Tenants in Common is a type of home ownership used to identify an individuals share in a property. It is used in Estate Planning to equalise the value of an asset so that it is owned in individual shares and to protect that share from falling into the wrong hands.
Assets held in the name of a single person. Sole ownership means the owner is 100% entitled to the benefits of the Asset. Bank Accounts, Property, Shares, Inestments can all be held Solely.
Assets held in "Joint Names" mean each owner has 100% Equitable Interest in the Asset. This means, if one of the owners die, 100% of Equitable Interest will be owned by the Surviving Joint owner.
Assets held as "Tenants in Common" are held in an agreed Equitable Shares. Between Couples this would usually be 50/50 but can be split in many other Ways. Mainly used with Property Ownership.
Tenants in Common is a strategy used in home ownership to legally identify the owners of a property registered with HM Land Registry. When there is more than one party involved with the purchase of a property it may be important to separate the shares legally so that each party is only liable for their agreed portion. Similarly, when the property is sold or if one of the shared owners died, the amount of Equity or Liability will be shared in the agreed shares.
This is different to "Joint Ownership" where each owner is entitled to a 100% share in the Equity and, unless the terms of the lender dictate, all are 100% liable for any mortgage outstanding.
In the context of Estate Planning, Tenants in Common is used as a Tool to "Equalise the Estate". This can help protect from future concerns such as "Generational Inheritance Tax".
The only assets which can be passed through the Will on death are those owned solely by the deceased in life. This means any Assets owned in Joint Names, Held in Trust, Assigned or Nominated cannot be gifted in the Will.
As for jointly owned assets, these assets when owned by a Married Couple or Civil Partner will automatically pass to the surviving Spouse/Civil Partner on death outside of the Will.
There can be many advantages to Tenants in Common generally. As in the first section, it is possible to control your interests in a Property owned by more than one party and limit any liability that goes with it. This works when the individuals involved are not linked in any way other than the purchase of the asset.
In an Estate Planning context, when a couple own their property as Tenants in Common, they themselves agree the relevant shares. This can be any combination.
It may be necessary to insert a restriction in the "Property Deeds" to this effect and this is achieved with a Deed of Severance which once signed will be sent to HM Land Registry.
Once confirmed, each person will essentially be able decide what happens to their Share, which is not possible with "Jointly Owned Assets".
From an Estate Planning perspective, the individuals share can potentially be gifted in the Will to anybody they choose. This includes being settled in a Property Protective Trust for example, or it can be settled in a Lifetime Trust offering a great deal of protection.
Owning a Property in Joint Names is probably the most common way of owning property in the UK. This is mainly because Conveyancing Firms do not tend to advise clients on the various ownership options.
When a property is being purchased with a Mortgage, the lender is working on the basis that all parties are Jointly and Severally Liable for any outstanding debt when it needs to be settled. This is usually throughout the term or on death, whichever comes first.
The disadvantage of Tenants in Common as a strategy is the fact that the individuals share becomes part of their Estate on death, unless settled in Trust during lifetime, so the asset will be distributed according to the rules of intestacy or will be distributed along with other assets according to the Will.
What this means is "Probate" is involved where it would not be as Joint Owners.
If the implications of this would go against our clients' needs and the disadvantages of Tenants in Common outweighed the Advantages of being able to control and protect the asset, we would always advise against converting from Jointly Owned to Tenants in Common.
In the same token, if our clients have taken advice in the past and it no longer suits their needs to be Tenants in Common, we can help them convert their property back to being jointly owned.
If you are not sure how your home or property is owned, call us today and we will check if you are Tenants in Common or Jointly Owned for Free!
Making a Will is probably one of the most important financial decisions you can make.
The decisions you make today before you put pen to paper will determine how well your wishes are carried out and could potentially create a legacy that lasts for generations. It's a decision not to be taken lightly!
Protect & Prospers Free 30 Page Guide to Writing Your Will helps you consider all of the important aspects of writing your Will and planning ahead to protect and control what happens to all the things you have worked hard for throughout your life.
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