Buying a home?
Written by Stephanie Crouch
The contract is signed and the keys have been exchanged. Congratulations, you’ve finally bought that dream home! This means a change to the largest part of your estate, so consider making or updating your will.
James* had two children during his first marriage. He had a close relationship with them and waited until they had moved out before remarrying.
James eventually remarried and used all of his savings to purchase a home as joint tenants with his new wife, Anne. Apart from his superannuation and a car, this home was his only other significant asset.
After his marriage, James purchased a will kit online and made a will to make sure he could financially look after his two children. However, at the time, it wasn’t clear to James that when purchasing a home as joint tenants, his will didn't affect how his share of the home is dealt with when he died. This means that when James passed away before Anne, his share of the home was automatically passed on to her, leaving his children with only a small part of his estate.
If you have ever purchased property with someone else, you’ll be familiar with the terms joint tenants and tenants in common.
These arrangements give each person clear ownership rights and a share of the property. However, there’s a difference between how these two kinds of tenancies impact your estate when you die, making them quite complex.
When you hold assets as joint tenants, the surviving joint tenant will automatically acquire ownership of your share of the asset on your death. This is known as the right of survivorship.
It’s important to note that this asset will therefore not form part of your estate because it now forms part of the surviving joint tenant’s estate.
Joint tenancy may work well for traditional relationships and nuclear families - families that consist of only a married couple and their biological children. When mum or dad passes away, any asset that was held jointly will automatically pass to the spouse by right of survivorship, effectively avoiding the need to apply for a grant of probate.
However this method might not work so well where the relationship dynamics are more complicated. Australia is made up of many single-parent households, step-families, blended families and same-sex couple families so it is important to consider the needs of your loved ones and seek professional advice when drafting your will.
In the case above, when James died, his largest asset was left to his second wife, Anne, and it will eventually be Anne's beneficiaries who will inherit everything - meaning that unless James' biological children took legal action, they will miss on their father's estate entirely.
Without a legally valid will in place, litigation over inheritance between family members can lead to high legal costs and long delays with distribution of assets. It becomes a highly emotional experience for everyone involved and can often permanently damage relationships.
Tenants in common
When you hold property as tenants in common with someone, you each own a percentage of the property, rather than holding it jointly.
On your death, your share of the property will form part of your estate and be dealt with in accordance with your will, and it will not pass automatically to the other person.
In the case of James and Anne, had they purchased their property as tenants in common, when James died, his share of the property would form part of his estate and would have been distributed to his children as he had intended.
However, this could also be a complicated matter. For example, if James' children insisted on selling the property to cash out on the home, this may in turn leave Anne without a home to live in.
Estate planning involves much more than laying out your wishes on a piece of paper, in a do-it-yourself will kit or online software that can generate a will quickly. DIY kits may be a cheap option but they are never individualised to a person's specific circumstances or the laws of their state.
NSW Trustee & Guardian is an independent and impartial government agency. When you plan ahead with us, our expert team of will makers will work with you to tailor a will to your needs and explain the nuances involved in types of asset ownership and other matters.
* Names and identifying details may have been changed to protect the privacy of individuals.
When a person or organisation is appointed jointly as a guardian or financial manager, they must make all decisions together, not separately.
All of a person’s property including real and personal e.g. bank accounts, realty, shares in companies, cash etc.
People, charities and organisations who you decide will receive or benefit from your estate when you pass away.
Free from outside influence or control.
- Estate planning
Preparing to protect and transfer assets after you pass away in the most financially efficient and tax effective way.