More than half of Australian adults don’t have a will, but making one is an important thing to do, particularly if you own significant assets such as property. And for the country’s many homeowners, it’s also important to understand how property assets are owned, as this can affect how the estate is divided among beneficiaries at the time of passing.
When the property owner dies, any real estate owned will usually form a significant part of the deceased estate to be distributed to beneficiaries. However, where a property is owned jointly (often with a spouse or partner), this split ownership can have implications when it comes to distributing property assets.
That’s why it is important to ensure you understand the type of ownership agreement when writing a will or administering a deceased estate. The type of property ownership will determine whether the property asset forms part of the deceased estate for distribution to beneficiaries or not.
If you own property by yourself, separately from any other person, this is known as sole ownership. Ownership is complete and no other person has any interest in the property asset, therefore the asset usually forms part of the estate for distribution to beneficiaries according to the will (if one exists).
However, when a person owns property with one or more people, that’s when things can become complicated.
Joint property ownership
In Australia, there are two main ways you can own property with other people. These are called ‘joint ownership‘ and ‘tenants in common‘ ownership. The nature of the assets owned will affect how matters are finalised for distribution at the time of passing.
Joint ownership most commonly occurs when property is owned between spouses. A simple way of thinking of jointly owned property is like having a joint bank account.
In this case, joint ownership comes with the ‘right of survivorship’. This means that when one joint owner dies, their interest in the property asset passes to the surviving joint owner. The property and living arrangements will, in most cases, be transferred to the surviving joint tenant without the need to go through the courts. A copy of the death certificate is generally required as proof of the death.
As a result, the deceased person’s share is not regarded as an asset of the estate to be distributed, because any assets held as joint owners will not form part of the deceased estate when one owner dies. The property does not form part of the estate for distribution to beneficiaries because the asset is not owned solely by the deceased person.
On the other hand, ownership as ‘tenants in common’ is treated differently and no ‘right of survivorship’ exists.
With tenants in common ownership, two or more people (or ‘tenants’) own a portion of the property asset, which can be owned in equal or unequal shares. Depending on the ownership agreement, the ownership is not always a clean 50/50 split – it may be divided in any way the tenants in common agreed to at the time of purchasing the property.
This means that if you owned property with a tenants-in-common arrangement, only your share in the property will form part of your deceased estate at the time of passing.
As an example, let’s say de facto couple Bob and Margaret own and reside in a home as tenants in common, with Bob owning 70 per cent of the property and Margaret having a 30 per cent share. Let’s also say Bob’s existing will names only his two children from a previous relationship as beneficiaries of his estate. In this case, if he were to pass before Margaret, his 70 per cent share of the property would contribute towards his deceased estate, to be divided among his kids, as per the will.
Regardless, if Margaret was living in the property and in a relationship with Bob at the time of his passing, the rule of survivorship would not apply because they are tenants in common not joint owners. More than likely, the property would need to be sold, and 70 per cent of the proceeds from the sale would be divided among Bob’s beneficiaries, with Margaret paid out the remaining 30 per cent.
Depending on the circumstances of their relationship, Margaret may have grounds to contest the will in court if she believes she has been left without adequate provision. Therefore, if it was Bob’s wish to ensure Margaret remained provided for after his passing, his will would need to reflect what percentage of his estate should be divided between each beneficiary, including Margaret.
As you can see by the above example, property ownership can be complicated where the asset is owned with another person. To protect your loved ones and to ensure your wishes are upheld after you have passed, it’s important to not only have a will, but to update it to reflect significant relationship changes. Otherwise, expensive and messy legal disputes can arise, which can significantly reduce the inheritance you plan on leaving your beneficiaries.
If your situation is complicated, it’s wise to consult a solicitor for advice on your specific circumstances.
Yajaira Appeldorff is a wills and estate lawyer at Bare.
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Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.