Today we’ll take a brief look at one commonly overlooked item in estate planning. If you own real estate with someone else, do you know how that property is held? You will likely either hold it as joint tenants, or as tenants in common. The (often unexpected) effect that these different forms of holding can have on your estate can be profound.
Some Problems with Joint Tenancy
Most people don’t know that if you hold the property as joint tenants (often the ‘default’ way of holding property with someone else) your property will not go according to your Will when you die – it will automatically go to the other joint tenant on the title in full according to what’s called a “right of survivorship.”
In some cases this is the best and cleanest outcome; quite often you will want your partner to take the house when you die in any case and the right of survivorship means it happens automatically without having to wait for the estate to be sorted out.
Joint tenancy can sometimes provide quite unintended results, however. Significant complications can arise, for example, in a blended family. Let’s say you and your partner each have children from previous relationships. If you die, your share of the house (likely your biggest asset) will go automatically to your new spouse, with your children receiving nothing. It would then be up to the goodwill of your new spouse to provide for your children in the future.
While you may think this should be a foregone thing, consider that your partner may not die for many years – and may even remarry and have other children in the meantime, at which time taking care of your children may not be front of mind. It may be a much better option for both of you (keeping your children’s interests in mind) to hold your property as tenants in common.
The Solution: Tenancy in Common?
When you hold property as tenants in common you each own a set percentage of the property, rather than hold it jointly. Upon one partner’s death, that percentage of the property automatically passes according to their Will (or by the laws of intestacy if they don’t have a Will), rather than automatically going to the other partner.
Of course, things are never always completely simple. There are possible drawbacks to this arrangement which also need to be thought through. If you were to die as a tenant in common passing your percentage of the home ownership to your children, your partner would then own the house in common with your children. If they didn’t want to keep the house, it may be necessary to sell it.
One creative solution your lawyer may discuss with you would be for you to provide in your Will for providing for what’s called a “life interest” in your portion of the home to your partner, to enable them to stay in the house as long as they are alive – after which it would pass to your children according to your Will.
As you can see, good estate planning is more involved than just putting together a Will. The above is just one of many additional considerations which need to be taken into account when reviewing your estate planning needs.
Note that the above information is general in nature only; it is important to talk things through with a lawyer to find out what the best options are for your particular needs.
When we provide our complimentary estate planning review, we can run title searches on your property to see how it is held and then discuss with you the pros and cons of all your options. If needed we can organise any changes to the form of land ownership which may be required as a result of your review. Give us a call today on (03) 8658-0040 and we’d be happy to sit down with you to go through your personal situation.