What are survivorship agreements?
A survivorship agreement is a contractual arrangement under Philippine law that typically acts as a mechanism for transferring ownership of property to a designated beneficiary after the death of one or more parties to the contract. It differs from a simple gift in that it provides for the transfer only upon the death of, at least, one of the specified parties. There are primarily two types of survivorship agreements: 1) Joint Tenancy Agreements; and 2) Joint Will Agreements. These agreements have been validated in various Philippine Supreme Court decisions.
The concept of survivorship agreements remains one clouded with misconceptions. The foremost misconception is that a survivorship agreement is used to transfer property upon the death of all of the surviving parties to the agreement. This misconception stems primarily from the name itself . However, the prevailing view is that survivorship agreements are valid only with respect to the transfer to the designated beneficiary upon the death of a single party to the agreement. Therefore, a surviving joint tenant will not acquire ownership over the property pursuant to their joint tenancy if they survive the period requiring co-ownership as stipulated in the joint tenancy agreement.
Another common misconception is that a survivor is entitled to transfer complete ownership of the property which is the subject of the survivorship agreement without the need for consent from other joint owners. While it is true that the survivor has the power of administration, management, and disposition over the property, he or she does not have the right to completely dispose of the property without the consent of the remaining beneficiaries.
Legal basis in the Philippines
Legal Framework in the Philippines on SIS(2U) agreements
For purposes of clarification, it is important to point out that there is no legal standard for a survivorship agreement. However, there are legal provisions contained in certain Philippine laws that should be noted. The Civil Code of the Philippines governs the disposition of property. Thus, it would be remiss for any discussion on survivorship agreements to omit any mention of relevant provisions of the Civil Code. Under the Civil Code, an estate generally comprises the sum total of an individual’s assets, liabilities and net worth immediately before his death. It follows that the individual, who dies leaving real and personal properties, survives his beneficiary until the latter succeeds at the moment of his death by operation of law, to the rights and obligations which he could have transmitted in life. All the rights and obligations constitute the estate in its entirety and pass at once to the heir or heirs. It is important to note that the title to property which is subject to a conditional inheritance or suspended by a term or condition, and which cannot be appropriated without a liquidation of the estate, vests in the decedent immediately upon death, although the property will not become distributable until some time after the decedent’s death. We recognize also that the Civil Code is supplemented by other statutes such as the Family Code and Property Registration Decree.
Pros and cons of survivorship agreements
Survivorship agreements are useful estate planning tools that provide for the smooth transition of property to the surviving co-owner(s) upon the death of the first owner. The property subject to a survivorship agreement is automatically transferred to the surviving co-owner or owners without having to go through the probate process. Its primary advantage is that it eliminates the costly delays involved in the probate of the decedent’s estate.
Having a survivorship agreement is not always beneficial, however. Certain restrictions or limitations may apply. For instance, the agreement must be signed by both owners before a Philippine consular officer or a notary public. Failure to comply with this requirement may lead to complications in its enforcement at a time when such enforcement may be all the more burdensome.
Since ownership of the property is transferred to the surviving co-owner (or owners) as soon as the agreement is executed, the decedent may not make a will that constricts the interests of the surviving co-owner(s) in the property. This may be considered a drawback for the decedent’s heirs in that some of the property they expect to inherit will no longer be their property at the time of the decedent’s death.
Another characteristic that may limit the utility of the survivorship agreement is that the property covered thereby is not available to satisfy claims against the estate in the event of the incapacity or insolvency of a co-owner. A co-owner who is also a recipient of donor’s tax-exempt estate property under the decedent’s will may have to relinquish his interest in the property in order to comply with the 60% limit on donations to a single legatee or devisee without donation tax.
Similar legal concepts
Survivorship agreements should not be confused with joint tenancies. A joint tenancy under the Civil Code of the Philippines has the effect of transferring ownership to the surviving tenant if the other joint tenants die. However, a joint tenancy does not typically allow for the property to pass to someone other than the other joint tenant after the death of that person. As such, the joint tenancy is not a useful device in and of itself if the goal is to eventually award the property to someone else on the death of the survivor. One alternative to a survivorship agreement is to allow property to pass to a third party on the death of the survivor through a will. The problem with this, however, is that the surviving joint tenant is not compelled to respect the will of the deceased joint tenant. In fact, the survivor can simply refuse to recognize the inheritance which is opposed to public policy. In that case, the probate court can decide the dispute and recognize the will, but this is clearly not an efficient method for transferring title. (If a joint tenant left a will leaving the property to someone else on his death, the heir cannot force the surviving joint tenant to convey the property to him.) Where a survivorship agreement has been executed, however, the survivor is compelled by law to convey the property at the death of the other joint tenant.
