It’s not a subject we enjoy thinking about but it’s one that I am often asked about by my clients. At some point we have to plan for our future, and that involves arranging our estate. This includes the disposal of one of our largest assets, our homes.
So, who will inherit your home when you die?
Your children, perhaps, or your partner. Or, do you intend to use it to fund a care home if you need one as you get older?
However, are you sure that your home is entirely yours to do with as you wish?
It sounds ridiculous, but leaving your home to who you want may not be as simple as you think. It all comes down to understanding your legal position as a joint owner, something that I’ve found can come as a surprise to many people I talk with.
Simply put, if you own a house with someone else – a partner, spouse, relative or friend – you are likely to be either Joint Tenants or Tenants in Common. Your rights to your share of the property are different depending on which it is.
So, what’s the difference between Joint Tenancy and Tenants in Common?
Joint Tenancy: is where you own your home with someone else and you both have equal rights to the whole property. When one of you dies, the other will automatically inherit the whole property and you cannot leave any of it to anyone else in your will.
Tenants in Common: is where you own your home with someone else and you each own a share – it may be equal, it may not. When you die, you can leave your share to someone else in your will.
Can you change from a Joint Tenancy to Tenants in Common?
Yes you can. If you are in a Joint Tenancy and don’t believe it’s right for you, you may decide to change it to Tenants in Common. This is achieved by giving a written notice to the other joint owner. You can change to owning as Tenants in Common even without the agreement of the other owner.
This is called ‘Severance of Joint Tenancy’. There are definite benefits to becoming Tenants in Common, in terms of inheritance planning, to plan for future care home fees or if your relationship with the person you bought your house with changes.
Why you might choose to change your ownership status
Being Tenants in Common ensures that you can leave your share of your home to whoever you want. This is particularly useful when someone goes into a new relationship and there are other children to consider. It can help ensure that your children inherit your share of the property provided that your will is correctly drafted.
Importantly, you may also need to consider your own future, and funding for a care home. As Tenants in Common you can be clear about how much equity in the home belongs to you when calculating your care home fees, safeguarding your partner’s share, or vice versa.
However, there are downsides to consider too
As good as this might sound, you must consider other scenarios before changing your ownership status. For example, your partner may leave their share in your home to their children from another relationship. If your partner dies, the children may want their share of the equity, their inheritance, quickly.
So you may have the difficult decision to make about selling your home to release the equity or finding money to pay them. This may be at a time when you don’t have access to money or means to take out loans.
It’s important to understand the ramifications of each decision by seeking legal advice, before taking any action.
Why is it important to get legal advice?
In recent years there have been stark warnings about the increasing costs of care homes, and stories of families forced to sell their home to pay the fees. A lot of articles have appeared online suggesting people change their property ownership to Tenants in Common to avoid care fees.
As a result, I’ve seen a marked rise in enquiries from people asking if they should sever their Joint Tenancy, without fully understanding the wider implications, which can lead to sticky situations later on.
Peace of mind doesn’t have to be expensive
I have found that many issues could have been avoided by asking for some advice up front, but people are often put off by the perceived cost of legal advice so look on the internet. Information online is not always complete, accurate or up-to-date, and does not take your personal situation into account. It may be straightforward, it may not.
With so many people turning to the internet as their first point of call, it’s clear that there is a need for an online solution that provides the best of both worlds in this digital age.
If you are considering changing your homeowner status to Tenants in Common, make sure you take legal advice first.