Wills and Intestacy - Property passing outside the estate

Learning Outcomes

This article covers property that passes outside the estate on death, including:

• Identifying assets that bypass the will or intestacy and the legal mechanisms by which they transfer (survivorship, nomination, trusts, and donatio mortis causa)
• Distinguishing joint tenancies from tenancies in common and explaining how severance alters succession on death
• Explaining the operation and effect of nominations (e.g., National Savings, pension schemes) and life policies written in trust, including trustee discretion over death‑in‑service benefits
• Applying the requirements for a valid donatio mortis causa and assessing when such gifts pass outside the estate
• Advising personal representatives on their limited authority over non‑estate assets, practical steps to verify asset status, and completion of HMRC returns
• Analysing inheritance tax implications, including treatment of joint property, trust-held proceeds, and excluded property
• Recognising when the forfeiture rule prevents a killer from taking by survivorship
• Evaluating how claims under the Inheritance (Provision for Family and Dependants) Act 1975 and deeds of variation may interact with property passing outside the estate

SQE2 Syllabus

For SQE2, you are required to understand how and why certain assets pass outside the estate on death, including the legal mechanisms, practical indicators, and inheritance tax consequences relevant to personal representatives, with a focus on the following syllabus points:

• The distinction between estate assets and property passing outside the estate
• Joint tenancies and the right of survivorship versus tenancies in common
• Severance of joint tenancies (timing, methods, and practical indicators such as Land Registry Form A restrictions)
• Treatment of joint bank accounts and the importance of establishing beneficial ownership
• Nominated assets (e.g., National Savings, Friendly Societies) and scheme-specific rules
• Life assurance policies written in trust and pension scheme nominations/death-in-service benefits
• Donatio mortis causa (requirements, scope, and limits, including the different treatment of registered and unregistered land)
• Personal representatives’ duties and limits of authority over non-estate assets, plus inheritance tax treatment of joint property and excluded property
• The forfeiture rule and its impact on survivorship
• Post-death alterations: deeds of variation and the potential impact of 1975 Act claims on outcomes and timing of distribution

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. If a person dies owning a house as a joint tenant with their spouse, who is entitled to the property after their death?
2. How are the proceeds of a life insurance policy written in trust usually dealt with on the death of the assured?
3. What is the legal effect of a 'nomination' in a pension scheme—does it form part of the deceased's estate?
4. If a deceased person’s savings account is nominated to a friend, can that friend claim the sum independently of the will or intestacy rules?

Introduction

Some of a deceased person’s assets do not pass by their will or under the intestacy rules, but instead transfer outside the estate by operation of law or under specific arrangements. Understanding which assets fall outside the estate, and how they are transmitted, is essential for advising personal representatives and beneficiaries, and for correctly analysing scenarios in the SQE2 assessment. These mechanisms frequently intersect with inheritance tax and may be relevant to family provision claims or post-death variations, so personal representatives must identify them early and handle them correctly.

Key Term: joint tenancy
A form of co-ownership where two or more persons each hold the whole of the property jointly, so that on the death of one, the property passes by survivorship to the remaining joint tenants, not via the estate.

Key Term: tenants in common
A form of co-ownership where each owner holds a distinct share of the property, which can be left under the will or on intestacy.

Property that passes outside the estate

Personal representatives have authority only over assets forming part of the deceased’s estate. Certain types of property, however, pass on death to others by mechanisms not involving the deceased’s will or intestacy. The main categories are: property held under a joint tenancy, assets subject to a nomination, assets held on trust for named beneficiaries, and certain gifts made in expectation of death (donatio mortis causa).

Joint tenancies and survivorship

Where property is owned as a joint tenancy, the deceased’s interest passes automatically to the surviving joint tenant(s) on death, rather than being distributed under the will or intestacy. This right of survivorship applies to various jointly owned assets, such as land registered to joint proprietors, joint bank accounts, and some investments.

As a practical matter, personal representatives should confirm the basis of co‑ownership. For registered land, a Form A restriction on the proprietorship register is a strong indicator that the beneficial joint tenancy has been severed, meaning the property is held as a tenancy in common and the deceased’s share forms part of the estate. For unregistered land or non‑land assets, contemporaneous documentation or notices, trust declarations, or communications between the co‑owners may evidence severance.

Key Term: severance
The process by which a beneficial joint tenancy is converted into a tenancy in common, so that the deceased’s share no longer passes by survivorship and instead falls into the estate.

Joint bank accounts often pass by survivorship to the surviving account holder(s). However, survivorship reflects the beneficial ownership arrangements rather than mere account handling convenience. If evidence shows the deceased was the sole beneficial owner (e.g., the other signatory was added only to assist with payments), the survivorship presumption may be displaced and a resulting trust may arise in favour of the estate. Always assess contribution and intention.

Survivorship can be displaced by law in certain circumstances:

Key Term: forfeiture rule
A rule preventing a person who has unlawfully killed the deceased from benefiting as a result of the death. It applies to gifts under a will and on intestacy, and also to survivorship. Limited relief from forfeiture may be available under the Forfeiture Act 1982, but never in cases of murder.

