PART 4
June 2013
DEALING WITH A PROPERTY OF A DECEASED INDIVIDUAL
54.61 Dealing with a property of a deceased individual – general
Generally speaking, the process for dealing with a property owned by a deceased individual, whether they died before or after the petition for bankruptcy will be the same as a ‘normal’ bankruptcy, in principle (see Chapter 31.3).
There are, though, some differences so far as concerns properties jointly owned by the deceased. This Part particularly gives guidance on those differences.
54.62 Property owned under a joint tenancy – right of survivorship
Many properties, but especially the matrimonial or quasi-matrimonial home, are held on the basis of a joint tenancy (see paragraph 31.3.22). As a result, by virtue of the right of survivorship, a deceased joint-owner’s beneficial share of such joint-tenancy property passes automatically to the surviving joint-owner at the time of death.
54.63 Property owned solely or on the basis of tenants in common
Where the property is held solely by the deceased debtor, or on the basis of a tenancy in common, the rules relating to survivorship will not apply and the bankrupt’s property interest will form part of the insolvency estate, to be realised by the trustee.
54.64 Effect of right of survivorship where debtor dies prior to presentation of petition
Only assets which form part of the deceased debtor’s estate at the date of death which will vest in the trustee (see paragraph 54.26). At the time of death the interest in any property held on the basis of a joint tenancy passes to the surviving joint-owner (see paragraph 54.62) and therefore this interest cannot form part of the insolvent’s estate to be realised by the trustee. There are provisions however to allow the trustee to recover for the estate any value lost by the operation of the right of survivorship (see paragraph 54.67).
54.65 Effect of right of survivorship where the debtor dies after the presentation of the petition but before order
Where the debtor dies after the presentation of the petition but before the making of the bankruptcy order, any property held on the basis of a joint tenancy passes to the surviving joint-owner (see paragraph 54.62) and therefore this interest cannot form part of the insolvent’s estate on the making of the order to be realised by the trustee [note 1].
This leads to the anomalous position that, apart from in relation to unregistered land (see paragraph 54.70), there are no provisions for recovery such as there are when the debtor dies before petition (see paragraph 54.67), and the provisions for void dispositions (see paragraph 54.47) will not apply as the accrual by right of survivorship does not count as a disposition for the purpose of the relevant provision [note 2].
54.66 Effect of right of survivorship where the debtor dies after the making of the order
The right of survivorship (see paragraph 54.62) cannot apply after the making of a bankruptcy order as an effect of the order is to sever the joint tenancy, with the property then being held on the basis of a tenancy in common, to which the survivorship rules do not apply (see paragraph 54.63).
54.67 Recovery of a property interest lost through right of survivorship
Where a property interest has been lost to the estate due to the operation of the rules of survivorship (see paragraph 54.62), there is provision to allow for recovery relating thereto [note 3]. It is important to note that such provision applies only to debtors who die prior to the presentation of a bankruptcy petition (and are therefore subject to an insolvency administration order - see Part 1).
Under these provisions, the trustee can make application (see paragraph 54.68) to the court to seek to recover the value lost to the estate by the survivorship rules. Value lost to the estate is defined as the amount which would, in the court’s opinion, restore the position to what it would have been if the deceased had been adjudged bankrupt immediately before his/her death [note 4].
54.68 Application for order to recover lost property interest
Where the official receiver, as trustee, is seeking to recover a lost property interest (see paragraph 54.67), he/she will be able to apply to the court for a monetary order against the survivor to pay to the estate an amount not exceeding the value lost to the estate [note 5] where:
In practice, the Service’s antecedent recovery contractor should normally be appointed (see Chapter 31.4B, Part 1).
54.69 Order to recover lost property interest
In making an order to recover a lost property interest (see paragraph 54.67), the court will have regard for all the circumstances but, unless the circumstances are exceptional, it must assume that the interests of the creditors outweigh all other considerations [note 9]. The court cannot make an order against the property, or against any person who has acquired the property subsequent to the death.
54.70 Unregistered land – debtor dies after presentation of petition
Where a debtor dies after the presentation of the petition and the surviving joint-owner has disposed of the property after the date of the deceased’s death, the legislation [note 10] provides that, if the conveyance occurred after the registration of the petition at the Land Charges Department (see Chapter 50), any interest the third party has acquired will be subject to the trustee in bankruptcy’s claim.
Where there is a possibility of such a claim, it is likely to be appropriate to seek the appointment of an insolvency practitioner as trustee to take the matter forward.
54.71 Transfer of property prior to death
Where the debtor has transferred a property interest to a third-party prior to death, the right of survivorship (see paragraph 54.62) would not apply, and the official receiver, as trustee, could seek recovery as a transaction at an undervalue (see Chapter 31.4A Part 2), preference (see Chapter 31.4A Part 1) or a void disposition, as appropriate (see Chapter 31.4B Part 5).
54.72 Property of a deceased debtor as the family home
Where the debtor dies prior to the presentation of the petition it is to be assumed that the ‘use it or lose it’ provisions of the Act relating to the ‘family home’ will apply as the relevant section [note 11] is applied, without modification, to deceased debtors. The official receiver should, therefore, ensure that any relevant property interest is dealt with, in line with the guidance in Chapter 31.3, within three years of the date of death to avoid the interest being lost to the estate.
Where the death was more than three years, or close to three years, before the date of the insolvency administration order the advice of Technical Section should be sought.
Where the debtor dies after the presentation of the petition, the ‘use it or lose it ‘(see Chapter 31.3, Part 3) provisions will apply normally.
[Back to Part 3 – The personal representative]