Your home is your castle
If you’ve bought – or are in the process of buying – property, it islikely that you would have likely taken the necessary steps to ensure that your new home is organised and ready to move into. But have you put the same amount of thought into what would happen to your property should you pass away?
Don’t leave it to chance
There are some things you need to know about your property so you can ensure that it is dealt with according to your wishes.
Dying without a will
Generally speaking, the family home is the most valuable asset you’ll ever own. Most people assume that their family home will be automatically passed on to their next of kin (e.g. children or spouse) when they’re no longer around. However this is not necessarily the case – and will depend on the manner in which you own the property and whether you have a valid will.
A will is a document that sets out how you want your assets distributed when you pass away. A person who dies without leaving a valid will is said to have died ‘intestate’. If you die intestate, any assets including property (if not owned as joint tenants) will be distributed according to a legal formula.
The problem is, this formula can result in unintended consequences for your property. For example, it could mean that your property passes to a partner from whom you are separated or a distant relation such as a cousin you have not spoken to for many years. If you want your assets to be distributed according to your wishes, it’s important that you make a will and regularly review it.
Who inherits your mortgage?
Most people borrow money to buy a property, which means it’s your bank that holds the certificate of title as security.
If you have an outstanding mortgage when you die, the mortgage generally still needs to be paid by your estate. So who is responsible for paying your loan after your death?
This depends on a number of factors, including:
- the loan contract;
- the type of property ownership;
- the terms of your mortgage insurance (if any); and
- the terms of your will.
It’s possible that a beneficiary of your will may take on the mortgage along with the property. But this does not have to be the case, and it is important to make this position clear in your will. It might be however, that your bank requires the property to be refinanced or the mortgage discharged (paid out) after your death.
There are a number of ways to own property with another. The two most common methods being ‘joint tenants’ or as ‘tenants in common’. When you’re making a will, it’s important to understand the difference between these two arrangements.
Joint tenants own property collectively, which means they are unable to deal with their share of the property without the consent of the other party. If you die, your share will automatically pass on to the surviving tenant, and won’t form part of your estate. The law that applies here is called the law of survivorship.
Tenants in common
Tenants in common own property in distinct shares. This may be equally or in some other percentage, usually reflecting how much money each person contributed when the property was purchased. Tenants in common are free to deal with their individual share of the property as they see fit in their will.
The surviving tenant or tenants have no control over this, and won’t automatically receive that asset if the other tenant in common dies. The law of survivorship does not apply in this situation.
The best time to decide how you’re going to own any asset is when it’s purchased. Unfortunately, this question is often not raised by agents or conveyancers, which means that joint tenancy is the default arrangement regardless of your individual circumstances.
If you’re thinking about buying property, it’s a good idea to seek legal advice so you can be sure that if you pass away your property is dealt with according to your wishes.