This is not about ‘the Donald’ winning the race to become the next President of the United States of America. Rather, this is about a particular “Trump” card that can often determine who will inherit assets.
A card that trumps what is contained in a will and in some circumstances a trump card that can “lurk” undiscovered until death. Importantly, the result of this trump card may mean assets are inherited in a way that was not planned. This trump card is a ‘survivorship’ destination or provision.
What is a survivorship destination? ‘Title’ to assets
A survivorship destination is something found in legal documents that says that on death an asset which is jointly owned (more technically owned “in common”) will pass to the survivor. The classic situation is a house owned by husband and wife. The title might state that the house is owned by husband and wife and the survivor of the husband and wife.
That means that on death, the ownership of the house passes entirely and automatically to the survivor. Nothing more is required. It. Just. Happens. This occurs irrespective of the terms of a will and happens even if inconsistent with the terms of the will.
While the house is the classic example of this, a survivorship destination in the title can be found in any type of asset. This could include investments and bank accounts.
So, where there is a survivorship destination placed in the title to a house, investment portfolio, bank account etc, individuals should be made aware of that and understand the impact of a survivorship destination. The survivorship destination trumps a will and the effect of any survivorship destination(s) must be appreciated and be consistent with overall succession planning. It would be unfortunate if a survivorship destination taking effect cut across an otherwise well-thought-out succession and estate plan and strategy. Assets could accidentally end up in the wrong hands.
If a survivorship destination does operate and does so in a way that is unexpected it might be difficult to unscramble. Care needs to be taken to attempt to remedy a situation that was not planned and has resulted in an asset being held by the ‘wrong’ person. In some cases it may not be unscrambleable (to invent a word).
Beyond ownership: survivorship provision in contracts
Survivorship provisions can also be found in contracts including investment management agreements and bank account terms and conditions.
While these do not automatically transfer title to the survivor, it creates a contractual obligation or liability that the beneficiary of the contractual survivorship provision can enforce against the executors. Again, this is something that can be enforced in a way that trumps the terms of a will and ultimately has the same effect as a survivorship destination found in the title to the asset. Indeed, in some circumstances, survivorship in a contract could be even more ‘powerful’ than when found in the title to an asset.
The words used in the terms and conditions of an account will be important. Some provisions look like survivorship provisions but instead cover operation of an account rather than who is to inherit the account.
Survivorship provisions in contracts can also have interesting consequences for certain fixed succession rights such as the legal rights of a child. That is beyond the scope of this note and very happy to discuss further.
What should happen next?
A key action point is for financial advisers, investment managers and others to be clear as to how survivorship destinations and provisions can affect succession to the client’s assets. Consistency with their wider estate planning is critical. It should be mentioned that the rules on these topics work in the opposite way in England from Scotland and real care needs to be taken when a pan-UK solution is sought for terms and conditions and holding title. It may be that the terms and conditions of e.g. management agreements need to be reviewed in light of this and/or advisers carefully consider this particular point when setting up accounts and structure how investments are held.