JOINTLY OWNED PROPERTY

There are two ways of owning property jointly in English law, namely as joint tenants or as tenants in common. The use of the word ‘tenants’ has nothing to do with tenants in the sense of landlord and tenant: it is merely the same word used as a technical term to signify a different concept.

If people own property as joint tenants the law provides that on the death of one joint owner, that person’s share of the jointly owned property does not become part of his estate (except for Inheritance Tax purposes), does not fall to be dealt with by his personal representatives and is inherited by the surviving joint owners regardless of the terms of the deceased’s will or the circumstances of his intestacy. On the other hand, if people own property as tenants in common, the law provides that on the death of one joint owner that person’s share of the jointly owned property does becomes part of his estate, falls to be dealt with by his personal representatives and is inherited as provided for in his will, if there is one, or if none, then by his next of kin in accordance with the intestacy laws.

It follows therefore that if property is owned as joint tenants, all that is necessary for the survivor to prove a right to deal with the property and to inherit it, is to produce satisfactory evidence of death, i.e. a death certificate, or an order of a court giving leave to presume death.

On the other hand if property is owned as tenants in common, the person claiming the right to deal with the deceased’s share as executor of a will must prove that he is the executor appointed by a valid will or codicil, and if there is no will or a will but no executor appointed or willing to prove it, other proof must be given of the right to deal with the deceased’s share of the jointly owned property.

The document evidencing proof that the will is a valid one is called probate of the will or, if there is no validly appointed executor who is willing to prove it, or all the appointed executors have died before the person who made the will, it is called letters of administration.

If no valid will exists the next of kin must obtain a different document (also confusingly called letters of administration) to prove the right to deal with the deceased’s assets including any share of jointly owned property which was held as tenants in common.

Grants of probate and letters of administration are sometimes conveniently referred to as the grant of representation and the way they are obtained is described on pages 76 to 99.

How does one know whether jointly owned property was held as joint tenants or tenants in common? Usually bank and building society accounts and stocks and shares are held in joint tenancies, but if there is any evidence to show that the joint owners owned separate shares of the property as opposed to each joint owner owning the entirety, the joint ownership is a case of tenancies in common. Joint tenants always own the asset equally and words indicating that the joint owners own unequally always mean a tenancy in common. Partnerships almost invariably own property as tenants in common. When husbands and wives own property jointly they usually, but not necessarily, do so as joint tenants and not tenants in common.

IF THE GROSS ESTATE IS VALUED UNDER £15,000

If the value of the estate before deducting the cost of the funeral and any debts left by the deceased is under £15,000, it is frequently worth writing to the bodies which hold the assets, to ask that they make payment to the personal representative without the necessity of going to the expense of obtaining a grant of representation and what their requirements are to enable this to be done.

Provided there is not more than £5,000 (and sometimes £15,000) the bank or building society etc will usually make payment to those entitled in return for the sight of the original will, or if there is no will, in return for a short statement as to the identity and relationship of the next of kin. In each case the registrar’s death certificate must be produced and a short form of indemnity which the bank or building society will prepare must be signed.

IF THE GROSS ESTATE IS VALUED OVER £15,000

If the value of the estate before deducting the cost of the funeral and any debts left by the deceased is over £5,000 (or sometimes £15,000), then before the assets of the estate can be dealt with, probate of the will or letters of administration must be obtained.

The procedure to be followed is essentially the same in the case of both probate and letters of administration.

There are three main steps involved:

• 1.obtaining the information necessary to prepare the papers to obtain the grant of representation;
• 2.preparing and lodging the documentation to obtain inheritance tax assessment and the issue of the grant of representation; and
• 3.registering the grant in connection with the various assets and giving instructions as to how they are to be dealt with, e.g. transferred to a person entitled on the death, sold or cashed and collecting what is due to the estate.

Following the completion of the above three steps to finally wind up the money side one must:

• finalise the income and capital gains tax positions;
• pay off the debts and discharge the liabilities of the estate; and
• distribute the remaining assets of the estate to those who are entitled to them (who are called the beneficiaries).