How to create a survivorship agreement in the Philippines
In order to be executed, a survivorship agreement must be in writing and signed by the parties, as well as witnessed by two persons qualified to act as witnesses to a will. While no particular form is necessary for this, the following guidelines must nevertheless be followed:
- Duly notarized;
- Regulated by the Property Registration Decree, particularly Section 9 of said Decree;
- Names of both parties clearly stated in the agreement;
- Description of property subject to survivorship agreement;
- Matter of survivorship must be clearly set forth in agreement; and
- Signed by the parties in the presence of not less than two witnesses who are qualified to act as witnesses to a will. (RPC, Art. 795)
It is essential that the drafting of the survivorship agreement is done with the assistance of counsel because of complexities that surround these agreements, particularly in relation to tax, family, and property laws . Further, a carefully drafted survivorship agreement should include certain clauses as follows:
- Description of property being held in the joint name of the parties;
- Statement that the surviving party shall assume ownership of the property by way of survivorship at the death of the first party, free and clear of any claims by the estate of the deceased party, whether the death be testate or intestate;
- Assessment of property value at time of death, thus defining the transfer of a very unique interest called a "contingent interest" (i.e. that portion of the property that exists when a joint owner is still alive and that portion that is thereafter transferred from the decedent to the surviving joint tenant upon death); and
- Provision that, should minors be parties to the agreement, upon the death of the party who is also the parent of said minors, an option is to allow said minors to inherit the property as tenants-in-common with the surviving parent rather than as joint tenants.
Common issues with creating survivorship agreements and how to address them
While survivorship agreements can provide clarity and stability in the management of extended families without a clear single owner, they are not immune to disputes and challenges. Some common issues that may arise are summarized below:
Disputes Between Co-owners
Survivorship agreements may sometimes give rise to disputes between co-owners. This is particularly true when one or more co-owners later decide to sell their respective shares to strangers without consent of the other co-owner or co-owners. It must be emphasized, however, that consanguinity or being related to the person expressing the right to purchase is a condition imposed by law. The above-mentioned consent of co-owners is required only if the sale of shares sought to be purchased involves a one-half (1/2) undivided share and must be exercised within 3 months from notice of the proposal to purchase. The right to purchase the 1/4 undivided share of the other co-owners may be exercised only for a period of one year from time of offer to purchase and may not be transferred or renounced. A co-owner may however, do so if none of the other co-owners exercise that right within the prescribed periods.
Disputes between Co-owners and Stranger
Another possible dispute which may arise is between the co-owners and a stranger who insists on buying the shares of a co-owner without complying with the conditions imposed by law. To prevent this, the stranger must be advised in writing to honor and comply with the requirements of Article 1620 of the Civil Code.
Challenge to the Individual who Acquires a Big Portion of the Property
It will also be a good strategy to treat invalid actions by a co-owner who acquired a big portion of the property, such as in cases where parcels of land are levied by the sheriff to satisfy an execution to include those other than his undivided shares. This was actually followed by the Supreme Court in the case of Fundador v. Ibitos, where A and B co-owned three parcels of land. C a stranger bought at a sheriff’s sale the shares of A, B and D, E, F and G (other co-owners). The Court held that the properties levied by the sheriff shall be limited to the undivided shares of A, B, D, E, F and G, and not their entire interest over the property.
Resolution through Partition
The foregoing may be resolved by subsequent partition, which is presupposed when a judgment is rendered ordering the partition of property of an estate but this has been clearly manifested in the terms of the agreement.
It has also been held that where there is a violation of the specific terms of the agreement, the innocent co-owner is free to disregard it and partition the land without reference to the provisions of the agreement, or if the party refuses to review the terms of the agreement and to submit to the articles agreed upon, he is liable to partition suit at the instance of any one of the parties. However, it has been held that a partition suit would not lie unless the parties are specifically identified and all the shares described therein are particularly set out.
Conclusion and legal advice
In summary, survivors in the Philippines must be aware of what will happen in the event of their loved one’s death. How they will transfer ownership or manage property is important. Of course, the fact remains that there will be some formalities involved in the transfer of an estate. Understanding what transfer and succession planning steps are available is key to leaving behind a financial legacy .
As examined in this article, there’s a tool called a survivorship agreement that can favorably determine the distribution of a person’s property in the event of his/her passing. Bear in mind that with a survivorship agreement, you will sidestep the lengthy process of a probate. Legitimate guidance from a lawyer is important as there are implications of a survivorship agreement involving your estate.