Wills and Intestacy - Property passing outside the estate

Learning Outcomes

After reading this article, you will be able to identify assets passing outside a deceased person’s estate, explain the legal effect of joint tenancies and nomination arrangements, distinguish the treatment of these assets from assets passing under a will or on intestacy, and advise on practical and procedural considerations faced by personal representatives in respect of such assets. This will support your ability to apply and explain the correct legal approach in an SQE2 assessment scenario.

SQE2 Syllabus

For SQE2, you are required to understand how some property passes outside the deceased's estate and does not fall under the rules of wills or intestacy. You should focus your revision on the following points:

• The distinction between estate assets and property passing outside the estate
• The legal consequences of joint tenancies and the right of survivorship
• The effect of nominated assets, including pension and life policy nominations
• Life insurance policies written in trust and their exclusion from the estate
• The practical duties of personal representatives regarding these assets versus estate assets
• Application of these rules to client scenarios and common pitfalls affecting estate administration

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.

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, and assets held on trust for named beneficiaries.

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.

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.

This right of survivorship applies to most jointly owned assets, such as the family home, joint bank accounts, and investments. It does not apply if the property is held as tenants in common, where the deceased’s share forms part of their 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.

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.

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.

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.

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 not generally available for commercial bank accounts or ordinary securities.

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.

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.

An insurance policy “written in trust” is not part of the deceased's estate and is not under the control of the personal representatives. Instead, the proceeds are paid to the trustees (who may be members of the family, friends, or a professional trustee company), who then pay the money to the trust’s beneficiaries.

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.

Such proceeds, if properly nominated/written in trust, will usually not pass by the will or on intestacy and often have inheritance tax advantages as well.

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. The proceeds do not fall within Ali’s estate.

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 or sums passing via valid nominations or trusts.

However, they do bear responsibility for distinguishing which assets pass by will/intestacy and which do not. They must consider these assets when preparing inheritance tax returns, as some—e.g., a deceased’s beneficial interest in joint property—may still be relevant for inheritance tax, even if not for estate administration.

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 or nomination. Remember, such assets are not “estate” property and the personal representatives have no power over them.

Revision Tip

Always check in a fact pattern whether an asset is included in the estate or passes outside the estate on death. Look carefully at how each co-ownership, trust, or nomination is structured before advising.

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.
• Nominations and certain policy benefits can also transfer independently of the estate.
• Life insurance proceeds written in trust do not form part of the estate.
• Personal representatives must distinguish estate assets from non-estate assets for administration and tax purposes.

Key Terms and Concepts

• joint tenancy
• tenants in common
• nomination
• life insurance policy in trust
• pension scheme nomination