Each step is separately explained below and appendices contain appropriate drafts for most of the letters that will need to be written and useful addresses.

OBTAINING THE NECESSARY INFORMATION TO PREPARE THE PAPERS TO OBTAIN THE GRANT OF REPRESENTATION

Is there a valid will?

If a document is found which is believed to be a will its validity and effect should be considered in the light of the requirements set out in the later section dealing with interpreting a will on pp 119–130. It is now unusual to ‘read’ a will to the family, but if relatives wish to know the contents of the will no harm will be done by supplying them with a copy rather than causing ill feeling by refusing to do so, because once the will has been proved, anyone interested can obtain a copy from the Probate Registry for a nominal fee.

If it is believed that the deceased made a will but the will cannot be found it may well have been lodged with the deceased’s solicitor, bank or accountant for safe-keeping. If they have no knowledge of it enquire of the Record Keeper’s Department at Principal Probate Registry with whom wills can be deposited for safe-keeping (contact details can be found in Appendix 2 Useful Addresses). The Registry keeps an index of wills which is searched every time an application is made for a grant of representation to an estate. Also check the internet website www.1st.locate.co.uk where it is possible to register the existence of a will and where it is to be found. Even if a will has found there could be later wills in existence and so a thorough search must be made.

If all else fails it is sometimes possible to prove a will by a copy or reconstructed will (or in very exceptional circumstances even by oral evidence) if the original has been accidentally destroyed or lost.

To prove a will if it has been lost or accidentally destroyed there must be reasonable evidence both that the will was properly made and what its contents were. As Lord Justice Jacobs said in the case of Parks v Clout in 2003, the formalities set out in the Wills Act ‘do really matter. One must have a reasonably firm basis for concluding that the formalities were carried out, not merely what the substance of the will was.’ Hearsay evidence is admissible to prove the existence or otherwise of a will, and the existence and contents of a will can be proved by circumstantial evidence, but there must still be reasonable evidence of both the existence of the will and what its contents were, and also that it has not been validly revoked. If the missing will is last known to have been in the testator’s possession there is a presumption that he destroyed it with the intention of revoking it but the presumption can be rebutted. In the recent case of Rowe v Clarke concerning a substantial estate, the presumption was held to have been rebutted by evidence of the long standing and continuing close friendship of the testator (who was a disorganised alcoholic) with the will beneficiary and the lack of contact between the testator and the person who would have inherited if the testator was found to have died intestate. The required standard of proof that the will was completed in accordance with the formal requirements of the Wills Act and of what its contents were is a balance of probabilities, and the burden of proof is upon the person who seeks to uphold the document as a valid will. A higher standard of proof is required to prove fraudulent behaviour such as fraudulent destruction of a will.

THE ASSETS AND LIABILITIES OF THE ESTATE

It is useful to start by making a list of everything the deceased had which can be turned into money (whether or not sale is intended) and to list all the known debts. This list can be used as a worksheet and can be used to record information which will be required to prepare the papers which are necessary to obtain the grant of representation, and to track progress in the administration of the estate, thus showing at a glance what has been done and what remains to be done at any time. An example of a suitable form of worksheet is set out in Appendix 1.

Sometimes it is difficult to discover exactly what assets a person leaves. If this is not known, a search of the home for papers will usually give clues. Besides safes and filing cabinets, many people use furniture drawers, bureaux and wardrobes to store (and hide!) their papers. I have even come across building society passbooks kept in the refrigerator (hot money?) and cash hidden on a ledge inside a disused fireplace, as well as cash under floorboards, carpets and a bed mattress. Safe and other keys are often hidden behind books on bookshelves.

Bank statements show direct payments into the account such as pension payments and share dividends. If a dividend has been received the company registrar will be able to confirm the holding. The registrar’s address appears on the tax certificates attached to dividend warrants if any can be found. Do not forget that a company’s website will also yield the company registrar’s address. Sometimes the registrar’s website will reveal the holding, although one will need the deceased’s password to obtain details of the holding from the website.

Bank statements will also give a clue to regular outgoings.

