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Proceeds of Will - Tenants in Common or Family Trust?

Discussion in 'Wills and Estate Planning Law Forum' started by Drew, 28 April 2014.

  1. Drew

    Drew Member

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    I am one of 5 children (aged between 51 and 60) that have just been bequeathed a house from our Mother's Will. In you opinion is it better for us to own the house as 5 x Tenants in Common, or to set up a Family Trust which owns the house, and the 5 of us, be trustees to the Family Trust.

    If it is to be the Family Trust, do you - A Solicitor, have to set up the Trust, or is this something an Accountant would do for us. Would you have any indication of costs to set up the initial paperwork, whoever does it?

    If you recommend one over the other, can you give a brief description why.
     
  2. John R

    John R Well-Known Member

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    Hi Drew,
    The house, as estate property, is generally exempt from duties if taken by a beneficiary within two (2) years of the date of death.
    However, if a beneficiary does not take the estate property as their principal place of residence within two (2) years then the estate is likely to become subject to capital gains tax.
    A trust can be set up by a solicitor or accountant (who will also be able to advise on tax implications of your proposal). The costs of setting up a trust will depend on who you instruct and best to obtain quotes prior to getting any work done, as the executor is responsible to manage the estate assets properly and for the benefit of all beneficiaries.
    Hope this helps!
     
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  3. winston wolf

    winston wolf Well-Known Member

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    5 people will probably have differing needs and I would think all would need to agree to form a trust (good luck with that)
    If you are all very close and trusting it may be ok. Otherwise 5 trustees is a lot of negotiation and what when one dies? you may end up with their executor as a trustee?
     
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  4. Worldly1

    Worldly1 Well-Known Member

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    I like Tenants in Common because:
    • The interest in the land of each tenant in common is separate from the other and held outright.
    • If a tenant in common dies, their interest in the property may be distributed in accordance with the directions in their Will (it doesn't pass automatically to the remaining tenants in common). If that's the children, then the other Tenants in Common would end up owning the property in partnership with the children.
    • Each tenant in common can otherwise deal with their interest in a property at anytime (unless there is in place a co-ownership agreement which contains terms restricting this).
    • Tenants in Common can also deal with their interest in the property though other means such as granting rights of first refusal or options to buy/sell (so managing their interest in the property through separate agreement).
    So because with Tenants in Common, there's no right of survivorship and each person's share would go to whomever they name in their Will, if a Tenant in Common dies without a Will, their interest will pass under their estate under the rules of intestacy. So its important that you and the other Tenants in Common name who your share in the property will go to in your respective Wills (which avoids any confusion when a Tenant in Common passes away).

    I’m not sure what the tax implications would be for tenants in common compared to a family trust - an accountant may be able to advise.
     
  5. Tim W

    Tim W Lawyer

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    First up, have a read of this:
    http://www.mccullough.com.au/icms_docs/112170_22_AS_-_Joint_tenants_vs_tenants_in_commonpdf.pdf

    Second - five trustees is probably too many for one asset.
    Especially if the corpus of the trust is simply one typical suburban house.
    After discussions (and yes, legal advice), you may find that one trustee
    (guided by a well drafted deed!) may well be better.

    Third - the Will might have expressed the form in which the asset is to pass, so check that.
    (eg: "I leave, to those of my children alive at the time of my death, my house at 12 Smith Street Wherever, as tenants in common in equal shares")

    If it didn't, or if the language and/or intention is not clear (as you sometimes get in home-brew will kits),
    then the executor may need a solicitor to advise them on which form of holding is best (or preferable).
    Bear in mind that the personal circumstances of individual beneficiaries can be in play in that decision.
    For example:
    • if one beneficiary needs to keep an eye on their asset levels because of assets tested Centrelink entitlements
      (this may be relevant to your older beneficiaries here), or
    • if there are family law factors in play for individual beneficiaries (eg their share becoming part of a property settlement in a divorce, or an assets-based calculation for Child Support payments)
    • if a beneficiary is under a legal disability (such as bankruptcy or imprisonment), or has an intellectual or developmental disability), or
    • if one or more wants "their share in money", or
    • if one is estranged from the rest and cannot be found to be asked what they want.
    Fourth - Seeking an accountant's advice on the tax implications for each individual beneficiary is always a good idea.

    Fifth - As to doing the "family trust" thing, maybe yes, maybe no.
    Family Trusts are (basically) discretionary trusts, with family members as beneficiaries.
    They certainly have their uses, but are not always the universal magic bullet tax shelter that people think.
    As with any trust, drafting the deed and helping the settlors is almost certainly a job for a solicitor.
     

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