If survivorship is precluded (for example, by the forfeiture rule), the killer is treated as having predeceased the deceased, and the property passes accordingly under the will or intestacy to the next entitled person.

Worked Example 1.1

Elizabeth and John own their home as joint tenants. Elizabeth dies. Who is entitled to the home following her death?

Answer:
John automatically becomes the sole owner of the home by right of survivorship, irrespective of what Elizabeth’s will or intestacy would provide. If John had unlawfully killed Elizabeth, the forfeiture rule would prevent John taking; the property would then pass as if John had predeceased Elizabeth.

Nominated assets

Some types of property, such as National Savings products, certain building society accounts, and credits under Friendly Society rules, may allow the account holder to nominate a beneficiary to receive them on death. These nominations may be made by form or deed, according to the relevant scheme. The effect of a valid nomination is that the asset passes directly to the nominated beneficiary, bypassing the estate and the personal representatives. Nominations are scheme‑specific and should be verified with the provider.

Key Term: nomination
An arrangement where a member of a particular financial scheme (for example, a savings account or pension) designates another person to whom the sums or credits will be paid on their death, independently from their estate.

Nominations are more commonly encountered in National Savings and Friendly Society contexts and do not generally apply to ordinary commercial bank accounts. They can usually be revoked or altered in line with scheme rules, and they are distinct from lifetime assignments.

Worked Example 1.2

Yusuf has £2,000 of National Savings Certificates. He makes a nomination in favour of his sister. On Yusuf's death, who is entitled to the certificates?

Answer:
The nominated beneficiary (his sister) has the right to claim the certificates directly, outside of the will or intestacy rules.

Life insurance policies and pension death benefits in trust

A common estate planning approach is for an individual to take out a life insurance policy, or arrange a pension, and nominate or write the proceeds into trust in favour of specified beneficiaries. Where an insurance policy is held within a trust, the death proceeds are payable to the trustees, who hold for (or at their discretion appoint to) the beneficiaries named in the trust documentation. Similarly, many occupational and personal pension schemes allow a member to give an expression of wish or nomination that guides the scheme trustees in exercising their discretion over death benefits (including death‑in‑service lump sums).

Key Term: life insurance policy in trust
An arrangement where the proceeds of a life insurance policy are paid directly to nominated beneficiaries through a trust on the policyholder's death, excluding those proceeds from the estate.

Key Term: pension scheme nomination
A direction made by a scheme member requesting that death benefits (e.g., lump sum) are paid to particular individuals under the scheme rules, outside the estate. Most schemes treat nominations as expressions of wish guiding trustee discretion.

Such proceeds, if properly nominated/written in trust, will usually not pass by the will or on intestacy and often have inheritance tax advantages. Death‑in‑service lump sums under occupational schemes are typically discretionary payments by trustees and do not form part of the deceased’s estate for inheritance tax purposes. In contrast, the maturity value of a life policy owned outright (not in trust) may be included in the estate for inheritance tax, with s 171 IHTA 1984 allowing the increase in value caused by death to be taken into account.

Worked Example 1.3

Ali sets up a life insurance policy and writes it in trust for his children. On Ali’s death, who is entitled to the proceeds?

Answer:
The trustees receive the policy proceeds and are obliged to pay them to the children named as beneficiaries (or otherwise in accordance with the trust terms). The proceeds do not fall within Ali’s estate.

Gifts made in expectation of death (donatio mortis causa)

In some circumstances, a person may make a gift during lifetime in contemplation of death that only takes effect if they die. If valid, such a gift passes outside the estate and does not form part of the property administered by personal representatives. The requirements are strict.

Key Term: donatio mortis causa
A conditional lifetime gift made in contemplation of death, intended to take effect only if the donor dies, accompanied by delivery of the subject matter (or essential indicia of title). If the donor survives, the gift is revoked.

A valid donatio mortis causa (DMC) requires:

• Contemplation of impending death from a known cause or event (e.g., serious operation or illness). Mere advanced age or general frailty is insufficient.
• Intention that the gift operate only if the donor dies; if the donor survives, the gift is revocable and should be returned.
• Delivery to the donee (or their agent) of the subject matter, or essential evidence of title/means of control. Delivery is judged according to the type of property.

For chattels, physical delivery or delivery of keys to a container may suffice. For money in savings, delivery of the passbook (or similar essential title evidence) has traditionally been recognised. For land, constructive delivery can be achieved for unregistered land by delivery of the title deeds; but for registered land, title is conferred by registration, and courts have indicated that registered land cannot ordinarily pass by DMC because delivery of essential title documentation is not possible in the same sense.

Worked Example 1.4

A farmer is fatally injured by a fall from the roof of a barn. Knowing that he is dying, he takes from his pocket the key to a safe in the farm office and says to his niece, who has worked with him for over ten years, ‘Take this key and keep it. Everything inside is yours now’. The niece opens the safe and finds inside the title deeds to the farm (unregistered) and official copies of the registered title to two other parcels of land. What passes outside the estate?