If it is suspected there might be a bank or building society account but details are sparse, try completing and submitting a dormant account form obtainable from any bank or building society branch respectively.

Occupational and insured pension schemes must register and update their registered particulars annually. Following acquisitions, mergers and company insolvencies schemes may have changed their names. To trace suspected pension entitlements from former employers, try submitting a Pensions Trace Request Form (obtainable from some post offices or from the Department for Work and Pensions) to The Pensions Tracing Service at The Department for Work and Pensions or the Pensions Regulator. The tracing service is free.

The British Bankers Association and the Building Societies Association may be able to help where there have been mergers, takeovers or changes in the names of member institutions.

National Savings and Investments runs a scheme to trace possible accounts, certificates and premium bond prizes and a National Savings Tracing Service application form can be obtained from Freepost BJ2092, Blackpool FY3 9YP, or by telephoning 0845 964 5000.

Since the Financial Services and Marketing Act 2000 came into force on 1 December 2001, the Financial Services Authority is responsible for regulating all deposit, insurance and investment business in this country and has taken over a vast number of records. The Authority maintains a Register of Firms which can be very useful and might be able to help in tracing changes in friendly societies and insurance companies.

Enquiry can also be made of the deceased’s solicitors, bank, accountant, stockbroker and other financial advisers for the will and required financial information. Even if one has found a will there could be later wills in existence.

When making the list care should be taken to include only items that belong to the deceased in the estate and to exclude items which are on hire or hire purchase. Library items or NHS equipment, such as wheelchairs, artificial aids or limbs, should not be included and should be returned.

Television and motor car licences, season tickets and membership documents in respect of associations and clubs and any items which are on hire or hire purchase should be returned promptly in case it is possible to obtain a refund of fees.

When the list is more or less complete, steps should be taken to obtain a figure for the value of each asset and the amount of each debt or other liability and the appropriate figure should be entered on the list. A value as at the date of death must be obtained for every asset and liability of the estate before a grant of representation to the estate can be obtained. The value required for inheritance tax purposes and to obtain a grant of representation to an estate is the open market value as at the date of death, i.e. the price that the item could reasonably be expected to obtain if sold on the open market as at the date of death. If the death occurred on a non-trading day such as a Sunday, the lower of the preceding or next trading days may be used. Care should be taken when choosing a lower valuation with a view to minimising inheritance tax because the inheritance tax valuation will become the base value for capital gains tax when the asset is subsequently sold in the course of administration of the estate or transferred to a beneficiary, and could thus increase any capital gains tax liability.

Bank and building society accounts

Each bank or building society should be written to at an early stage with a copy of the death certificate and most will also require sight of the original or a photo stat copy of the will. A statement of the balance standing to the credit of each account including accrued interest as at the date of death should be obtained and if there is a passbook it should be enclosed to be made up to date.

The addresses can usually be obtained from the passbooks (if any), from old account statements, telephone directories, or on the society’s website on the Internet.

The bank or building society will freeze the account and stop making standing orders and meeting direct debits when notified of the death. Cheques that have been drawn by the deceased but not presented for payment at that date will not be met.

Employment benefits

If the deceased was in employment at the date of death the employer should be written to in order to ascertain whether there are arrears of wages or any other benefits due to the estate at the date of death. The employer should also be asked to give useful information such as the address of the relevant tax district and tax reference of the deceased and the same information as to any pension scheme trustees. The trustees of the pension scheme should be asked to supply information as to whether there are any, and if so what, benefits due from the pension scheme and whether such benefits fall to be included in the estate for inheritance tax purposes.

If the deceased had changed employment or retired and there is difficulty in tracing the trustees of a pension scheme the Pension Regulator might be able to help.

Furniture and personal effects

The deceased’s items of furniture, personal assets and effects and his share of any such jointly owned items must have a value attributed to them but they need not be individually valued. Usually a fair estimate of their total value is sufficient, but a professional valuation should be obtained from an auctioneer or valuer if they are not the usual run-of-the-mill items and it is suspected that they may be of significant value.

