Three things to consider when leaving a gift of real estate in your Will

Posted on May 11th, 2017

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The idea of leaving a specific gift of real estate in a Will appeals to some people. If a specific gift of real estate is going to be given, the following three things need to be properly considered:

  • ademption – if a specific gift of real estate is left in a Will but it has been sold before death, the legal principle of ademption provides the gift fails. Even if the sale proceeds were used to buy a new house, the gift will fail unless the Will is drafted to specifically contemplate this.
  • mortgages – did you know that under Section 145 of the Conveyancing Act, a mortgage over a property which is specifically gifted under a Will attaches to the gift (unless the Will expressly says otherwise). This means the beneficiary who is gifted the property will ultimately be responsible for repayment of the mortgage unless there is an express intention against this in the Will.
  • capital gains tax – while a principal place of residence is exempt from capital gains tax,  investment properties are not. A beneficiary who receives a property will take it subject to any capital gains tax liability and this often isn’t thought about until the beneficiary goes to sell the property and is hit with a tax bill.

Take the example of parents, who have two children, who own two properties in the same suburb, each worth $450,000.00. They want the children to receive equal amounts and think it is easiest to just leave one house to one child and the other house to the other child. But what if there are mortgages on the properties and they are for different amounts? What if one is an investment, while the other one was lived in by the parents? What if the parents decide to move and buy another house? All of these questions need to be considered when drafting the Will, to make sure the ultimate goal of having the children receive equal amounts can be realised.

Leaving specific gifts of real estate requires proper consideration of the circumstances. Without considering these three things, often what people intended and what happens, in reality, can be very different.

Lana Black, Solicitor at Mullane & Lindsay Solicitors, NewcastleLana Black is a Solicitor at Mullane & Lindsay Solicitors and practices extensively in estate planning and administration. If you require any assistance in this area please contact Lana Black to arrange a consultation or contact our Newcastle office.

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