One common misunderstanding many real property owners have is about the restrictions that apply when gifting their share of jointly-owned property (a house, land, or a unit) in a Will. Many people, including lawyers, do not understand the difference between owning a property as ‘joint tenants’ or as ‘tenants in common’ when it comes to leaving your share of that property to a beneficiary. Attwood Marshall Lawyers Wills and Estates Lawyer, Zoe Penman, recently joined Robyn Hyland on Radio 4CRB’s Law Talks to provide an insight into what options may be available for property owners to fulfil their wishes of gifting their share of this asset to their loved ones after they are gone.
Not all assets can be gifted in a Will
The main reason why not all assets can be gifted in a Will comes down to how and by whom the assets are owned. You cannot gift assets in your Will that you do not legally own or that automatically pass to another joint owner when you die.
Assets that fall outside of your estate and, generally, cannot be gifted in your Will include:
- Life Insurance Policies
- Assets held in family trusts or owned by companies
- Real estate owned as joint tenants;
- Joint bank accounts and jointly owned shares are just that, jointly owned, and upon death automatically pass to the surviving owner, instead of passing to a beneficiary via a Will.
Jointly owned real property and estate planning
When it comes to jointly-owned property (i.e. a house, land, or a unit), there are two different ways people may own property, with many people being unaware of what the difference is.
The two methods of joint ownership are when people either own property as “joint tenants” or “tenants in common”.
The difference between the two is that “joint tenants” means that if one owner dies, the property will automatically revert to the survivor without reference to the Will of the person who dies.
“Tenants in common”, on the other hand, means that the owners own their respective shares of the property in their own right, and when they die, their share of the property is dealt with in accordance with their Will.
Shares held in the property do not necessarily have to be of equal value and each owner may hold a separate proportion of the property. For example, one owner may have a 25% share in the property, with the other owner owning the remaining 75%.
Many people do not give consideration to how the property is to be held when purchasing property and, in most cases, if it is a couple or other family scenario, the owners will often be listed as joint tenants. Many lawyers and conveyancers don’t properly explain the difference between the forms of ownership available and how this might affect your estate planning and your Will.
Why it is important to differentiate between the two methods of joint ownership
When it comes to estate planning, many people have an intention of who they want to leave their assets to, with real estate usually being one of the most valuable assets they own.
However, there are many people that try to gift their “share” of a property in their Will when they own the property as joint tenants, without realising they simply cannot do this.
It is a common scenario we see in blended families, where someone may be in a new relationship and purchase a property with their new partner but have the intent to leave their share of that property to children they may have from a previous relationship.
In a joint tenancy, each joint tenant has a right, shared with the other joint tenant, to the whole of the property.
This means the ownership of the property is not conceived as being owned in separate shares but rather as an indivisible joint ownership of the whole property by the joint tenants.
Basically, what this means is that if one joint tenant dies, then the interest in that property automatically passes to the surviving joint tenant. This is usually done by lodging a Notice of Death and a certified copy of the death certificate with the Titles Office (these days by an electronic PEXA transaction).
It doesn’t matter if the deceased wrote a Will stating that they wanted their share to, for example, go to their children or another family member. As joint tenants, the surviving tenant automatically assumes ownership the whole property. There is an exception in NSW with the law of notional estate in a claim against the estate, but this is limited to claims made.
Can you change how a property is owned for the purpose of being able to pass on your share in accordance with your Will?
The only way to be able to control your interest in a property if you intend to leave it to someone who is not a joint owner is to sever the joint tenancy while all the joint tenants are still alive.
In doing this, the ownership of the property will revert from joint tenants to tenants in common.
It is important to understand that owning a property as tenants in common does not stop one owner from leaving their interest in the property to another co-owner, if that is what they wish to do. It simply gives the owner the option to leave their share of the property to any other person they wish to benefit from the asset.
Are you unsure about the type of ownership that has been listed for a property you own?
Anyone can undertake a Title Search on the property they own which will show which type of co-ownership is registered on the title of the property.
A lawyer can also assist with these types of searches, as well as helping with the process to sever a joint tenancy, if that is what someone is looking to do.
You can choose to revise the way property is owned at any time and the process of severing a joint tenancy to change the ownership to tenants in common is quite simple. It involves registering a transfer with the land titles office in the respective state and generally takes 2-4 weeks.
What should people consider if they are changing the type of holding of the property?
Anyone looking to change ownership of their property should seek legal advice about the implications of doing so.
A lawyer will be able to provide advice regarding any stamp duty implications (if applicable) and also get their estate planning documentation in order to reflect the person’s intention.
This may involve creating a right of occupation in the Will to ensure that the surviving spouse or joint tenant is able to remain living in the property for a specified period of time or until they pass away, whilst still ensuring upon the termination of that right of occupation, the deceased’s share of the property is gifted to the intended beneficiaries, which in many cases could be their own children.
There is no point in changing the ownership of the property if it is not reflected accurately in the person’s Will.
Joint ownership of other assets
Joint ownership of bank accounts, shares, chattels (e.g. cars, boats etc.) also pass to the surviving joint owner without reference to your Will. If you intend these assets to be left to someone else, you will need to change the ownership. Sometimes this can cause tax and Centrelink issues, so you will need to be careful about this.
With assets owned by family trusts and companies, you will need to obtain legal and accounting advice about these assets. For example, you need to be the Appointor of the trust to be able to control the assets. Likewise, with a company, it is the share owner who ‘owns’ the assets of the company.
Superannuation and life assurance policies usually require a binding death benefit nomination to be properly completed in order to leave these assets to your estate or to a specific person. It can get quite complicated, especially if you have a self-managed superannuation fund.
Advantages of having a Will professionally drafted
When you get a Will professionally drafted, you can get advice about all the different types of assets you own and how to structure your estate properly. An experienced estate planning lawyer can guide you through the planning process to be able to deal with assets that may fall outside of your Will.
If you have certain intentions for assets or property you own that cannot be gifted in accordance with your Will, an estate planning lawyer can help with the process of severing a joint tenancy, creating rights of occupation in your Will, or provide other strategies to help you fulfil your wishes and protect the family or loved ones you leave behind.
Attwood Marshall Lawyers – helping people preserve their wishes and plan for the future
Attwood Marshall Lawyers have a dedicated team of lawyers that practice exclusively in estate planning. From simple Wills to complex estate planning, testamentary trusts, and asset protection, the team offer their skills and experience to ensure our client’s wealth that they have built up over their life ends up with who they intend it to.
Let us help you protect your assets and put a plan in place that will give you peace of mind that your family will be looked after when you are gone.
To understand what documents you may need to put in place for your estate plan, contact our Wills and Estates Department Manager Donna Tolley on direct line 07 5506 8241, email firstname.lastname@example.org, or free call 1800 621 071.
You can also make an appointment with our estate planning lawyers online via our booking app. Our lawyers are available to meet with you at any of our conveniently located offices at Coolangatta, Robina Town Centre, Kingscliff, Brisbane, Sydney, and Melbourne.
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