Most valuers charge for valuation on a time basis. A cursory viewing might cost £100 plus VAT but a more detailed inventory and valuation will cost more.

When valuables are removed from the deceased’s premises remember to ensure that they are insured and adequately insured in the premises to which they are taken.

PEPs, ISAs TESSAs and unit trusts

The managers of PEPs, ISAs, TESSAs and any unit trust holding must be written to for a valuation of the holding as at the date of death unless the valuation can be obtained from prices quoted in the press.

If the death occurred on a non-trading day such as a Sunday, the lower of the preceding or next trading days can be used.

Unit trusts, unlike OEICS (open-ended investment company shares), have two prices: one at which the manager is prepared to sell the units and a lower price at which he is prepared to buy back the units. Unit trusts are valued for inheritance tax and probate purposes at the lower of the two prices.

Stocks and shares quoted on a recognised stock exchange

Likewise stocks and shares have two prices – a buying price and a selling price – and if the death occurred on a non-trading day such as a Sunday, the lower of the preceding or next trading days may be used.

The price quoted in the press as the closing price on any day is usually a middle price, half way between the closing buying and selling prices.

The proper way of valuing stocks and shares for inheritance tax and probate purposes is to work out two figures and to use the lower figure. The first figure is obtained by adding to the lower closing price for the day a quarter of the difference between the buying and the selling price. The second figure is the figure which is midway between the highest and the lowest recorded price for the relevant day. For a small fee The London Stock Exchange Historic Price Service, which can be consulted on its website www.londonstockexchange.com/en-gb/products or in writing, will supply the final prices for the relevant day for any quoted security and if the security was quoted ex-dividend the dividend rate per share. The current fee can be obtained by telephoning, e-mailing or faxing the service. Alternatively valuations of stocks or shares for probate purposes can be obtained from most stockbrokers, a bank or from www.sharedata.co.uk (please refer to its website), but they do charge for the service and it might be wise to ask for an indication of the likely fee in advance.

If a share is quoted ‘ex dividend’, the dividend which has been declared must be included in the inheritance tax valuation of the estate: if loan or debenture stock is quoted ex interest then the interest less tax at the appropriate rate (currently 20 per cent) must be included.

Unquoted stocks and shares

Any securities such as shares or loan or debenture stock which are not quoted on a recognised stock exchange are valued according to the percentage of the company’s share capital held by the deceased. Thus a shareholding of 50 per cent or less is valued on the basis of the dividend yield, a holding of between 50 per cent and 90 per cent is valued on the basis of earnings yield, and a holding of over 90 per cent upon an assets basis. The value will eventually have to be agreed by the Inland Revenue Shares Valuation Division, but the easiest way for the layman to get an initial figure is to ask the company secretary for a figure, or if the deceased owned only a small percentage of the company’s shares, to ask the secretary at what price dealings, if any, last took place and to use that price.

Life and endowment policies

For these policies, write to the company concerned and try to deal with head office rather than the local office. The head office address usually appears on the policy document, but it might not be the latest address and the company name may have changed. In that event it might be necessary to visit the company’s website or, if the name has changed, to enquire of the Financial Services Authority or the British Insurance Association.

The value of a policy which matures on the death of the deceased is the amount paid out by the assurance company. If the policy is one that matures on the death of another person, the inheritance tax value is what it can be sold for, i.e. its open market value, and not its surrender value which will usually be less.

If the policy was taken out by another person on the life of the deceased or taken out by the deceased expressly upon trust for another person, it will not form part of the deceased’s estate and the insurance company will make payment to the person who took it out, or upon whose behalf it was taken out, as the case may be, upon production of the policy and a death certificate without the necessity of waiting for a grant of representation to be obtained.

National Savings products

Government stock on the old National Savings Bank Register or the Bank of England Register is valued on the same basis as other stock exchange quoted stock or quoted shares. Government Stock is sometimes known as ‘Gilts’ and the registrar who administers the stock on behalf of the government is Computershare Investor Services Pic. whose contact details are set out in the appendix.

