When making a Will it is important to know how you legally own your property as it can affect what happens to it, and if the Will applies to it, if you suddenly pass away.
When you purchase real estate with a partner, spouse or another person, there are two legal ways the property may be owned: joint tenants or tenants in common. The decision about how you will own the property is usually made at the time of purchase, but it can also be changed at some point after the purchase.
The way in which you own the property will determine how the interest in the property will be affected in the event one of the parties dies.
Joint Tenants vs Tenants in Common
If you own a property as Joint Tenants, it means that you own the whole property together. If one joint tenant dies, then the surviving joint tenant becomes the sole owner of the property. There is an automatic right of survivorship as a result of which, the deceased joint tenant no longer has an interest in the property. The deceased’s interest in the property does not form part of the deceased’s estate. Without an Order of the Court (which is not a matter contemplated by this article), the deceased’s interest in the property, held as joint tenants as at the date of death, is not available for distribution to the beneficiaries.
It is common for a husband and wife to own a property as joint tenants although this is not always appropriate, particularly where either or both have children from prior relationships (blended family) and might want to ensure those children receive a portion of their estate. An interest held with another person as tenants in common, means that each own their individual share in the property absolutely. They may hold their shares equally, or in some other proportion. Where a person owns an interest in a property as a tenant in common with another owner, then upon the death of that person their interest forms part of their estate and is distributed in accordance with their Will or in the absence of a Will, rules of intestacy.
A tenancy in common may be the preferred way for a couple to own property if there are children from prior relationships whose interests need to be protected. In the case of investment properties, it is quite common for couples and for investors buying property together to own their property this way.
Severing or altering a tenancy
If you own a property as Joint Tenants with another person, it is possible to sever the joint tenancy and convert it into a tenancy in common in equal shares, without the other owner’s consent.
This is done by lodging a form via PEXA (Property Exchange Australia), an electronic conveyancing platform, to the NSW Land Registry Services. The other owner of the property is then notified that the form has been lodged and are given the opportunity to object. If there is no objection to the change, the joint tenancy is severed. This procedure is particularly useful for a person who might be leaving a marriage or de facto relationship and no longer wishes his or her spouse or partner to become the sole owner of the property in the event of their death. It may also be useful for blended families where the property interest is to be left to children of prior relationships.
A Joint Tenancy can also be altered into a Tenancy in Common by consent. In that case, no notice period or objections will apply.
If you own a property as Tenants in Common with another person, it is also possible to alter the tenancy and convert it to Joint Tenants.
This is often beneficial for married and de facto couples, where the intention is that the spouse receive the property on the death of the other. By altering the tenancy to joint tenants, the property does not form part of the deceased estate and the surviving spouse immediately owns the whole of the property (by way of lodging a Notice of Death), saving potentially thousands of dollars by not having to apply for a Grant of Probate of the estate.
So, why should you update your estate planning?
Estate Planning is an ongoing process. It is important that you review and update your estate planning documents whenever there is a significant change in your circumstances, especially when you intend to sell or buy a property, given this usually is the most significant asset people will hold in their lifetime.
Estate Planning is all about planning for the future, by making sure that you have appropriate documents in place that clearly reflect your wishes in cases where you are no longer able to make certain decisions yourself, or in case of death.
Contact our Wills & Estates team if you need assistance with putting your estate plan in place, or if you need advice on your property ownership options in the context of your estate planning.