“I don’t need a will because everything will go to my partner anyway.”
Sound familiar? True, if an asset is owned as ‘joint tenants’ it is as if each owner actually owns 100% of the asset. The laws of survivorship apply such that, if one joint owner dies, ownership will automatically vest in the surviving owner alone. The provisions of the deceased person’s will are irrelevant.
Jim and Bella
Some years ago, a young professional couple, let’s call them Jim and Bella, decided to formalise their 10-year relationship and marry before starting a family. During their 10 years together, Jim and Bella had accumulated a significant asset portfolio, including a home, an investment property, a blue-chip share portfolio, and a healthy bank account. All of these assets were owned as joint tenants. In their personal names, they had some relatively nominal superannuation entitlements, modest life insurance and a European car each.
Jim and Bella were not ‘high net wealth’ as usually defined, but they certainly had accumulated an impressive array of assets and had been financially responsible at every opportunity.
In lieu of wedding presents, Jim and Bella requested cash gifts that would be used to reduce the home loan balance their home. Thanks to the significant generosity of Bella’s parents, a 6-figure amount was deposited into the couple’s joint bank account as they left for the airport on the following Monday morning, en route to an exotic pacific island to enjoy a romantic honeymoon.
Their trans-pacific flight from Australia was uneventful. The light plane flight to the island was unsuccessful. All 7 people on board the 12-seater aircraft that Monday afternoon died instantaneously.
What happens now...
Where there is no estate planning documentation in place, the laws of intestacy determine how wealth is to be distributed, and the key issue in relation to jointly owned assets is whether they are owned as joint tenants or tenants in common.
For Jim and Bella, virtually their entire asset portfolio was owned as joint tenants. Where a couple have assets owned as joint tenants and die in the same incident, the law has a ‘tiebreaker’ rule that deems the younger of the couple to have survived the older.
In other words, the younger person to die will be deemed to own 100% of all jointly owned assets and, therefore, the younger person’s estate plan regulates the distribution of all wealth.
In this case, Jim was some 5 months younger than Bella, so the home, investment property, and share portfolio were, for the purposes of the estate administration, solely his. The cash at bank was also solely his, including the significant 6-figure deposit that had been gifted by Bella’s parents just a couple of days before the plane crash.
As Jim died without a valid will, the intestacy rules applied and all his wealth passed to his parents.
The relationship between the two sets of parents had always been at best awkward, and as the exact legal position in relation to the assets began to unravel, the relationship became positively hostile. Jim’s parents refused to share any of the wealth with Bella’s parents, and would not return the cash gift that they had made.
In a further blow, Jim’s parents, whose relationship had been on shaky ground for some years before the accident but completely disintegrated when faced with the grief of losing their only child, became embroiled in an extremely drawn-out, bitter and costly divorce settlement. Sadly, a significant proportion of the combined wealth of their son and daughter-in-law went to cover legal fees.
So what is the moral of the story?
Beware of the distribution of jointly owned assets where all joint owners die, and remember – No Estate Plan = an Estate Plan – it just might not result in a desirable outcome.