Land ownership and estate planning

In Western Australia, there are two methods for co-owners to hold property - as joint tenants or as tenants in common.  

Joint Tenancy is where each owner is jointly entitled to the whole property.  By necessity, joint tenants must hold their interest jointly so that their interests in the property are unified.  On the death of a joint tenant, the interest of that joint tenant automatically passes to the other surviving joint tenant or tenants (if more than one) by survivorship and without reference to any intention that the deceased person may have indicated in his or her Will. 

For example, if a husband and wife hold a property as joint tenants and the husband dies, the wife is automatically the owner of the property. The terms of the Will of the husband would not matter.

Tenancy in common is where two or more individuals hold property in any shares they choose.  Unlike with a joint tenancy, the owners own separate shares in the property eg 50/50 or 30/70.  When an owner dies that owner's share of the property passes in accordance with his or her instructions as set out in his or her Will.  

So what type of tenancy should you choose?

Asset Protection - If one of the owners is exposed to greater financial risk or to the threat of bankruptcy, there are pros and cons as to the type of holding.  Please discuss with your solicitor or accountant before you buy a property and decide how to hold it.

Family Law considerations - If the financial contributions to the property are not equal, it is important to record correctly and accurately the extent of your particular contribution so that the other party (your spouse) does not receive more than he or she is entitled to receive or more than you would like he or she to receive.  A tenancy in common may be the more appropriate way of holding the property in that case.  

Estate Planning - Consider this scenario - A husband (the "first husband") and wife, who have 2 children, own a home.  The husband dies leaving his widow as the sole owner of the property.  She finds a new husband (the "second husband") but wants this property to go to her 2 children from her first marriage.

If the first husband and his wife had held the property as tenants in common and the husband's Will had been properly drafted, he could have left his share of the property under his Will in such a way that it would be held for the benefit of his 2 children.  For this to be possible, the property must be held by the first husband and wife as tenants in common.  If the property were held by them as joint tenants or if the first husband had left his share of the property under his Will outright to his wife, then after her death the widow's second husband might be entitled to the property even though it was never the intention that that be the case.

Can I change my mind?

If you choose one particular tenancy over the other, it is possible to alter the holding to the other type.  The most common example of this is the severing of a joint tenancy in favour of a tenancy in common. However, before embarking on this course, it would be very important to consider both the stamp duty and capital gains tax consequences (if any) of a change to the tenancy.

For further information or advice on this topic, please contact Russell Morley, Senior Lawyer, by email at rmorley@talbotolivier.com.au or Rob Durey, Principal, by email at rdurey@talbotolivier.com.au