Wills for couples with children from previous relationships – using a life interest to balance out competing interests.
Couples who have children from a previous relationship are often faced with the challenge of how to draft their Will to provide for their current partner, on the one hand, and their children, on the other. For a couple who own a home together, but do not have significant wealth invested in other assets, this can often be challenging. Changing ownership of the property from joint tenants to tenants in common, and including a life interest in the Will, can sometimes be the ideal solution.
Owning property jointly Owning property jointly with someone else means that you and your co-owner both own 100% of the property. You cannot deal with your share of the property independently of your co-owner – so to sell the property, or deal with it in any way, both of you need to agree. If you die first, your interest in the property goes to the other owner, regardless of the terms of your Will.
Owning property as tenants in common Owning property as tenants in common means that you own a share of the property and your co-owner or co-owners own a separate share of the same property. It doesn’t need to be an equal share – you can own 1%, or 99%, and your co-owner will own the balance. You can deal with your percentage share of the property independently of the other owner – you can sell your share (if you can find someone who wants to buy a part interest in a property), mortgage it, or gift it away in your Will. If you choose to write a Will which gifts your share to someone who is not the co-owner, then when you die, the person who receives your share will own the property in your place, and your co-owner’s interest will not be affected.
How do I know whether I own a property as joint tenants or tenants in common? Usually, couples will own property together as joint tenants. You can check with the conveyancer or solicitor who assisted you with the purchase. Otherwise, you might have a copy of the Transfer of Land which you would have signed as part of the purchasing process, or you might have the Certificate of Title or a copy.
Can you change from joint tenants to tenants in common, and vice versa? Yes you can – but you should check that you are not triggering a stamp duty consequence or a capital gains tax event. If you are transferring from joint tenants to a tenants in common 50/50 split, there might not be an issue. Transfers between married spouses or couples in a de facto relationship are not subject to stamp duty, and a transfer of a principal place of residence is usually exempt from CGT, but you should always get legal advice before transferring property.
If there is a mortgage over the property, your bank will need to consent to the transfer, and there may be fees involved in obtaining that consent.
An example demonstrating the difference Let’s take Jim and Jane, and let’s say that Jim and Jane own their home as joint tenants. Let’s also say that Jim and Jane both have children from previous relationships. Jim has prepared a simple Will which leaves all of his assets to his children, and nothing to Jane. If Jim dies first, then all of Jim’s assets go to his children – except the property, which will go to Jane. Jane ends up with the property, and Jim’s children receive any assets that were in Jim’s sole name.
However, the situation is different if Jim and Jane own the property as tenants in common. Let’s say Jim and Jane own their property as tenants in common, and each owns 50%. If Jim’s simple Will leaves all of his assets to his children, and nothing to Jane, then if Jim dies first, all of Jim’s assets go to his children – including his share of the home. After Jim’s death, Jane will continue to own her 50% share of the property, and Jim’s children will own the other share – so if Jim had two children, each child will own 25% of the property, with Jane owning the other 50%.
What is a life interest? A life interest is a way of giving someone the right to use property without giving them actual ownership. They can live in the property, or lease the property and live off the proceeds, or sell the property and buy a new one and live in it, or invest the proceeds of sale and live off the income. They can’t be forced to move out or to sell against their wishes. They can’t give the life interest away in their Will, and they have to look after the property. That person’s interest lasts for the rest of their life – hence the name – and ends when they die.
What is a right to reside? A right to reside is more limited than a life interest – it gives someone the right only to live in the property. That person can’t rent it, nor sell it. If they are unable to stay in the property (for example, due to ill health), then the interest ends.
An example of how this could work Jim and Jane, the couple who both have children from previous relationships, decide to buy and own their property together as tenants in common – each owns 50%. This time, they get good estate planning advice, and draft their Wills which state that they give each other a life interest in their home, and when the life interest ends, each person’s share of the property go to that person’s own children. As a result, when Jim dies first, Jane is free to stay in the property for the rest of her life. She owns her 50% share of the house, and she can stay in the property because she has a life interest in Jim’s 50% share. When Jane dies, her life interest in Jim’s share ends. The house is sold, and Jim’s children get half of the sale proceeds, and Jane’s children get the other half.
For more information or to contact our team today please call us in Bendigo on 54346666 or Castlemaine on 54721588.