Valuations for other National Savings products can be obtained by writing to the Director of Savings at the address given in Appendix 2 for the relevant product.

Benefits from the State

If the deceased was in receipt of any such benefit, e.g. unemployment, retirement or widow’s benefit or income support, the Pension Service should be contacted quoting the deceased’s National Insurance number and the position as to any arrears or overpaid benefit established. The address of the Pension Service can be obtained from the local telephone directory.

Land and buildings

For houses and other land or buildings, talk to a local estate agent who might be prepared to give an opinion of the value for probate purposes, especially if he thinks that it might lead to a sale. Again ask if there will be a charge and if so how much. Do not ask for a formal valuation, which could be very expensive indeed, but for an opinion of the market price current as at the date of death.

As a last resort, ask yourself at what price you would have been prepared to sell the property.

Valuations for probate should be an accurate representation of the open market sale price as at the date of death because they will have to be sworn to by the personal representative, but when all is said and done, values are a matter of opinion unless the matter is tested by an actual sale and opinions differ.

If the Revenue disagrees with the personal representative’s valuation, he can always concede gracefully to the Revenue’s superior and better informed opinion and no harm will have been done, as long as the value originally suggested was not so far out as to be viewed as an obvious attempt to defraud the Revenue. If the Revenue does not challenge, a goodly sum of money might be saved by a fair and knowledgeable amateur valuation! If the Revenue does challenge the valuation and the personal representative cannot agree the Revenue’s valuation, an appeal can be made to the Lands Tribunal or on a point of law to the High Court, but such appeals are costly and might well be unsuccessful. The Inland Revenue Stamp Duty Office informs the Local District Valuer of the price at which every sale in the Valuer’s district takes place and so the District Valuer is well informed on such matters.

In the following two cases, where there is the possibility of claiming a deduction, the services of a professional should be sought.

In the case of jointly owned land or buildings, when they are held as tenants in common, the Revenue will frequently allow a deduction of 10 per cent of the market value to reflect the fact that few would wish to buy a share of a property in which they could only share occupation with a stranger or incur the expense of forcing a sale. The deduction is not allowed if the joint owners are husband and wife or if the property was owned as joint tenants and the capital gains tax implications of claiming the deduction should be carefully considered.

If it can be proved that although the land or buildings are in the sole name of the deceased, in fact another who claims shared ownership and whose name does not appear on the title provided part of the purchase price, the inheritance tax valuation can reflect that situation. This situation usually arises if a parent or child has helped the other to acquire a property.

If the land or buildings are mortgaged, the full value unmortgaged should be included and the amount outstanding on the mortgage should be included separately as a liability of the estate. The mortgage might be supported by a whole life or endowment policy lodged as collateral security for the mortgage debt, in which case a value for the policy will also have to be obtained and the policy proceeds included in the probate papers as a separate asset.

Interests in trusts

If the deceased was entitled to income from a trust, the proportion of the value of the trust’s assets, assessed in the same fraction as the income to which the deceased was entitled bears to the entire income of the trust, is included in the deceased’s estate for inheritance tax purposes. Thus if the deceased was entitled to one quarter of the income of the trust, then one quarter of the value of the trust’s assets (valued as described above) must be included in the value of the deceased’s estate, even if the deceased was only entitled to that income during his lifetime. In the case of a discretionary trust, no potential beneficiary is entitled to income or capital from the trust; income and capital are allocated to the potential beneficiaries in the trustees’ discretion or accumulated within the trust and the death of a potential beneficiary does not give rise to a charge to inheritance tax.

Income and capital gains taxes

The Inspector of Taxes who dealt with the deceased’s tax matters should be notified of the death and enquiry should be made as to the standing of the deceased’s tax affairs to ascertain the amount of tax outstanding or refunds of overpaid tax due to the estate.

Which tax office is the appropriate tax office depends upon the particular circumstances of the deceased. If the deceased had a pension from a former employer or was employed when he died, the pension payer or the employer will be able to supply the name and address of the relevant tax district and the tax reference: if the deceased was self employed, try the tax office nearest to the main place of business, and if the deceased was not in employment and had no occupational pension, contact the tax office closest to the home address. The addresses of tax offices can be found in telephone directories under Inland Revenue.

