Inheriting a Main Residence via a Will
We are often asked to advise around the issue of how to pass the ownership of a main residence in your Will. There are certainly some things to consider when it comes to passing on what is usually a major asset for most people.
How is the residence owned?
Before making any decisions, we recommend first confirming how your home is owned. Is it tenants in common, or joint tenancy?
A joint tenancy is severed by the death of one joint tenant. The surviving tenant becomes the sole owner under property law, meaning what your Will says is irrelevant because ownership automatically arises under State Property Laws, which override Estate Planning Laws.
It’s important to note that only a sole ownership, or an interest as a tenant in common in a property, can be passed through your Will.
2. Be Aware Of Capital Gains Tax Exemptions
There are special capital gains tax (CGT) exemptions around the disposal of a main residence. For houses that are inherited due to the death of the owner, it’s crucial to take note of the following:
Understanding Market Value and Actual Cost Base
If the house was acquired by the Willmaker before 20 September 1985, then the executors are required to find out what the market value was at the date of death. That value becomes the cost base for the house for CGT purposes. This is beneficial as only the market growth in value from date of death onwards will effectively be exposed to tax on a future disposal by the executor or beneficiary who sells the property.
If the house was acquired after 19 September 1985, then the actual cost base that the deceased person had at the date of death becomes the executors or beneficiaries cost base.
Trust for Sale Clause
Some Wills may have a trust for sale clause. This means that the executors must sell the house. If the house is sold within 2 years of death (and even if it is rented out for two years before selling), then the sale will be CGT exempt for the estate or the beneficiaries.
If the house is sold, for example, 10 years after death (and was rented prior to sale), then only a proportionate CGT exemption will apply to tax the total days of ownership where the house was not utilised as a main residence.
Right to Occupy Clause
If the Will has a right to occupy clause to particular beneficiaries and someone is living in the house until it is sold, then the sale is CGT exempt. Surviving spouses would commonly use this right.
If you have specific questions around how to best deal with your family home in your estate planning, please don’t hesitate to contact us. We’re only a phone call or email away.