Building on Parents Land: What Are The Legal Pitfalls?

bargrin on 29/01/2019 - 18:02
Last edited 29/01/2019 - 18:04

My folks in WA have a vacant plot that they want to pass down to me and my sister.

However the folks and sis wants to build on it now for her to live in which is cool with me.

Just wanted to ask if anyone can think of any legal, local or federal government issues for this arrangement?

Land will still be in folks name but sis will build on it. Although sis has got a bit saved up and a good steady salary, Im pretty sure she going to need a bank loan but will put up her current unit as colateral.

Yet will the bank approve a loan for her to build on land she doesn't legally own except in a future inheritance?

Instead should she apply for the loan along with folks so all their assets combined as collateral for the loan?

I understand other options is folks can sell/gift land to sis but then there will be local stamp duty and folks will have tax bill (although 50% capital gains discount will apply).

Also folks dont get age pension mainly cause value of this land.

Has anyone gone through a similar family land issue?

Thanks

Home & Garden

Comments

  • Mitch889 on 29/01/2019 - 18:30
    +5

    Honest question, why do you come to a deals forum for legal advice? Especially something that can get so messy with ownership and tax implications?

  • HighAndDry on 29/01/2019 - 18:56
    +1

    Ask the bank if they'll loan in that situation. I'm going to say 99% of banks will say no unless the land itself is also put up as collateral.

    On your sister's side - fixtures basically go with the land. If you built a shed on your neighbour's land, you've just gifted him a shed. Pretty much the same deal here. There are shades of grey, but the entire point is to avoid those shades of grey in the first place, not hopefully depend on them to protect you. If I were your sister, I'd buy my own plot of land, or help your parents subdivide their land and buy that off of them. Will be easier to get a loan that way too.

  • try2bhelpful on 29/01/2019 - 19:06
    +1

    Personally I would be talking to a lawyer and see what the best way to go forward is. This could get messy, and expensive, if not handled properly. Glad you have the best interests of your sis, at heart. Best of luck with this.

  • Randxyz123 on 29/01/2019 - 19:16

    Talk to a lawyer…

    Find out what the best thing to do is.

  • GangGang on 29/01/2019 - 19:26
    +1

    I'd also put in mind about the future. If she would be in a relationship or even get married.

    When talking about finances & the build, you only mention your sister. Will you be contributing? Even though the land will be in both of your names this will cause an issue. You may own the land but not the house?

  • djkelly69 on 29/01/2019 - 19:44
    +2

    Land appreciates, buildings depreciate. Banks won't want to touch it.

    +1 to talk with a lawyer who specialises in estate planning. There should be some way the parents can structure their estate to allow transfer of the land to sister now and you be compensated appropriately at some point in time.

  • AdosHouse on 29/01/2019 - 19:56
    +4

    So when your parents pass away, will your sister buy your half of the land from you? This is the sort of stuff that can lead to big family problems.

  • TheBilly on 29/01/2019 - 21:20

    I know you can do like a 1% share on a title which gives you equivalent ownership rights but not equivalent profit or loss in sale. For example, I was able to purchase a 1% share of a property with somebody who owned the other 99%. My stamp duty and stuff was then calculated on 1% of the value. Once your name is on the title I doubt the bank checks the percentage of ownership. So you parents may be able to give her 1% but then she then gets a building loan like normal as though she bought a block. This would put her in a very exposed financial position though. For example, if your parents died tomorrow all she will own is 1% and 50% of the 99% that will be split with you, despite spending 100% of the money on the build. When I did this it was to overcome a situation of financial difficulty for one person and even then I had my name off the title quick smart as I owned 50% of the debt but 1% of the title and if said person passed away there were entitled family members eligible for inheritance. I'm sure I would be safe in a situation like so if said person passed away but when asking the lawyer they seemed too loose about the whole answer without providing specific examples, "you'll be fine, no problems" with no further explanation. Similarly if she takes more than a 1% share on the block she will be having to pay a proportionate amount of stamp duty to account for that change in ownership structure I.e stamp duty on 1% versus 50% of block value.

  • [Deactivated] on 29/01/2019 - 23:51

    I am in a family that has similar complex financial arrangements and parts of the family have fallen out, there was no agreements/contracts or anything written down so things are going to get messy when our mother passes.

    Bottom line have written contracts in place, they don't need to be done up by lawyer (but it would be good if they were).

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