It is common to included a survivorship clause in Wills. The logic behind this is to prevent assets from passing to a beneficiary who dies shortly afterwards and so has very little or, more likely, no benefit from the asset. If the soon-deceased beneficiary leaves a taxable estate then the gift will be subject to inheritance tax in their estate. It can also lead to assets passing under the beneficiary’s Will to people who the original testator may not have wished to benefit.
A good example of this would be a testator who dies and in his Will leaves his estate to his two daughters with no survivorship provision. If one daughter dies shortly afterwards then the gift to her would still take effect but would be paid to her estate. If her estate is taxable then the inheritance from her father’s estate will also be subject to inheritance tax. If she has left a Will the gift will pass with the rest of her estate to the beneficiaries named in her Will. But what if she has not made a Will? In that case, her estate (including the inherited amount) would pass under the intestacy rules. This would benefit a spouse and potentially her children. Things become even messier if she is separated, but not divorced, as assets will still pass to her husband.
For this reason professionally drafted Wills will usually include a survivorship clause. The commonly accepted time limit is 30 days, although why this is deemed a suitable time frame is anyone’s guess. As a general rule, estates (particularly those which require probate) will take several months to administer. A 30 day time limit would not therefore ensure that a beneficiary actually gets to enjoy their inheritance. It is generally agreed that the time limit should not be so long as to be a hinderance but otherwise the only certainty is that the required survivorship period should not be longer than 6 months as this would create a trust.
One final point to note is that spouses are generally exempt from survivorship requirements. Although this may seem counterintuitive, the reasons are purely to ensure that all tax reliefs are available to the survivor’s estate. Assets pass free of inheritance tax to spouses. Including a survivorship clause for a spouse can therefore result in an inheritance tax charge which could otherwise be avoided.
The inclusion of a survivorship clause for a spouse can also override the commorientes rule. This rule states that, where two people die together and the order of deaths is uncertain, the older is deemed to have died first for succession purposes. This interacts with inheritance tax rules in an interesting way where spouses die leaving their estates to each other and there is no survivorship clause: the older spouse is deemed to have died first, leaving their estate to the younger , however for inheritance tax purposes they are treated as having died simultaneously and so the older spouses estate passes to the ultimate beneficiaries free of any inheritance tax. Granted this circumstance is rare, but it is generally agreed that it is best not to risk a survivorship clause for spouses, just in case.
If you would like to discuss your affairs, or need assistance administering an estate, then please do not hesitate to contact Ashley Minott on 01494 893518.