Sunday 6th February, 2005


Ownership rights

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Money Matters with Raziah Ahmed

There is a Persian story, about a man who sat in his house and prayed to his lord for food for several days, and no food came, but he continued to pray. One day, a bull came crashing through his front door and he slaughtered the animal and fed himself. He was hauled before the town jurists, and fined!

The jurists found that the animal, although present in his house, was not his to use, and in fact the animal had escaped from a nearby field, belonged to the neighbour, and had not been provided by the lord for him.

In estate planning, the ownership title of property is very important. Commonly, we mistake our ownership rights, or else we encumber property with titles that are difficult to understand. In my experience, actual wills have been drawn up bequeathing property to persons, when the testator (person making the will) did not have ownership of the property, and thus did not have the right to give the property to anyone.

Let us examine the ownership rights in a simple arrangement such as a bank account. The person or persons in whose name the account exists, has/have ownership of the account. What happens when the account holders die? It is important to recognise the meaning of the conjunctions in joint accounts, that is “either”, “or”, “and.” Different institutions can attribute varying meanings to these titles. The onus is upon the consumer to understand exactly whether there are survivor rights or whether the account will be frozen upon death of an individual.

There are distinct benefits if you title property in such a way that it passes outside of a will. One obvious benefit is that it escapes probate fees and costs. If money in the account passes automatically to the survivor, financial hardship can be avoided as well.

There are also advantages to ownership of a motor vehicle in the name of two parties, rather than the typical case of a single owner. An immediate problem that presents itself, and one which is often overlooked, is the problem of insurance for the motor vehicle, and the ability to sell off the vehicle, if the survivor, is not an owner.

Many of us enjoy what are called “no-claim discounts” that knock off up to 60 per cent of the cost of insurance. Imagine the predicament of a wife, who has never owned a vehicle, seeking insurance on the vehicle, which her husband leaves, when he dies! Typically insurers will insure the vehicle in the “estate of the deceased.” When the wife becomes the owner of the vehicle, after legal proceedings, she will be seeking motor insurance as a first-time owner, with no discount. The premium is likely to be four to five times what it may have been previously.

This could be avoided. In the case that the vehicle is not being used, because the wife has another, without ownership title, the wife is unable to sell the idle vehicle. Of course the executor may make an application to the courts to sell off property of the estate of the deceased. But that could be avoided if the vehicle is jointly owned.

Other types of property allow beneficiary designations. For example insurance contracts, pension plans and certain mutual funds. This is an important option to utilise, if it exists.

To designate “estate” as a beneficiary is to engage the courts, in order to gain ownership of the property. And that is a time consuming affair, and neither praying for days, nor fasting, can expedite the process of the law, as it obtains in our courts.

Raziah Ahmed is a registered financial consultant

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