While most estate plans concentrate on the will, the real difficulty for nearly every family lies in the property. Real estate doesn’t some easily; it comes with titles, encumbrances, tax and legal implications. Failing to get your paperwork in order to leave or transfer the property is one of the costliest mistakes you can make, and one of the most common. It will freeze your most valuable asset, possibly for months or years, in a legal quagmire that could end up costing your estate a fortune in legal fees.
Estates start and end with property. Real property. So to navigate the intersection of property law and estates is to have the best, or absolute worst, of estate experiences.
The Title Structure Decision You’re Probably Ignoring
The way your name is listed on a title deed is not just a technicality, it defines who inherits the property when you pass away.
Under joint tenancy, the surviving co-owner automatically gets your portion, no matter what your will states. This means your asset does not go through probate. Tenants in common indicates that each co-owner has an identifiable share which is part of their estate and can be willed to their chosen recipient. One ownership structure is not inherently superior to the other but they are distinctly different, and many property owners have never made a conscious decision between the two.
If you own investment properties with others or if you want your share to be directed toward your children from a previous marriage rather than your spouse, tenants in common and a well-prepared will is appropriate. If speed and ease of settlement are your major concerns, and the other co-owner is your intended beneficiary in any event, joint tenancy takes care of the inheritance detail.
Go check your title deeds. The “manner of holding” clause is typically contained in the original sale documents, but a considerable number of property owners are unaware of what they are in.
Building Flexibility Into Your Will
A simple request such as “leave the house to my spouse” in a will may not be optimal for circumstances where you want your spouse to live in the property upon your death but eventually want to transfer it to your children.
A well-drafted life interest clause in the will can be used to grant the right for the spouse to live in and/or benefit from the property for life, and then pass the share of the property to children.
This is a unique yet cleaner way of achieving the objective and gives a right of residence as opposed to gifting the property and giving rights under a potentially contentious family law environment in the future. However, as said earlier, these kind of clauses should be properly worded in the will. Hence, hire a wills/estate attorney.
The Practical Work of Transferring a Title
When a person who owns property passes away, matters can get complicated. This might feel like an odd time to start thinking about how the holding will be passed on to any beneficiaries, but that’s exactly what’s required. The executor needs to make it clear they have the authority to administer the will, any transfer exemptions need to be applied for, an accurate value on the property must be determined for probate, ongoing costs like rates and insurance have to be covered, and any legally enforceable debts may need to be settled from the assets. This is where professional conveyancing becomes essential, filing errors, missed searches, or incomplete discharge of mortgage documentation can delay the transfer and expose the estate to ongoing holding costs.
Tax Leakage That Planning Could Have Avoided
Capital gains tax on inherited property is one of those areas where the timing and structure of your affairs can determine whether it’s material to what your beneficiaries ultimately receive. Whether capital gains tax applies as at the date of death, the date the asset is transferred, or at some future date, varies depending upon how the property was used, and the period continued to be held after the estate is wound up.
Stamp duty, or transfer duty, will or won’t apply depending on the relationship between the deceased and the beneficiary and whether or not the property is a primary residence. These are not mechanical laws, they change with government policy which is why a professional review of your property portfolio every three to five years, is worth regarding as maintenance rather than a one-off event.
Start Before You Have To
Those families who are most successful in transitioning estates with minimal upset are the ones who viewed it as a legal project when there was still opportunity to make modifications. Titles were checked, structures were intentional, debts were detailed, and the proper professionals were brought in. None of that necessitated the ability to predict the future, they just spent the time to recognize what would transpire if everything stayed the same.
Real estate doesn’t become less complicated when someone passes away. It just becomes the next guy’s complication.
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