Considerations When Co-owning Property: A Family Legacy Planning Perspective
Real Estate: An asset class that all of us strive to own and pass down as heirlooms to the future generation. It is a common-known fact, however, that real estate, especially in land-scarce Singapore, is an extremely capital-intensive investment which may often require individuals to come together and pool their resources in order to realise their goals at becoming real estate owners. In this article, we shall explore the 2 most common manners of co-owning properties, the implications when a co-owner passes on, knowing when to choose a suitable manner of holding and the limitations to the manner of holding of real estate property from a family legacy planning perspective.
Joint Tenancy and its Implications on Death
Joint Tenancy is a form of co-ownership where both the owners of the real estate are seen as one party owning the whole interest of the real estate with no distinct shares. The most defining characteristic of such a manner of holding is the right of survivorship, where upon the death of any of the joint tenants will result in the surviving joint tenant(s) taking the whole interest in the real estate. This effectively means that the last man (or woman) standing in such an arrangement becomes the sole owner of the real estate.
Why would I choose to hold a real estate in Joint Tenancy?
The right of survivorship makes the shifting of ownership to the surviving joint tenant, swift and effective. People in a relationship for the long haul (usually married couples), where it is their clear intent to transfer their share of the real estate to their better half upon their demise, would usually opt for such a manner of holding as it is the quickest and most efficient way of bestowing one’s interest in the real estate to their partner in such an event. Indeed, while the same outcome can be achieved with a well-drafted will for real estate held as tenancy-in-common, this process would still involve a few more steps and hence, may be slightly more time-consuming.
It should also be noted that the right of survivorship in a joint tenancy effectively renders any intention of a joint tenant to will his/her interest in the real estate to another void unless he/she survives all the other joint tenants and becomes the sole owner of the real estate.
Tenants-in-common and its Implications on Death
Tenancy-in-common is a form of co-ownership where individual owners can hold their respective interests in the real estate as distinct shares. This would mean that the owner of such shares in the real estate may also dispose of his/her shares unilaterally and in a rental arrangement with a third party, collect his/her due share from the rental proceeds of the real estate. In such a manner of holding, the tenant-in-common’s interests and rights in the real estate does not extinguish on his/her demise but instead, goes to his/her estate. The right of survivorship does not apply in such a manner of holding.
Why would I choose to hold a real estate as Tenants-in-Common?
Due to the characteristics of a tenancy-in-common, such a manner of holding tend to be more suitable for relationships that are new and uncertain or at arm’s length (simply for investment or business purposes). The distinction of ownership on a share basis allows for an easier split in the interest of the real estate, particularly when one owner has paid more to the purchase price of the real estate. The absence of the right of survivorship also ensures that every individual’s share and rights in the real estate stays with his/her estate, as it may not have been his/her intention to transfer his/her benefit in the real estate to the survivor.
Whilst deciding the manner of holding is certainly helpful in the disposal of your interest in the real estate at your demise, there are still certain limitations to such holding manners.
A joint tenancy arrangement is not flexible and effectively shifts all of one’s rights and benefits in the real estate to the survivor which may run counter to an individual’s intentions if the relationship between the joint tenants sour or if there is a change in plans of the joint tenants regarding their assets. Of course, with the assistance of a lawyer, a joint tenancy can be severed into a tenancy-in-common where all co-owners will own equal shares as tenants-in-common in the real estate but as you have seen in this article, holding the real estate as tenants-in-commons does come with its own set of issues.
Indeed, whilst a tenancy-in-common may be more flexible with regard to the manner of disposal of an individual’s share in the real estate, nevertheless, if a tenant-in-common passes on without having a clearly worded will, the rights and the benefits will then be subjected to the laws of intestacy which may not necessarily be in line with the deceased’s intended way of distribution of his/her share in the real estate. Moreover, in such situations where there is a lack of will, obtaining the necessary court orders and letters of administration by the beneficiaries/administrator to dispose of such shares could be a long and arduous process that will result in huge delays. In addition, when the real estate is bought with a mortgage (a common practice), such delays could result in greater hardships where potential beneficiaries would have to scurry to maintain any necessary mortgage payments of the real estate or face the possibility of a forced sale of the real estate by the financial institution providing the mortgage.
Manners of Holding also do not provide for instances where a co-owner has lost his/her mental capacity to make decisions about the real estate. The lost of mental capacity by a single co-owner could be a crippling factor when it comes to decisions pertaining to the real estate as a whole which includes leasing or selling the real estate(where such decisions require all the owners to be capable of giving their requisite agreement). It is for this reason that one should always consult a lawyer on assisting him/her with the preparation of a Lasting Power of Attorney, such that the former may appoint his/her confidant to make such decisions (amongst others) concerning the former’s real estate when he/she lacks the mental capacity to do so.
The manner of holding of a real estate property will not only depend on your motivation and purpose of buying the real estate but also your relationship with the other co-owner(s). If done correctly, the manner of holding will complement your purpose to provide a structure that would be ideal for you family legacy planning. On the flip side, a wrong manner of holding could result in huge inconveniences and potentially the lost of the real estate.
Whilst it is important to pick the correct manner of holding when you co-own real estate with others, you should also always look to have a professional assist you with the drafting of your will and lasting powers of attorney- both of which are essential at ensuring your real estate properties are managed and distributed in accordance to your intentions in the event of your demise or when you lack the mental capacity to do so.
How SMTP can help you.
Having an experienced hand guiding you through the intricacies of the law is always helpful regarding matters of legacy planning and conveyancing. At SMTP, we provide a suite of bespoke services, which includes advising and assisting on real estate, and family legacy planning matters. Tapping on our well of experience and resources, we can guide you through the process of achieving your objectives, be it advising on purchases, handling the paperwork, and liaising with the relevant institutions on your behalf.
We also believe in close engagement with our clients, paying close attention to their individual facts and circumstances, and tailoring our advice and courses of action to cater to their specific needs and requirements. SMTP’s core philosophy is to provide bespoke legal advice based on our private clients’ specific needs and requirements, as cases always differ on their fine details. Our team of dedicated staff are ever eager and prepared to assist interested parties. Should you or your clients require any assistance in trust or real estate matters, please feel free to contact our Business Development Team to schedule a consultation. We look forward to working with you.