Pitfalls of Intergenerational Property Ownership on Estate Planning

Pitfalls of Intergenerational Property Ownership on Estate Planning

Article by Christopher Lee

Inter-generational property ownership, where families pool resources to purchase properties together, can be an exciting venture. Common scenarios include parents and children buying property together, either as an investment or to help a child purchase their first home. However, this type of ownership comes with unique considerations and potential pitfalls, particularly in relation to estate planning. Below is a structured guide to help understand these issues.

Key Considerations for Inter-generational Property Ownership

1.       Ownership Structure

Whilst there are many considerations when buying a property with another person, none have a greater impact upon your Estate Planning than the ownership structure.

There are two methods by which individuals can hold property in Queensland.

 Joint Tenancy:

• The surviving party(ies) automatically inherit the deceased owner’s share of the property.
• This occurs irrespective of the deceased’s Will.

Tenants in Common:

• Allows for different shares of the property to be held.
• Each owner’s share can be gifted under the terms of their Will.

Why is this important?

The choice between Joint Tenancy and Tenants in Common impacts how the property is dealt with upon the death of an owner.

The decision should align with the exit strategy of the parties involved as well as take into consideration the ultimate estate planning needs for each property owner.

Few other decisions made today will have such a significant impact decades into the future.

Failing to get this decision correct at the outset can lead to disastrous results many years in the future, including incurring further transfer duty and legal fees to correct as well as messy estate plans to enact.

2.       Exit Strategy

When properties are purchased between spouses, they are usually on the same page when it comes to moving and selling.

This is not always the case for non-spousal property owners.

For this reason, it is always important that the future property owners have had open and robust discussions about when they may need to realise their equity or exit out of the property, as well as understand what triggers may cause this.

Questions to Consider:

• • Should the deceased owner’s share automatically pass to the surviving owners?
  • Should the deceased owner’s share pass into their estate and be distributed under their Will?

Implications of Passing Shares to the Estate:

• • The Executor of the Estate may need to work with other property owners.
  • Are there agreements in place for buy-outs or dispute resolution?
  • Are there rules governing how property owners act in case of disagreements?

3. Potential Issues for Parents

Whilst many parents may wish to help out their children and have their name placed on the title to a property, or purchase a property with a child, the reality is, they must also consider what the likely impact this will have on their Estate Planning.

It is a fact of nature that many children will outlive their parents and accordingly, parents should consider how their share of the property may impact their child once their estate is administered.

After the Passing of Parents:

• • Disputes may arise between Executors of Estates and other co-owners of the property.
  • Other children who are beneficiaries under the Will may have conflicting interests.
  • Extended timeframes and disagreements can delay decisions on how to deal with the property.
  • The property may need to be forcibly sold, leaving the child in a tenuous position both financially and in terms of their housing.

Recommendations for Families Considering Inter-generational Property Ownership

 Consult Legal Advisors:

1. • Discuss the impact of property ownership on estate planning.
   • Understand the implications of Joint Tenancy versus Tenants in Common.

1. Prepare for Future Scenarios:

1. • Establish property ownership agreements to address buy-outs and dispute resolution.
   • Create clear rules for handling disagreements among property owners.

1. Plan for Estate Distribution:

1. • Ensure the estate planning accounts for potential disputes and delays.
   • Minimise unnecessary costs and complications for beneficiaries.

Conclusion

Before entering into a contract for the purchase of property, family members should carefully consider the impact on estate planning. By consulting legal advisors and preparing for potential issues, families can navigate the complexities of inter-generational property ownership and avoid unnecessary disputes, delays, and costs.

The blog published by Spranklin McCartney Lawyers is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the blog publisher. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult Spranklin McCartney Lawyers on any legal queries concerning a specific situation.