Owning a property - What are the options?
Where a property is owned by more than one person, it can be owned as:-
· Joint Tenants; or
· Tenants in Common.
The ownership structure sets out to whom the property will be transferred to in the event of the death of one owner. It is therefore important to ensure the correct intention is recorded on the Record of Title.
Owning a property jointly means that if one of the owners die, then the property automatically goes to the survivor of them. For example, if a property were owned by Sally Smith and Bill Brown as Joint Tenants, and Sally died, then her share in that property would automatically be transferred to Bill as the surviving owner. This is regardless of what is in Sally’s Will.
The words “joint tenancy” do not appear on the Title. However, if two or more people are recorded on the Title without reference to their shares of ownership, then the property is owned by them as Joint Tenants. For the property owned by Sally and Bill, their names would appear on the Title to the property as Sally Smith and Bill Brown.
Tenants in Common
A Tenancy in Common describes the ownership of a property by two or more people in separate shares. Owning a property as Tenants in Common means that if one of the owners die, then their share in the property is dealt with in accordance with their Will. For example, if a property was owned by Sally Smith as to a ½ share and Bill Brown as to a ½ share, if Sally died, then her share in that property would form part of her Estate to be dealt with in accordance with her Will.
This type of ownership can provide an added safety measure, as it allows you to record different shares owned by the parties in the property. Where a property is owned as Tenants in Common, it can be owned in any proportion you wish - the shares do not need to be equal.
It is becoming more common to own property by way of Tenants in Common. Owning a property as Tenants in Common can be useful when:-
· Purchasing a property with friends or other family members to assist in getting onto the property ladder – each party can be recorded on the Title to reflect their contribution to the purchase price of the property; or
· There are blended families, as it means that in addition to providing for each of the property owners, the children of previous relationships can be provided for (Relationship Property); or
· Thinking about your future (Estate Planning).
Tenants in Common and Life Interest Wills
When a property is owned as Tenants in Common, in particular by couples, a Life Interest Will can be useful. A Life Interest Will provides a right for the surviving partner to continue to occupy the property, possibly even for the remainder of their lifetime. Provision can be made for the life interest to terminate upon the death, remarriage and/or the entering into a defacto relationship of that surviving partner, at which time the share owned by the party who died would be distributed in accordance with the terms of their Will. This is a common approach for blended families as it can provide protection for children of a previous relationship. For example, if Sally were to die, and if she had a Life Interest Will, and wanted to make provision for both her children from a previous relationship, and Bill, then:-
· Sally’s share in the property would be held on trust by the Trustee of Sally’s Estate, and Bill would be permitted to continue to live at the property.
· Bill would continue to pay all rates, insurance and other outgoings in respect of the property.
· If Bill wished to live elsewhere, then the property could be sold, with the proceeds of such sale being used to purchase a new property with a half share owned by Bill, and a half share owned by Sally’s Estate. This gives the flexibility for Bill to be able to buy and sell subsequent properties as required, including a Licence to Occupy in a Rest Home Complex.
· On the death, re-marriage or entering into a defacto relationship of Bill, then his life interest in Sally’s share in the property would come to an end. At that point, Sally’s half share of the property would be transferred to her children from a previous relationship in accordance with her Will.
Tenants in Common and Residential Care Subsidies – Occupation Right Agreements
Another benefit of owning a property as Tenants in Common is in relation to Rest Home or hospital care subsidies. Where one of the owners dies, as the survivor effectively only owns a one-half of the property, they may meet the Ministry of Social Development’s criteria for a Residential Care Subsidy. However, the rules around asset ownership and Rest Home subsidies are complicated and will depend on your particular circumstances, so we recommend you discuss this with us further
Please don’t hesitate to contact a member of our Succession Planning and Estates team to assist you with deciding the ownership structure that best suits your particular needs. This can be done either before purchasing a property, or for an existing property.