Title in my name, joint construction loan with siblings. Can it be done?

Hi all,

Looking for some advice regarding a knockdown rebuild of my parents current main residence. Here’s the situation:

• Our parents are nearing retirement age (60 yo);
• They own their own home however its quite old / rundown;
• My 3 siblings and I would like to contribute to getting them into a newer house so that they can live comfortably for the next 20-30 years but given how hot the market has been and how picky my parents are, our plan is to move them out, demolish the house. Us siblings would then finance the build of their ideal home.

Our goals are to:

• Transfer title of our parents’ home so that it is no longer in their name (that way they do not have any assets that could be included in assets test should they need to enter an aged care facility)
• Build a house for our parents to live comfortably in for the rest of their lives
• Distribute financial responsibilities/burden of the build equally and fairly amongst siblings
• Access the ‘main residence’ CGT exemption in the event that the house is sold (e.g. once parents pass away) in order to minimise taxation.

Our first thought to keep things fair between all siblings was to transfer the title to all 4 of us. We would then all jointly take out a construction loan to build the house, making us joint tenants/owners. My understanding is that upon sale, only joint owners who occupied the dwelling as their main residence would receive the CGT exemption, the other joint owners who have not occupied the home as their main residence would not receive the CGT exemption. It doesn't seem likely that we'll all be able to say its the main residence for all of us (please correct me if wrong).

Hence, my question is this - is it possible (or a good idea even) to transfer the title of the house to 1 sibling and take out a construction loan joint between all 4 siblings (in order to maintain financial fairness) to build the house? Upon future sale of the house, that 1 sibling could then occupy it as their main residence prior to disposal in order to access the CGT exemption?

Is there a better way to achieve what we want and is there anything I've missed or have not considered?

Any advice would be greatly appreciated

 

Long answer short, title can't be under 1 name and have the other 3 siblings on the loan just for construction. Since they aren't on the title, there's no benefit for them in taking out the loan.

 

Are you going to pay for it? If so they will have the money. If not then the gifting rules will apply.

Who will get the main residence exemption?

 

Thanks for your response Tony. Does that mean that in order to access the CGT exemption if we sell in the future, the title and the loan both need to be under 1 name? If the title is under all our names, will we need to forego the main residence CGT exemption?

Is there any other way of structuring this to be able to achieve what we want?

Hi Terry. No, our parents intend to gift their home. Sorry, when I mentioned the main residence exemption, this was in reference to the sale of the home much further down the track after it has been gifted (either to 1 or all siblings) and rebuilt (i.e. once parents have passed).

 

This is a question that's more suited for an accountant to be honest.

 

There are 2 forms of ownership, legal and beneficial. For the main residence exemption to be obtained a person has to have an ownership interest in the property. This doesn't mean they need to be legal owner.

But all this is very complex and you need specialist legal advice - which I am no longer giving. Have a read of my tips in the legal and tax sections.

If you and/or siblings become legal and beneficial owners you would be triggering stamp duty and losing a main residence exemption - you and your parents could have 5 properties exempt between you all.

 

Just don’t.

I accept your intentions are good, but it can end in disaster for your parents.

A friend of my parents did this years ago, transferred family home to daughter and her husband, knock down, rebuild. All lovely. A few years later daughters husband in a financial disaster, went bankrupt, house seized and sold.

Parents ended up living in tiny state housing unit. Previous residence was a large house near the beach in Freshwater, Sydney.

And, even though your parents’ house may have to go to help fund aged care costs (it IS their money!), it will give them far more and better choices than relying on funded accommodation.

Another issue will arise with eventual inheritances if you own the main family asset - where will that leave your siblings?

Maybe better if you and your siblings each kick in $10K-$15K to update their existing house.

 

I can see all sorts of issues with this scenario. Not only could you have issues with the eventual inheritances, you need to account for things that may happen with any of your sibblings and their partners.

What would you do if:
Someone divorces
Someone dies
Someone has severe financial issues

All this (and I'm sure there's more) things may (or may not) happen in the future, and put your parent's home in jeopardy.

As @Marg4000 suggested, best to each put a sum of money in and renovate the existing home.

 

Gifting the property to you and your siblings means exposing your parents to all your future financial problems. And you and your siblings to each other as well.

can you and your siblings fund the build without the property?

or realistically, your parents simply have to choose a new property thats not as good as what they ‘want’ because they cant afford it.

 

Why not just spend $60k on a new kitchen, bathroom and new paint and carpets to make it nicer for them.

Help with the painting to keep costs down.

 

Sorry but that is just about the worst idea I've ever heard.