Property Bequeathed - Legal and Finance Implications

Discussion in 'Legal Issues' started by Luke Woodgate, 20th Jul, 2016.

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  1. Luke Woodgate

    Luke Woodgate Member

    15th Jan, 2016
    Hi everyone,

    I have posted this on another forum, but this is my normal go-to site for queries - for some reason I can't access this site from a work computer :S

    Parent A passed away several years back and to date the will has not been executed. In the will, Parent A left their share of the property (50%) equally to three children as tenants-in-common. Parent B has the other 50% share in the property. Parent B's will eventually will leave their 50% share to the three children as well.

    Parent B now wants to execute the will so that the three children become legal owners of their part of the property - the split would be something along the lines of (excuse rounding errors):
    - Parent B - 50%
    - Child 1 - 16.5%
    - Child 2 - 16.5%
    - Child 3 - 16.5%

    The property is worth $900k. There is also a mortgage over the property of $85k.

    My understanding is that each child would have an interest in the property worth around $132k. However, as tenants-in-common, each child would still be responsible for the entire mortgage of $80k - is that correct? I ask as our main interest is how it would affect our borrowing power.

    There is also an arrangement (informal, not legal) between all parties in respect of paying off the loan. Each is contributing an amount (Parent B contributes half, Child 1,2 & 3 collectively contribute the other half), however some are ahead in repayments compared to the others - i.e. Child 1 will finish paying their share before Child 3 does. However, if executed as tenants-in-common, Child 1 would still be responsible for the remainder of the loan, despite having paid off their agreed amount - is that correct?

    Is there any reason why a will should be executed sooner rather than later? The way I see it, it would be best to continue the informal arrangement to pay off the mortgage (and perhaps formalise that arrangement), and then execute the will, so that each child benefits from a share in the property, without having responsibility for the entirety of the mortgage.

    Finally, more from a financial sense - is it beneficial from an equity sense to inherit 16.5% of a 900k property with an $85k mortgage over it? Separately, Child 1 owns a $600k property as a joint tenant with a $450k mortgage, and $25k in the offset.

    Happy to receive any thoughts and be corrected where I am wrong.

  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    14th Jun, 2015
    Gold Coast
    Most lenders would look at the debt as joint and several liability with only their proportion of income to balance it

    Some exceptions are STG, AMP,and CBA for existing CBA credit clients on a case by case basis


  3. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

    18th Jun, 2015
    I think you mean the estate has not be distributed yet. Execution means ‘sign’.

    Sounds like A and B jointly own a property as tenants in common. A has died and left A’s share to the 3 children.

    B wants to transfer his share to the 3 children – this will result in stamp duty and will be a CGT event, but the main residence exemption may apply so no CGT is payable.

    Do transfer title any mortgage would need to be discharged and that would mean the loan paid out or a new loan of the same amount applied for.

    The law is that estates be wound up within 12 months generally. And probate applied for within 6 months.

    The executor runs the risk of being liable for interest if the estate is not wound up within this period. The executor also runs the risk of being removed from their position by a beneficiary or a creditor of the deceased.

    I think you need some serious legal advice.
    [email protected] likes this.
  4. Marg4000

    Marg4000 Well-Known Member

    18th Jun, 2015
    I read it as A had died and left A's half to 3 children, but the title has never been formally changed.

    B now want to formally enact the will and retain B's half, but put the other half into the children's names.

    Either way, agree with the legal advice recommendation.
    Terry_w likes this.
  5. larrylarry

    larrylarry Well-Known Member

    18th Jun, 2015
    Hi @Luke Woodgate thanks for asking but your query must go to a solicitor practising in Wills, Probate and Administration. If you are in NSW, contact Law Society of NSW for referrals.