ where someone has the right to use something but is not the owner, for example:

Life Interest Trusts

A life interest is a right to use something during your lifetime but does not automatically give you many of the other rights of ownership, such as the ability to sell or give away in your Will. A common situation where a life interest may be used is where a wife with children remarries late in life and they live in the house the children grew up in. She may wish to make sure her new husband can stay in the house after she passes away but ultimately wants it to go to her children. In this situation, she may give her husband the right to live in and use the house as his own until he dies but then for the house to pass to her children.

Sometimes things are lent to friends or relatives for long periods. If the intention was always that the item would be returned, ownership will not have passed and so the item is not a part of the estate. This may be true, for example, where a ‘personal licence’ is given to use a vegetable plot. The licence may have conveyed the right to use the land to the deceased but it is not a right that the deceased can pass on.

Leased items: Where a car is rented, that car remains the property of the rental company.

‘Hire purchase’: Where an item is handed over immediately on provision that the item is paid for over time, the contract will usually state that ownership does not pass to the customer until all payments have been made. In effect, they are renting the item until such time as they have made all of the payments.

Contact our Probate Solicitors

Our team of probate solicitors and accountants offer a friendly, efficient and comprehensive service. We take care of every detail, saving you stress and giving you time when you need it most. Call us to speak to a solicitor today on 0845 034 7344 or contact us via our online contact form.

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