The Pros and Cons of Survivorship Clauses in Wills
Survivorship clauses are one of a number of estate planning tools that people creating their Wills (known in legal terms as testators) might consider. For married couples and civil partners, especially those thinking about making mirror Wills, including a survivorship clause can simplify the way your estate is managed after you die. At the same time, it can have significant implications for Inheritance Tax (IHT), especially if your estate includes property, and can result in certain parties being disinherited if it is not prepared correctly.
Here, the Wills and probate experts at JMW explain the survivorship clause and the key factors to consider when deciding whether or not to use one in your Will.
What Is a Survivorship Clause?
A survivorship clause is a provision included in a person's Will. It stipulates that a beneficiary must survive the testator by a specified survivorship period - usually 28 or 30 days - in order to inherit under the Will.
Having a survivorship clause in place is useful in situations such as accidents or disasters, where both the testator and the beneficiary die together or within a short time of each other. This would mean that the initial beneficiary therefore fails to meet the condition of surviving the testator for the specified period and the gift to that beneficiary will lapse. In these cases, the estate passes to alternative beneficiaries according to other provisions in the Will or, if there are no such provisions, according to the rules of intestacy.
Without a survivorship clause, executors can experience complications in the distribution of the estate and have implications for Inheritance Tax calculations and other unintended consequences. At the same time, it is not always necessary, particularly for estates that will not exceed the tax-free IHT threshold anyway. This type of clause can thereby simplify the administration of a deceased person's estate in situations where the testator and a beneficiary die at or around the same time.
What Are the Advantages of Survivorship Clauses?
A survivorship clause in a Will offers several advantages in the management and distribution of an estate. By requiring a beneficiary to survive the testator for a specified period, a survivorship clause can prevent the estate from needing to go through multiple rounds of administration if the testator and beneficiary die close in time to each other. The survivorship clause helps the executors of the estates to avoid the complexity of assets being transferred to the survivor's estate, only to be immediately redistributed when they die shortly afterwards.
Situations where people die in quick succession in this way can also lead to disputes among family members or other potential beneficiaries. A survivorship clause can clearly define the conditions under which assets are to be inherited, and thus provide clearer guidance for executing the Will. For testators who want to protect their assets (by keeping them in the family, for example), a survivorship clause can ensure that assets are passed on to secondary beneficiaries if the primary beneficiary does not survive the testator for long enough. This is particularly useful in planning the estate to benefit future generations or alternate beneficiaries in line with the testator's wishes.
There can also be tax advantages in the right circumstances. If assets pass directly to a beneficiary who then dies shortly after the testator, the estate might be subject to Inheritance Tax on both occasions, especially if the testator and beneficiary are not a married couple and therefore do not benefit from a spousal exemption. A survivorship clause can help to minimise these IHT consequences for unmarried couples - although, this can also be a downside.
The spousal exemption refers to a tax relief provided when assets are transferred from one spouse to another when the first spouse dies. Any assets passed from the deceased spouse to the surviving spouse do not incur IHT at the time of the first person’s death, regardless of the value of the assets transferred. If the surviving spouse dies shortly thereafter, a survivorship clause could mean that the estate is immediately subject to Inheritance Tax, which can be a significant tax burden.
With all of this in mind, a survivorship clause can provide clarity and certainty about a testator’s intentions, and be tailored to specific needs to give testators flexibility in estate planning.
Are There Downsides to Survivorship Clauses in a Will?
As with any estate planning tool, a survivorship clause will only be suitable in the right circumstances, and there may be disadvantages that should be considered carefully. For example, specifying a survivorship condition on inheritance can mean that if a beneficiary dies shortly after the testator but before the stipulated period, their children (or other intended beneficiaries) could unintentionally be disinherited. This would apply even if the testator's intention was for those heirs to benefit indirectly through the original beneficiary. Careful drafting of the Will is important to account for possibilities like these.
The survivorship clause can also be seen as inflexible, as it does not account for the individual circumstances of beneficiaries. If your Will contained a survivorship clause with a specified survival period of a few months, beneficiaries would be forced to wait this out before their inheritance can be paid. This delay in the distribution of assets can create financial difficulties for beneficiaries, and may lead to family disputes.
We have already noted the potential tax complications, and the emotional distress that can arise for beneficiaries in knowing that their inheritance depends on their survival for an arbitrary period beyond the testator’s death. Dealing with a survivorship clause in the aftermath of multiple loved ones dying in quick succession can also present challenges.
At JMW, our Wills and probate solicitors understand the desire to control how assets pass to your children, surviving spouse or partner, or other beneficiaries. Thanks to our thorough knowledge of this area of the law, we can also advise you on the best legal mechanisms through which you can realise your intentions. It is important to carefully consider a survivorship clause and the potentially unintended consequences that can arise. Our team can discuss what you want to achieve and help you write a legally compliant Will that suits the specifics of your estate and the unique circumstances of your beneficiaries.
For support in drafting a Will including a survivorship clause, call our team today on 0345 872 6666 or use our online enquiry form to request a call back.
