Where you own property jointly with one or more other people, careful attention is needed for every property to ensure that your estate planning intentions are carried into effect.
When you own a property jointly with one or more people, the way that your co-ownership is recorded on the title deed needs to be verified before you prepare your Will.
When a property is owned by 2 people, their ownership will be recorded as either:
- Joint Tenants, or
- Tenants in Common
When a property is owned by 3 or more people, there are various ownership combinations which could be used, and your particular circumstances will need to be considered.
Where you pass away first
Where you pass away first, your interest in the property automatically passes to the surviving co-owner. In these circumstances your Will does not apply to your interest in the property and therefore any clause in your Will dealing with the property is of no effect. A form is prepared and documents lodged with the Titles Office to record the death of the co-owner on the title deed.
Where you have made a greater financial contribution than the co-owner to the purchase of the property, you could ensure that your beneficiaries receive the benefit of this greater financial contribution by having a loan agreement and mortgage over the property signed by the co-owner (after obtaining independent legal advice).
Where your co-owner passes away first
Where the co-owner passes away before you, you automatically become the sole owner of the property and therefore the property is no longer owned as Joint Tenants. In these circumstances, the property is an estate asset and your Will can specify which beneficiaries are to receive the property.
Drafting your Will
When you prepare your Will, you do not know whether you will live longer than your co-owner, and therefore whether your Will is to apply to the property. You therefore need to consider both scenarios and draft the appropriate clauses to cover any eventuality.
Where you do survive and become the sole owner of the property, where you are still mentally capable, you can prepare a new Will or Codicil if you wish to change your intended beneficiaries.
Where a relationship breaks down
Where a couple separates, one or both of them should immediately engage a lawyer to sever the joint tenancy, the effect of which will be that each persons owns their half-share as tenants in common.
Tenants in Common
Where you own a property as Tenants in Common, the title deed will state the specific portion or percentage of the property owned by you. The shares held may be equal, or in any other share (example: 80%/20%) that adds up to 100%.
Upon your passing, your share in the property will be distributed to the beneficiary or beneficiaries specified in your Will. The beneficiary could be the co-owner, but could of course be a third person or multiple persons.
Where the beneficiary is a third person, the surviving co-owner and beneficiary may agree for either one of them to transfer their share in the property to the other. They may also decide to sell the property, or they may simply continue as co-owners.
Dealing with a Mortgage
Where the co-owners had borrowed money and there was a mortgage over the property, the mortgage to the Lender remains over the title deed to the property until the debt is repaid. When considering your overall estate planning strategies, life Insurance policies can be a useful product to repay a mortgage debt.
When the last of the co-owners has passed away, their Will may contain a specific clause as to whether the beneficiary of the property is to receive the asset free of any mortgage debt – assuming the estate has other funds available to repay the debt. Alternatively, the mortgage would be repaid where the property is sold.
Changing the co-ownership structure
Property owners can agree to change the way that their co-ownership is recorded on the title deed. Joint Tenants can be changed to Tenants in Common, and vice versa. Transfer duty (in some circumstances) and registration fees may be payable to the State Government and the particular circumstances need to be considered to determine the amount payable. Capital Gains Tax could also be payable in some cases, so a complete review of your circumstances is needed.
Where a property is owned as Joint Tenants, and one owner wishes to change the co-ownership structure, but the other owner refuses, the owner can act on their own to sever the joint tenancy and change the co-ownership to Tenants in Common in equal shares.
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