Answer:
The gift of the unregistered land is effective by donatio mortis causa because the niece received the key and title deeds, amounting to constructive delivery of the subject matter. The registered land does not pass by DMC; registered land requires transfer and registration, and delivery of official copies is not delivery of title. The registered parcels fall into the estate.

Key Term: deed of variation
A post‑death instrument by which beneficiaries or personal representatives may vary the distribution of the estate (or redirect property they receive) within two years of death. If compliant with s 142 IHTA 1984, it can be effective for inheritance tax and capital gains tax as if made by the deceased.

Practical differences for personal representatives

Personal representatives’ duties relate only to estate assets, not to property passing outside the estate. They have no authority to collect, manage, or distribute non‑estate assets such as joint tenancy property passing by survivorship, sums passing via valid nominations or discretionary pension payments, life policy proceeds held in trust, or valid DMCs.

However, they must identify which assets pass by will/intestacy and which do not, and consider their relevance for inheritance tax. Key points include:

• Joint property: Although a beneficial joint tenant’s interest passes by survivorship, the deceased’s share is part of the IHT estate by statute (the value attributable to the deceased is considered under IHTA 1984). Valuation discounts may apply to undivided shares.
• Trust property: Where the deceased had a qualifying interest in possession (e.g., an immediate post-death interest under a will), the trust fund may be taxed in the deceased’s IHT estate even though it does not pass via will or intestacy; trustees are usually liable for the tax attributable to settled property.
• Excluded property: Death‑in‑service lump sums and correctly structured life policy trusts are generally outside the IHT estate. In contrast, policies owned outright (not in trust) are included, with the death enhancement in value considered.
• HMRC returns: Depending on the size and composition of the estate, personal representatives must file the appropriate IHT form (IHT205 for excepted estates; IHT400 where IHT is due). They should allocate values correctly, differentiating between estate assets and non‑estate assets relevant for IHT.

Funding IHT before grant can be challenging. Options include using the Direct Payment Scheme (banks paying HMRC directly from the deceased’s account) or borrowing (from a bank or, by agreement, from a beneficiary who has received outside‑estate funds such as survivorship proceeds).

Severance checks are necessary. If a joint tenancy was severed before death, the deceased’s share forms part of the estate. For registered land, a Form A restriction indicates tenancy in common; for other assets, look for evidence of severance (written notice, agreement, or conduct).

Deeds of variation may alter the distribution of estate assets within two years of death (with potential IHT/CGT effect if compliant). Property that passes outside the estate cannot be varied unless the recipient (e.g., the surviving joint tenant or nominee) participates by executing a variation or making a lifetime gift. Personal representatives should also be aware that financial provision claims under the Inheritance (Provision for Family and Dependants) Act 1975 may lead the court to make orders that adjust burdens between those who have received property (including by survivorship or nomination) and those entitled under the will/intestacy, so prudent timing and retention of funds can be important.

Key Term: pension scheme nomination
A direction guiding trustees as to intended recipients; trustees often retain discretion. Payments typically do not fall into the estate or the IHT charge.

Key Term: severance
The act or effect of converting a beneficial joint tenancy into a tenancy in common; it alters succession so the deceased’s share passes via will/intestacy.

Exam Warning

A common mistake is for personal representatives (and exam candidates) to attempt to distribute assets that have already passed to others by survivorship, nomination, trust, or valid donatio mortis causa. Remember, such assets are not “estate” property and the personal representatives have no power over them. Also beware of assuming all joint bank accounts pass by survivorship without checking beneficial ownership, and do not overlook severance or the forfeiture rule.

Revision Tip

Always check in a fact pattern whether an asset is included in the estate or passes outside the estate on death. For co-owned property, confirm the form of co-ownership and whether severance occurred. Verify nominations and trust arrangements with providers. Consider inheritance tax implications even for non‑estate assets, and be alert to potential 1975 Act claims or the use of deeds of variation.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• Certain property passes outside the estate and is not governed by the will or intestacy rules.
• Joint tenancy property passes by survivorship automatically—personal representatives have no power over it.
• Severance converts a joint tenancy into a tenancy in common, bringing the deceased’s share into the estate.
• Nominations and pension scheme death benefits can transfer independently of the estate.
• Life insurance proceeds written in trust do not form part of the estate; death‑in‑service benefits are typically outside the estate and IHT.
• Donatio mortis causa may pass property outside the estate if strict requirements are met.
• The forfeiture rule prevents a killer from taking by survivorship or under the will/intestacy.
• Personal representatives must distinguish estate assets from non‑estate assets for administration and inheritance tax and should consider timing, funding, and potential 1975 Act claims.
• Deeds of variation can change estate distribution; outside‑estate assets require recipient participation to be redirected.

Key Terms and Concepts

• joint tenancy
• tenants in common
• nomination
• life insurance policy in trust
• pension scheme nomination
• donatio mortis causa
• deed of variation
• severance
• forfeiture rule