Deed of Severance
What is a Deed of Severance?
Why would I need to complete a deed of severance?
Most people own their property as Beneficial Joint Tenants meaning that each person legally owns 100% of the property. If one of the owners dies then the remaining owner will become the sole owner of the property.
Owning property as Beneficial Joint Tenants means the property cannot be gifted by the terms of a Will.
A Deed of Severance is a document which ‘severs the tenancy’ of a property so that instead of owning the property as Beneficial Joint Tenants they own it as Tenants in Common. Meaning that each person has a definite share in the property. This is often in equal shares but it doesn’t have to be.
Why would I want to Sever the Tenancy of my Property?
At first glance, there seems to be little advantage in defining separate shares in the property. Particularly between married couples where it would be the intention that on the first death the property would automatically pass to the surviving spouse.
However, there are problems associated with owning a property jointly which come to light when the property is passed to the remaining spouse on the death of their partner including:
- If the surviving spouse requires care they could lose their house to care costs
- Inheritance tax implications on second death
Example of why Changing to Tenants In Common Could be Helpful
Step 1 Sever the tenancy of the property.
For most people, their main asset is their family home. Most people own their property jointly, meaning they each own 100% of the property. Severing the tenancy of the property will mean that Mr and Mrs own 50% each of the property as Tenants in Common.
Step 2 Set up a Will and Will Trust for Mr and Mrs which will direct their share of the home into their Trust on death.
If Mrs now requires care she only has an interest in half of the home. Meaning that it is highly unlikely an outside buyer would be willing to buy into half of the property.
In this instance, the value of the home is effectively nil and under current (CRAG) Charging For Residential Accommodation Guidelines should not be assessed to pay for care fees.