Wills and family agreements

WILLS AND FAMILY AGREEMENTS:

WHAT CAN GO WRONG

old couple fighting

There are a significant number of generous parents these days who purchase properties for their adult children based on family “understandings” that are never recorded, only verbal.

The agreement varies from family to family and can include arrangements anywhere from the parents legally owning the house, to the house being placed in the child’s name absolutely. The matter is further complicated if the house is placed in the name of the adult child and his or her partner. These good intentions can result in family warfare after a separation, after death of the adult child or even after a simple family argument.

Who legally owns the house?     Is there any money owing to the parents?    What promises have been made?  Was there any understanding what was to happen in case the adult child separated?

The parents may have both passed away in which case their wills will control what happens to property in their name.    In these situations the child often refers to the house (which is still in their parents’ name) as “my house”.  The parents may have had a different interpretation of the arrangement and saw the house as their house simply occupied by the child rent free. But what if the child paid rates and some mortgage payments? You can see how there is confusion. In the event that the parents die, there is only one side of the story as the parents are not there to say what was intended.

If the house is in the name of the child -it is not a part of the estate of the deceased parent at all- so the other siblings will get nothing even if the Will says the parents give their property to all their children.    If the house is in the name of the parent, then it is a part of the estate of the deceased parent and controlled by the deceased’s Will.  The Will may have said everything goes to 4 children in equal shares.  If this is the case then the child living in the property would need to pay out the other 3 siblings for a total of 75% of the net value of the home, before they can get legal title to the home, even if it was intended that the home was theirs and only theirs to begin with.  I am sure you can now see the problem evolving.  

Case Study: couple is evicted from their family home

Peter and Carol had been living in a house they regarded as “their house”.

However, it was formally owned by Peter’s father  Ted who had purchased the house by advancing the deposit and borrowing the balance in his name. Peter and Carol couldn’t get a loan so Ted helped them with getting the purchase in his name and the mortgage loan in his name,  but Peter and Carol made all the mortgage payments and even made extra payments whenever they received work bonuses or redundancy payments.    It had always been the understanding that the house was really the property of Peter and Carol.  The only reason it was in Ted’s name was because Peter and Carol were not approved by the bank for finance to buy it. They had been encouraged by Ted to improve the property; put an additional bungalow on the back of the house; fix the electrical wiring; replace the gutters; improve the gardens and paint the exterior, as Ted wanted to show Peter and Carol how to keep or improve the value of their property.

What everyone failed to do was set out in writing what the agreement was and amend Ted’s Will.  Or alternatively, they could have reviewed the title ownership and looked into transferring the title into Peter and Carol’s names during Ted’s lifetime.  In some cases you can apply to be exempt of stamp duty on the transfer.

Ted died unexpectedly. The family feud began.

Peter’s brothers and sisters were not really interested in hearing Peter’s interpretation of what the arrangement was in relation to the house. They adopted the rigid position that the house was owned by their father and formed a part of his estate to be distributed in accordance with his Will. The Will of Peter’s father simply said, “I give the whole of my estate to be divided equally between my children.”   (He had meant to fix that up given the agreement he had with Peter but never got around to it.) Peter and Carol claimed the house was theirs but there was little evidence to support their claim as they only had a verbal agreement.

The moral of this story is to document what it is you intend when providing financial assistance or purchasing property.

What is clear now may not be clear to your estate after you have passed on or if there is a dispute and evidence is required.   Sometimes the only evidence needed is a simple deed or agreement that is properly drawn up and correctly witnessed.   It is a type of insurance policy to have this in place and avoid the risk of a court case which may cost a hundred times more than the simple agreement being drawn up.

Clear documentation of family arrangements and intentions will remove argument and discontent and may protect assets from being claimed or taken away and prevent expensive court cases.

 (c) Maria Rigoli

Maria_Rigoli

Maria Rigoli is the principal and founder of Rigoli Lawyers which is a specialist law practice  accredited by the Law Institute of Victoria. Maria has over 23 years experience as a lawyer and her specialty areas are complex family law property disputes, business, superannuation death benefits and inheritance disputes. Maria is also an Accredited Family Law Specialist and a barrister and solicitor of the Supreme Court of Victoria and High Court of Australia and is also an expert author. 

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