Tenants in Common and becoming Civil Partners

mcarr

My partner and I have been Tenants in common of the family home we live in with our adult son for 21 years.  We found the advice on this website around inheritance tax and being tenants in common really helpful (thank you!).  Last year we took the plunge and entered into a Civil Partnership.   I would be very grateful to receive any guidance as to whether our status as civil partners means the rules of inheritance tax on our home "overrule" those that apply for being Tenants in Common or whether we need to formally change or have the Tenants in Common arrangement formally terminated.   We did have a rather unhelpful conversation with a lawyer about this but came out none the wiser.  

Keep_pedalling

No need to change the arrangement, it won’t effect the level of IHT that might be due on the second death. The important thing is have you made wills and if so how have you each your individual share of the house?

The normal thing with TiC would be to leave your share to your son, with your partner having a life interest. This will protect his inheritance should a surviving partner remarry.

getmore4less

What rules do you think might be different?

The IHT rules are the same just with a civil partnership there is scope for the spouse exemptions but they are not related to TIC.

The one thing that did change is the intestate inheritance of assets.

Malthusian

There are no special IHT rules about tenants in common assets.

What has changed is that you now benefit from the spousal exemption on IHT for anything left to your partner, as well as the transfer of unused nil rate band.

Any Wills you each made were invalidated on civil partnership and, as GM4L said, you should make new ones. If you don't your estate would be subject to intestacy law.

There is unlikely to be any point in changing from tenants in common to joint tenancy. Your Wills are the important thing.

Keep_pedalling said:

The normal thing with TiC would be to leave your share to your son, with your partner having a life interest. This will protect his inheritance should a surviving partner remarry.

The son is "our" son, so the "normal" thing would be "everything to the partner and to the son on second death". (I am not saying the OP and their partner should do that, only that it's the more normal thing.)

Most people trust their widow/er to not disinherit their own children even if they remarry. A life interest trust would be more common after the widow/er had remarried, e.g. to give their new squeeze security while still ensuring the home passed to their child eventually.

doodling

Hi,

Malthusian said:

[...]

Keep_pedalling said:

The normal thing with TiC would be to leave your share to your son, with your partner having a life interest. This will protect his inheritance should a surviving partner remarry.

The son is "our" son, so the "normal" thing would be "everything to the partner and to the son on second death". (I am not saying the OP and their partner should do that, only that it's the more normal thing.)

Most people trust their widow/er to not disinherit their own children even if they remarry. A life interest trust would be more common after the widow/er had remarried, e.g. to give their new squeeze security while still ensuring the home passed to their child eventually.

Leaving the share to the son with a life interest for the partner would protect the son's inheritance from the first death in the case of remarriage, care home costs, bankruptcy or any other financial upheaval that might befall the surviving partner. The cost is a slight loss of flexibility to the survivor although modern life interest provisions can be fairly flexible.

In general, if a couple is married or in a civil partnership then the question should be "why is the house not left to the offspring with a life interest for the surviving partner?" Rather than the reverse, as that would normally be a sensible thing to do.

Marcon

mcarr said:

My partner and I have been Tenants in common of the family home we live in with our adult son for 21 years.  We found the advice on this website around inheritance tax and being tenants in common really helpful (thank you!).  Last year we took the plunge and entered into a Civil Partnership.   I would be very grateful to receive any guidance as to whether our status as civil partners means the rules of inheritance tax on our home "overrule" those that apply for being Tenants in Common or whether we need to formally change or have the Tenants in Common arrangement formally terminated.   We did have a rather unhelpful conversation with a lawyer about this but came out none the wiser.  

How frustrating for you - but (a) how clear were you in terms of describing exactly what your questions were; and (b) why did you leave before you understood the answers? If you don't tell an adviser that you don't understand something, they aren't mind readers (but they should certainly be able to make themselves clear).

Malthusian

doodling said:

Leaving the share to the son with a life interest for the partner would protect the son's inheritance from the first death in the case of remarriage, care home costs, bankruptcy or any other financial upheaval that might befall the surviving partner.

True. But it is normal for spouses to trust each other not to disinherit their own flesh and blood, or bankrupt themselves. And to want the other to have a high standard of care rather than get chucked into Overmydeadbody Grove to preserve the children's inheritance.

By the time children are grown up, the chance that the widow/er would bankrupt themselves after their partner has died is usually extremely remote.*

Regardless of how flexible a life interest trust is, it is not as flexible as owning the house you live in. Where a widow/er owns their house 100% there is also no conflict of interest between themselves and their child, since nobody owns an inheritance until the benefactor/ess has died.

In general, if a couple is married or in a civil partnership then the question should be "why is the house not left to the offspring with a life interest for the surviving partner?"

Because the first rule of trusts is that a trust is something you set up when you don't trust the beneficiaries. Normally people trust their spouse to do right by their own children. Life interest trusts are primarily useful when your immediate beneficiary is not the biological parent of your children (or some of them) and therefore - through no fault of theirs - cannot be trusted in the same way.

* [edit] If one spouse was known to be financially irresponsible and prone to squandering the money when the other was gone, then I agree this would be an obvious scenario where a life interest trust would make sense. See rule #1 of trusts. But that isn't the normal scenario.

mcarr

Thanks to everyone who has responded - all the comments are really thoughtful and it's provided a very sensible takeaway around re-writing our wills, which is extremely helpful.  I was unaware that our previous wills had been invalidated by the Civil Partnership!  

Rogerrabbit777

Apologies for bumping an old post but it fits with a question i have. Im currently planning on doing tenants in common with my spouse split 50/50. The sole beneficiary will be our son who lives in the property full time as his only home. The agreement is that on the first death the remaining spouse and son will live together in the house as norm until the the second death when the son will inherit the other 50% 

my question is do we need a life interest trust as the above is already agreed to between ourselves? Is It a legal requirement? Is the only consequence of not having a trust that the son inherits his 50% straight away? but what does this mean? Could he ask for the asset ie the house to be sold so he can gain his asset in cash even though the remaining spouse owns 50%? Or are there other consequences that mean a trust is necessary rather than us just having a standard will which states each of our % goes to our son. The cost of having a interest trust created is quite alot so im wondering if one is really necessary as its already something we have agreed apon

any opinions please

Keep_pedalling

I would say yes because there by the time one of you dies he may no longer be living there. You really need to talk this through with your solicitor  

msb1234

Coincidentally, I spoke to my solicitor yesterday about my mum’s will. She owned her house as TIC with my stepfather in 80/20 share. Her will left her share to her children with a right for him to live in the property til he dies. He’s now in care and the house needs to be sold so his share can be used towards his care home fees. 

He no longer has capacity so we’ve applied to the Court of Protection for Deputyship. Along with this, we’ve had to apply to appoint another trustee. 

According to the solicitor, under the terms of the will, both my stepfather and us as beneficiaries are automatically now trustees. We cannot therefore sell the property without the agreement of all the trustees.