Leaving Real Estate in Will to Multiple Beneficiaries - What's The Norm?

kiitos on 01/09/2021 - 23:43
Last edited 01/09/2021 - 23:46

In a situation where a will is being drawn that intends to split the estate equally between multiple beneficiaries, what is the best approach for "lumpy" assets like real estate?

The situation is a number of properties, that will likely be a mix of a principle residence, rental properties (possibly both pre-CGT and post-CGT), undeveloped land, all different locations, sizes and values. Some will need varying degrees of maintenance.

It would seem that the options would be:

  1. Will an equal share in each property to each beneficiary
  2. Try to assign each property wholly to a single beneficiary, try to make the allocation as equal as possible for the beneficiaries, and adjust for inequality via cash etc.

I imagine (1) would allow most flexibility and fairly distributes gains, rents, upkeep, but would lead to CGT and stamp duty if later on the shares are sold to each other as each beneficiary makes decisions to keep/sell the properties.

I imagine (2) could reduce CGT, stamp duty etc as exchange of ownership is limited. But it could be difficult to work out what's fair, and it could colour the beneficiaries' approach to maintenance etc between now and when the will is executed.

I know every situation is unique, but what would be the "typical" approach (if there is one)?

Do you know of any situations like the above, and how did they work out?

The relative will be getting legal advice when able to. I'm not knowledgeable in this area at all, so thought I'd do some research and also ask here.

Poll Options

  • 8
    Will an equal share in each property to each beneficiary
  • 3
    Try to assign each property wholly to a single beneficiary, adjust for inequality via cash etc.
  • 6
    Other (comment below)
Financial

Comments

  • SF3 on 02/09/2021 - 00:04
    +1

    That family sounds complicated, sure to grab some popcorn when that day arrives.

    This is an interesting one, from my limited googlefu.

    Writing into the will that all your assets be auctioned off upon the death of both parents. Then all proceeds are distributed equally among the children. If particular items are important to an individual, they can purchase them at the sale.

  • [Deactivated] on 02/09/2021 - 00:04

    i would talk to the people you're leaving the properties to and ask them what they think / want to do, i wouldn't go for option 2 without discussing it with them first as it could lead to resentment between the beneficiaries if one of them got property the others wanted or some of them believed they did not get a fair share.

    • freefall101 on 02/09/2021 - 09:10
      +1

      My grandmother tried to screw over my father by giving him a fairly worthless piece of land and my father's sister got literally everything else, including a house.

      Fast forward 20 years, dad held onto the land and it's worth waaay more than the house. Karma is a bitch.

      My will is just going to be split equally by value, because you can't tell what time will do. Best thing to do is let them sell it and take the cash, if one (or more) of them want to maintain it then let them buy out the others.

      • jpl on 02/09/2021 - 09:55
        +1

        Maybe your grandmother knew the land will worth waaaaaay more after 20 years?

  • Almost Banned on 02/09/2021 - 00:22
    +3

    Best option is to sell the properties and split the proceeds in the shares you determine.
    If the beneficiaries want to do something different and can agree, they can do so by way of a DOFA.

  • p1 ama on 02/09/2021 - 01:52

    Definitely a trust - neither of your solutions seem to be practical.

    • poboy on 02/09/2021 - 21:44

      Oh, I'd never heard of a testamentory trust. Interesting.

  • USER DC on 02/09/2021 - 04:00
    +1

    From my elder's experience equal share (or even a set up share, i.e. percentage of land etc) does not really work and only end up creating disputes in family. Its a real hassle and pain for children to see their parents fighting for their share with uncle and aunts. I would highly advice on having different people set up different places, rather than like each place to each person of like equal share. Disputes are less likely to occur if you give people totally different properties, with different physical land on it.
    And also remember to consider, if you aren't there how likely is it that all the beneficiaries to maintain a good relationship with each other weather it be partners, or in family or in laws, or friends or etc. That's the main reason you should focus on, How you can reduce the chances of future disputes between beneficiaries.

