Questions re Inheriting Investment Property ?

Discussion in 'Wills & Estate Planning' started by Clancy, 14th Jun, 2020.

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  1. Clancy

    Clancy Member

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    My mother’s will leaves everything equally to me & 2 siblings and I am executor. She is in her 80s and very sick so this could all eventuate sooner than we hoped.
    She has her home + investment property + sundry cash etc.

    The IP would equal approx 1/3 value of her estate, and she has suggested I should keep it as my share - Her thinking is it would be good income for me as I was made redundant recently and finding a new job at 62 is difficult.

    So I have several questions - I’m sure we would need to get independent valuation of the property and work it out so that it’s fair to all 3 of us. Can this be done simply if we all agree on it (neither other sibling would want the property)
    Is stamp duty payable ? Is there any CGT issue ?
    The IP was her PPR For a few years, then she put a granny flat on the back and has rented both out for last 6 years. Approx value of property would be 750-800 and gross rent is 830 pw.

    Or would it be better to sell it and then I use my share of the funds received from the estate to buy a similar investment property or invest somewhere else for an income for myself.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Does she have capacity to change the will?

    You can readjust gifts if the will allows or you can all enter into a deed of family arrangement and make limited modiciations. this may not trigger CGT but can trigger duty.
    Any preCGT properties?
     
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  3. Clancy

    Clancy Member

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    Yes she still has mental capacity so could change it if that’s what was needed ( would rather avoid dragging her off to do that though)

    I’m not 100% sure I would want the IP - but it does seem to make sense given that’s what I’d probably do with an inheritance anyway.
    No other properties - she purchased IP about 2009 and PPR about 2013
     
  4. Trainee

    Trainee Well-Known Member

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    Note the tax consequences. If sold in the estate, cgt is payable by the estate (presumably shared between all beneficiaries as it reduces net assets to be distributed).

    if it goes to you and then you sell it, you are solely liable for tax on the capital gains.
     
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  5. Perp

    Perp Well-Known Member

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    If you're concerned about fairness between siblings, your Mum could leave you the IP and include an equalisation clause. For example, if IP is worth more than 1/3 at the time of her death, then you have to pay your siblings their share of the difference, or forgo the gift. eg Equalising Inheritance Through Your Will
     
  6. Clancy

    Clancy Member

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    Thanks for the replies - sorry to be so long winded but I don’t know much about any of this so am trying to get my head around it all.
    I don’t want my mother to have to redo her will - I was just wondering if we could work it our ourselves eventually (to be equal) and I would end up with the IP I’d like and the others would get the cash they’d like.

    I’m still not sure if it’s the best way for me to get an IP - I think it looks attractive because I don’t know much about property investing and this seems a pretty good set up - a 3b house & 2b cabin that I know all the problems with, has good long term tenants etc - it would probably be hard for me to find another one as good to buy & I’d also save about $32k stamp duty if it could just be transferred? and save estate the agents commission selling it as well ? I’m not sure if I’m thinking logically about it all, hence all my questions

    Also as far as CGT goes?
    House was purchased in 2012 by my mother for my brother, so was owned by him until his death in 2018 when it was transferred to my mother under his will.

    So I am thinking the cost base would be the value when she acquired the house in May 2018 ? Would this just be amount the solicitors estimated the value at the time of his death? If I did get the IP would I have the same Cost base if I sold it in the future ?
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    yeah prob cost base as of the value at the brothers death - market value.

    if the will leaves it to 3 and you take it all instead it is like you purchasing from the other 2 so CGT and stamp duty need to be considred.
     
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  8. Clancy

    Clancy Member

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    So if we all agreed, I would have to pay stamp duty as I’d I’d “purchased” 2/3 of the property? CGT would be minimal as she’s only had the house 2 yrs and value wouldn’t be much different.
    So I guess I just have to decide if I’d want it rather than buying my own
     
  9. Trainee

    Trainee Well-Known Member

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    If you dont want it, it will have to be sold by the estate.
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Duty will depend on the state and cgt will depend on how it is done.

    Seek legal advice
     
  11. Meisterin

    Meisterin Well-Known Member

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    Does the IP have a loan?
    If this is the case you would have to be able to refinance the loan.
    If it doesn't have a loan you may be liable for stamp duty for 2/3 of the value of the property. However, if the value of the IP is approximately 1/3 of the total value of the estate at the date of your mum's death then you may agree with the siblings to inherit the property and forgo other assets. You will have to visit OSR website to see if there is a way around to avoid paying stamp duty and get advice from a solicitor who specializes in this area. Most solicitors would prefer to put the property in "three names" and then transfer into "one name" as this would be extra conveyancing revenue for them.
     
  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    We still don't know if the property is in NSW or not. If in SA for example this would potentially attract duty.
     
  13. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Another alternative is a "claytons testamentary trust".

    This is a TT that largely will plan to promptly sell the property on death OR rejig the ownership. All 3 kids are trustees or even a company trustee. It can provide some benefits over a "give will" that pushes a 1/3rd interest. Needs legal advice too esp concerning duty etc and doesnt add much in terms of cost.
     
  14. Baker

    Baker Well-Known Member

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    Not insight here, just best wishes to OP @Clancy in such tough times.
     
  15. Clancy

    Clancy Member

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    Thanks for the info everyone.
    Mums still having chemo and doing OK but she is 84, so it definitely won’t be a long time for this all to come about - she suggested it so I thought I’d look into the pros/ cons for me of keeping the IP rather than selling it.

    It should definitely be approx 1/3 value of the estate so I think I might keep it if other siblings are in agreement - Even if I have to pay SD and a bit more cash to them, it will save me looking for an IP for myself as that is the only thing I’d probably do with the money anyway. Hopefully I don’t have to do anything about it for a bit longer.
     
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