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Whether you are an executor of a Will or an estate administrator, or if you are planning ahead when making a Will, it is important to understand how property assets are owned as part of deceased estates.
Where property is owned jointly, it is usually owned together with a partner or spouse. But as it is becoming increasingly difficult for Australians to enter the property market, it is not uncommon for siblings or friends to purchase real estate together. This split ownership can have implications when it comes to distributing propery assets when an owner dies.
When it comes to distributing a deceased person’s assets, any real estate property they owned generally makes up the majority of the deceased estate. However, when the property is owned with another person, that ownership will determine if the asset can form part of the deceased estate.
This is why it is important to ensure that you understand the type of ownership agreement when writing a Will or administering a deceased estate. The type of property ownership will determine whether the property asset forms part of the deceased estate for distribution to beneficiaries, or not.
This article should help you gain a better understanding of the type of property ownership the deceased person held. Knowing this will help you to determine if the property asset the deceased person owned will form part of their deceased estate.
What are deceased estates made up of?
Deceased estates include any assets that the deceased person owned. Examples include real estate property, cash in the bank, shares, motor vehicles, digital assets and personal possessions, such as furniture, paintings and jewellery.
After any gifts have been allocated to beneficiaries and all debts are paid, what’s left is known as the residuary estate. The deceased person’s residuary estate can then be distributed to their beneficiaries.
On the other hand, any assets held as joint owners or owned by a family trust, or superannuation, generally will not form part of deceased estates. That is because these assets are not owned solely by the deceased person.
Sole ownership, joint tenants or tenants in common?
There are different ways to be the legal owner of a property asset. Each ownership has a different implication when it comes to deceased estates, so it is important to understand which applies to your deceased estate.
Sole ownership means the property is exclusively owned by a single person. Ownership is complete and no other person has any interest in the property asset. If the deceased person was the sole owner of the property, the asset usually forms part of the estate for distribution according to the Will (if one exists).
When it comes to joint ownership and ownership as tenants in common, things can get a little trickier. A simple way to think about joint ownership is like having a joint bank account. On the other hand, ownership as tenants in common can be with two or more people and in equal or unequal shares.
What property ownership as tenants in common means for deceased estates
If the deceased person’s home is held by a surviving joint owner, for example a partner or spouse, they become ‘joint tenants’. In this case, joint tenancy comes with the ‘right of survivorship’. This means that when one joint owner dies, their interest in the property asset passes to the surviving joint owner. As a result, this property asset does not form part of the deceased estate for distribution to benificiaries.
The property will, in most cases, transfer to the surviving joint tenant without the need to go through the courts. A copy of the death certificate is generally required as proof of the death. In this case, their living arrangements will usually roll over to their spouse or dependant, who should be able to transfer real estate arrangements and utilities into their name. The deceased person’s share is not regarded as an asset of the estate to be distributed.
However, if the deceased person owned a property with a spouse, partner, or someone else as ‘tenants in common’, each owner (or ‘tenant’) owns a portion of the property asset. Depending on the ownership agreement, the ownership may not always be 50% each – it can be split any way the tenants in common agreed on at the time of purchasing the property.
What happens to deceased estate when a tenant in common dies?
With ‘tenants in common’ ownership, there is no right of survivorship. That means the property doesn’t automatically go to the surviving owner. Instead, the deceased owner’s share of the property becomes an asset of their deceased estate for distribution as per their Will.
Generally, when a tenant in common dies, their share of the property asset will eventually be either sold or transferred to the appropriate beneficiaries for distribution according to the Will or state legislation.
When someone dies, what happens to their rental property?
If the deceased person was a tenant in a rental property owned by someone else, and there is no spouse or dependent continuing to live in the home, it will need to be handed back to the real estate agent once the deceased’s belongings have been removed.
If the deceased person was a landlord and the property is being rented out, the lease agreement will continue between the tenant and the executor or administrator. If the current lease agreements must be terminated, tenants will need to be provided with the appropriate notice period as per their lease agreement. If the lease agreement ends during the estate administration process, you or the letting agent will need to contact the relevant real estate authority in your state to request their bond to be released.
Other tips on property ownership for distribution of deceased estates
The executor should check the Will to see if it includes specific instructions on the distribution of any real estate. These requests must be upheld as closely as the law permits.
The real estate asset generally needs to be transferred into the executor or administrator’s name first, rather than directly to any beneficiaries. If the deceased had any investment properties, the utilities at those properties will also need to be paid and transferred to a new name also.
An executor needs to ensure that the notice period requirements are met before any distribution of real estate assets. Failing to do so may result in a claim being made against the estate, to which you may be personally liable.
You can read more about property transfer of deceased real estate in our article, When someone dies, what happens to their home?
For more information on property ownership and deceased estates, or if you need help with the estate adminnistration process, our team of Wills and estate lawyers are happy to help. Visit the Bare Law website here, or call us on (03) 9917 3388.
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This article is not legal advice. You should chat with your solicitor or accountant for specific advice on your personal or financial situation.