It will be necessary to complete final tax returns up to the date of death. It should also be mentioned at this stage that, before finally distributing the estate between those entitled to it, it will also be necessary to complete final tax returns and settle any outstanding tax due in relation to income received between death and final distribution.

The deceased is entitled to a full year’s tax allowances for the portion of the tax year in which he died and is frequently entitled to an income tax refund when the tax due to the date of death has been calculated. Tax credits on dividend income are not refundable. Any tax refund is an asset of the estate and must be included in the papers for inheritance tax and probate but there is no necessity to delay application for probate until the Revenue has agreed the precise figure; an estimate is accepted if it is described as such and adjusted later when the precise figure is known.

If the period of administration covers several tax years, a separate return will be required for each tax year or part of a tax year. Income received in respect of a period up to and after the date of death is not apportioned; which tax return it is entered into depends upon the date it is paid or due to be paid and not the period over which it accrues. It should be noted that no capital gains tax liability arises by reason of the death, as opposed to liability for tax on gains arising on disposals by the deceased during his lifetime or by the personal representatives during the administration of the estate. Capital losses incurred by the deceased during his lifetime but in the year of his death may be carried back and set against net gains made in the three tax years preceding the tax year in which the deceased died. For capital gains tax purposes the beneficiaries of an estate are deemed to acquire assets transferred to them at their value as at the date of death.

Debts and liabilities

If the deceased was in receipt of a pension (either state or private) or National Insurance benefits, the payers should be written to with a copy of the death certificate to enquire as to any sums underpaid or overpaid and repayable. Underpayments must be included in the documents to be prepared to lead to the issue of the grant of representation as assets of the estate, and overpayments may be included as debts and deducted from the value of the estate for inheritance tax purposes, thus reducing the amount of any inheritance tax which will have to be paid.

Any mortgagees should be notified of the death promptly, as should the local authority for local government tax purposes, the suppliers of meals on wheels, any carers, the suppliers of gas, electricity, telephone, internet, cable or satellite TV services and any body with which the deceased had credit, debit or store cards. They should each be asked for the amount due to the date of death and they and all other known creditors should be requested to withhold any action contemplated to recover the debts until a grant of representation can be obtained and the estate put in funds.

If one-third of the purchase price of goods on hire purchase has been paid they cannot be repossessed without a court order.

In the case of credit, debit and store cards, if the beneficiaries of the estate have the requisite funds, they may wish to pay off any outstanding funds to avoid interest charges accruing.

If the proposed personal representatives are not also the sole beneficiaries of the estate and are not sure that they know of all the debts, or are not certain that the deceased did not make a later will, or if they are not sure that they know all the relatives, they may wish to protect themselves by publishing a statutory advertisement for creditors pursuant to section 27 of the Trustee Act 1925. The advertisement should be published in The London Gazette and in a newspaper circulating in the area in which the deceased had a house or other land or lived. The broad effect of the publication of such notices is that anyone who reads the notice, but does not notify the personal representatives of a claim within two months of publication of the notice, is barred from claiming a debt or an entitlement under any later will or upon intestacy from the personal representatives after the estate has been distributed, unless the proposed representatives had notice of the debt from other sources. However, such claimants can still recover the debt from the beneficiaries.

A suitable form of notice appears in Appendix 1 and it should be noted that although local newspapers will usually accept such notices for publication before a grant of representation has been issued, the London Gazette has its own form of notice and will not accept the notice for publication from private individuals until a grant of representation is to hand.

If it is found that the debts and liabilities of the estate (including the funeral expenses and the cost of administering the estate) are likely to exceed the value of the estate’s assets, a solicitor should be consulted immediately because the law prescribes an order of priority for payment in these circumstances, and if the personal representative does not adhere strictly to the order he may well find himself personally responsible for making good the losses of any who lose out. Indeed, in the case of an insolvent estate it might be better to formally renounce the right to administer the estate.