Joint Tenancy and Tenancy in Common
Legally, there are two types of joint ownership, joint equity or property co-buying. You can either own the property as 'joint tenants' or as 'tenants in common'. Do not be put off by the terminology. It has nothing to do with tenancies and applies to freehold or leasehold land.
Under this agreement the joint owners together own the whole property and do not have a particular share in it. If one of the owners dies the other automatically becomes the sole owner. This would be the case even if a will had been made leaving the deceased owner's 'share' to someone other than the co-owner.
Tenancy in common
This is the opposite of joint tenancy in that the tenants in common each have a definite share in the property. For example, A and B could own the property in equal shares, or A could own one fifth with B owning four fifths. This would be the most appropriate agreement where people want to own a property in separate pre-determined shares.
Under this form of ownership, if one of the owners dies, his or her share of the property will pass on to whoever he or she specifies in a Will. It is strongly recommended that a Will be made when buying a property as Tenants in Common.
If a Will is not made, then your share of the property will be distributed in accordance with the rules of intestacy (dying without leaving a valid Will).
Which form of joint ownership should you opt for?
This depends upon personal choice and your particular circumstances. The joint tenancy is most commonly adopted between married couples where there is perceived to be no advantage in defining separate shares in the property and where it would be the intention that on the first death the property would automatically pass to the surviving spouse. The problem with this is that the whole of the property will pass into the survivor's estate upon first death, which may then mean that the property will be assessed for care costs and also have Inheritance tax implications on second death.
The alternative basis of a tenancy in common will often be used between brothers and sisters, parents and children, unmarried couples, business partners and the like. In these relationships it might be desirable for specific shares in the property to be identified and for each owner to be able to leave his or her share in the property to a named person other than the owner.
Owning your property as Tenants In Common also forms part of the strategy in avoiding losing your home to care costs.
The Role Of A Trustee
Trusts offer a means of holding and managing money or property for people who may not be ready or able to manage it for themselves. Used in conjunction with a will, they can also help ensure that your assets are passed on in accordance with your wishes after you die.
What is a trust?
A trust is a legal relationship which is created when a person (The 'Settlor') transfers assets to two or more other people (the 'trustees') with instructions that they hold the assets for the benefit of an individual or group of individuals (the 'beneficiaries').
To achieve this, the trust separates the legal ownership of the policy from the beneficial ownership. The legal ownership of the policy is given to the trustees who are bound by the terms and condition of the trust deed and subject to general trust law. It is their duty to hold and administer the trust property in the interests of the beneficiaries who will ultimately benefit from it.
The Settlor is the legal name given to the person who creates the trust. The Settlor says in the trust deed how the trust's property and income should be used.
The beneficiaries under a trust are the beneficial owners of the trust property and everything that takes place must be for their benefit. A beneficiary may be named or defined by description or class, such as the future issue of the Settlor or issue of my brother etc.
This is the property (or 'capital') that is put into the trust by the settlor.
It can be anything, including:
- land or buildings
- antiques or other valuable property
Trustees are the legal owners of the trust property. The role of the trustee is to hold the trust property and administer it for the benefit of the beneficiaries as directed by the trust provisions.
There can generally be any number of trustees but for our own and most trusts, the number ranges from 2 – 4.
Any person who is over 18 and sane can act as a trustee although we would tend to advise against appointing an individual who is bankrupt.
It is also possible for an institution to act as a trustee, such as ourselves, Mather & Murray Financial Ltd. We can offer our services as a professional trustee.
It is possible for the same person to be both a trustee and a beneficiary.
The Trustee's Duties can be summarised as follows:
- all trustees should familiarise themselves with the terms of the trust so that they can administer it in accordance with the trust deed
- all dealings with the trust fund by the trustees must be for the benefit of the
- The trustees must use their utmost diligence to avoid any loss. If they are negligent and a loss arises they may be responsible for that loss to the beneficiaries
- All trustees must act unanimously. Under English law, trustee's decisions cannot be made by a majority of trustees unless the trust specifically allows this
Trustees Powers and Duties
Trustees have a range of statutory powers and common law responsibilities that they would be expected to follow.
Trustees Statutory Powers
There are several statutory powers and these can be quite comprehensive.
The following highlights just a few of the main powers:
- trustee powers of investment – Section 3 of the Trustee Act 2000 permits trustees to "make any kind of investment that he could make if he were absolutely entitled to the asset of the trust".
This provision is subject to any restriction imposed by the trust itself.
- act in the best interest of all beneficiaries – The trustees must judge the suitability of investments having regard to the best interests of all beneficiaries, past and present
- exercise reasonable care and skill –
A trustee must pay regard to any specialist knowledge or experience that he holds
- review investments from time to time –
Trustees must undertake periodic reviews of the investments held by the trust
- take proper advice – When considering any investments, or when carrying out a review of the investments of the trust, the trustees must obtain and consider proper advice
- power to apply income for the benefit of child beneficiaries –
The trustees have the discretion to apply the whole or part of the income of a trust for the maintenance, education or benefit of a child beneficiary
- power to delegate –
The Trustee Act 2000 empowered trustees to delegate to agents any of their functions except certain defined responsibilities
Trustees Common Law Responsibilities
Below are highlight just some of the many Common Law Responsibilities a trustee has:
- Duty to take account of the Settlor's wishes –
A settlor may sometimes write a 'side letter' to the trustees containing an 'expression of wishes'. This is not binding upon the trustees, but would stand alongside the trust document and provide guidance to the trustees as to the way in which the settlor would like them to carry out their duties
- duty to ensure fairness between beneficiaries – The trustees must hold the
balance fairly between different categories of beneficiary e.g. if a trust provides that one class of beneficiary is to receive the income from the trust fund during their lifetime and a second class is to receive capital on the death of the income recipient, it would be unfair to the income recipient if the trustees were to invest in assets which produce little or no income, but offered the prospect of greater than usual capital growth
- duty to take account of tax considerations – The trustees must take into account considerations such as tax and administrative costs when choosing investments
The above duties are just a few of the main considerations. With the use of a professional trustee, it is within their day to day routine to ensure that all of the trustee's duties are followed.