  • MrHyde on 02/09/2021 - 06:10
    +2

    Option 1 is a terrible idea and guaranteed to lead to disputes. All beneficiaries would have different opinions on whether to keep or sell their share, so will lead to conflict when someone wants to keep the property and the others want to sell or vice versa. It's not as simple as saying those who want to keep can simply buy the others share - they may not have enough cash lying around to buy the others share.

    Same if someone needs the cash, but have a share that they can't sell because half a property can't be sold in the market.

    Best option:. Sell everything and distribute the cash equally to everyone

  • ronafios on 02/09/2021 - 06:49
    +3

    This seems like the ideal use case for a Testamentary Trust. Legal advice is needed to ensure all assets can be suitably placed in the trust, and consideration given to trustees and their role. But this would give maximum flexibility and tax advantages.

    • kiitos on 02/09/2021 - 21:18

      Thanks for that, I will look into this.

  • slow on 02/09/2021 - 08:26
    +1

    Having been through a will dispute myself recently, my learning is that you can't rely on the will and assume things will turn as the deceased intended. Turn out they can be very easily challenged as people come out of the woodwork to put in claims, and it gets very messy, and expensive once lawyers get involved. The deceased in our case would have been horrified to know where part of their estate ended up

    I would investigate finding other ways of doing the distribution, eg trust or some type of payable on death accounts. This of course needs some work whilst the person is still alive if they are prepared to do this to minimize issues after they are gone

    https://www.lawaccess.nsw.gov.au/Pages/representing/after_so…

    • kiitos on 02/09/2021 - 21:19

      Thanks for that, I will look into this.

  • brad1-8tsi on 02/09/2021 - 09:02
    +1

    Speaking from the experience of my family, "sold and equally divided within X months" will cause the least friction in the long term.

    The houses that had to be sold were disposed of and never another word said.

    Dad received half his Mum's house where his Sister also lived. He "owned" it for 25 years with no rent from his sister and half the bills. He even copped a CGT bill when they eventually bought him out (under pressure from my sister and I who threatened legal action if they didn't buy him out).

    • kiitos on 02/09/2021 - 21:20

      I would imagine that is true - or at least, it would cause "equal friction" to everyone.

  • redvaldez on 02/09/2021 - 10:00
    +2

    I'm a solicitor and I practice heavily in wills and estates.

    For your average mum and dad, wills are usually distributed on a percentage basis. Specific gifts of real property are uncommon. The biggest issue is that a person's assets at date of their Will and their assets at date of death could vary significantly. A specific gift will generally fail if that asset is no longer owned, so if no backup provisions are considered, it could result in beneficiaries having a skewed outcome. Even if an asset is still owned, the value of it may change (for better or worse) over time. A percentage basis ensures that no matter a person's position at the date of their death, their overarching wishes are carried out.

    As far as estate administration is concerned, the majority of estates will simply choose to sell all assets and split the cash. Beneficiaries may choose to apportion a property as part of their inheritance, but this isn't overly common. Jointly owning real property in a personal capacity can get messy.

    Obviously this is just a very general comment about your average mum and dad. Graziers, business owners, etc may have their own succession plans that they want to put into effect. Scenarios with high wealth individuals, beneficiaries with a disability, beneficiaries with a connection to a certain property, beneficiaries who live in a testator's property, blended families, etc are also scenarios where this may not apply. A Will is a document you should always get done professionally because if an issue with it arises, it's not going to be until after you've passed away, and remedying an issue is unlikely to be cheap or easy.

    • kiitos on 02/09/2021 - 21:21

      Thanks very much for that, it's very informative.

  • kiitos on 02/09/2021 - 21:41

    I'm not the one making the will (though I do need to do so myself). It was through some examples the relative was giving about how to word the will that suddenly hit home how difficult it could be to split the assets equitably, especially when there's sentiment involved for everyone.

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