Thought must go into how a title is drafted, says Dianne Paterson
MOST people are aware of the importance of making a will and the careful consideration that has to be given to the drafting of this to ensure that the outcome is favourable to those who matter most.
However, it is sometimes questionable whether that same consideration is applied by them when a new title is being drafted in their favour at the time of the purchase of property with a partner or spouse. In among the excitement of the purchase and the prospect of living together, the question of how title should be taken can very often be overlooked. If little consideration is given to the drafting of the title when a property is purchased, this can result in untold grief and pain in the future should circumstances change.
When purchasing a property with another, it is usual to write the property in joint names. This can either be in equal shares or in some other proportions, should the parties to the purchase wish to reflect the actual amounts that each party is contributing.
This means that if one of the parties dies, their share of the property will pass in accordance with the terms of any will which they might have made or, if they had not made a will and had therefore died intestate, their share of the property would pass to whoever was entitled to their estate under the laws of intestacy. In such a case, a deed would require to be prepared to complete the transfer.
However, joint property titles can be written in a different way. A title in joint names can frequently contain a “survivorship” clause, particularly where the parties to the title are husband and wife. The wording in such cases is usually “the property is disponed to A & B equally between them and to the survivor of them”. This is known as a special destination.
This wording means the title is held equally by the parties in life but on the death of either of them the deceased’s share will pass automatically to the survivor named on the title deed. This may seem, on the face of it, exactly what parties might wish, one of the advantages being that there are no further steps or deeds to be prepared to transfer the title to the survivor. In addition, parties often feel that it provides them with some form of comfort, secure in the knowledge that whatever else might be contained in their partner’s will, the property will fall to be theirs.
However, one of the disadvantages of inserting such a clause into a property deed is that it cannot be cancelled once it is in the title without both parties to the title agreeing to change the wording and to draw up another title deed together without such a clause. It also means the title would automatically pass to the survivor, even if the deceased’s will left his share of the property to another, or if the parties were not enjoying the same relationship as they had done at the time of the purchase or had become estranged.
The survivorship clause or “special destination” is, in effect, an agreement between parties and can only be discharged by agreement between the parties, or following the sale of a property, a divorce, or the dissolution of a civil partnership.
The inflexibility of such a clause can cause problems for parties even when they are still together and wishing the best for each other. For example, no matter how close a couple might be, it might not be in their interests to automatically leave their half share to the other in later life by way of a survivorship clause.
This may be for tax planning reasons where parties might wish to make use of their nil rate bands on death (currently £325K each) by bequeathing their respective shares in any property to their children rather than each other.
Another example might be where one partner has in fact been sequestrated. If that partner’s interest in the property has already vested in a Trustee as a result of his bankruptcy it is unlikely the parties would wish the other half to be vested also for such purposes on the death of the Bankrupt’s partner or spouse.
Even if a partner or spouse had left a will leaving their share to the children, this would not be sufficient to defeat the survivorship destination in a title and the property would pass in whole to the Trustee in Bankruptcy for payment of creditors.
There is no right or wrong way to take title; what is certain is that serious consideration should be given at the time of any property purchase as to how a title should be drafted, as the consequences of not doing so at the time could cause untold misery in the future for all parties concerned. • Dianne Paterson is a partner in Russel + Aitken LLP www.russelaitken.com