Life Entitlements

[SYD]

I am currently reviewing my will. I am considering whether to have a clause so that my wife will have a life entitlement to the use of our PPOR and then willing the PPOR to the children. The PPOR is owned in my name.

My questions relate to taxation issues if I head down this path.

Will the PPOR be subject to land tax once I have passed and my wife is living in the PPOR?

Will the CGT clock be ticking from the date of my death while my wife has an entitlement to live in the PPOR?

SYD

 

[Kristine..]

G'Day SYD

Any particular reason why you do not want your Wife to have a choice where she lives?

What happens if she becomes too old or infirm to live in the house but cannot sell it and cannot afford to move?

Not much of a 'gift' if it has a drag anchor attached

I appreciate that people have particular reasons for the directions they may make in their Will, but many Wills simply visit misery on everyone by placing onerous restrictions on property, particularly on housing

As the property is in your name, then give or don't give, but a Life Interest is not a gift as she can make no decisions regarding the property

If your Children have priority over your Wife's well being then perhaps it is time for your or your Wife to buy your Wife a small house or unit which will definitely be her own, and she can bequest you a Life Interest (should she predecease you) in that property with it passing to her Children on your death.

Wills are never an easy matter to decide. We are damned if we do and damned if we don't.

Cheers
Kristine

 

[Macca]

Hi,

I think it depends on the circumstances, how long have you been married, are the kids yours, mine, ours or is the marriage a long time one life together type marriage.

If you have been married, bought a house while married, had kids now grown up type of marriage then the question arises why is it in your name ?

Normally it would be in both names with an expectation that when the first spouse dies the full ownership passes to the survivor.

It may well be that if it is a long marriage she can contest the conditions of the will and be given the house anyway. Some of the children may object to this and it then creates animosity within the family.

Why would you not want your wife to inherit her home if you die?

 

[JandJ]

What a life interest does of course is keep the assets "in the family". For example I am in that position where I have a life interest in one of the properties in the will of my mother.

I had remarried prior to the Will being drafted (and subsequent death of the testatrix) and it was at my instigation, that the will be drafted in this particular way.

In the event of my death the property passes to grandchildren (my kids) of the testatrix and not to a "relative newcomer" to the family, which it no doubt would have in my will.

Two further points:
- the trustees have power to sell the existing property and buy another for my life tenancy, and
- My current wife and I are busy acquiring a piece of real estate she can call her own...

 

[rugrat]

Your wife may very well have a stake in your PPOR regardless of whether or not her name is on the title. It depends on so many factors - ie, how long you have been married, when the PPOR was purchased, what other assests etc are being left to her, current or future children, etc. So you may not be able to do as you intend anyway (or if you do, it won't be enforced by the courts). I assume that you are getting legal advice about this, to ensure you are actually able to do as you wish.

Just as you need proper legal advice about whether you are able to do as you wish or not, you also need to get proper financial advice (from someone properly qualified) about the tax implications. Because I imagine those would also depend on a number of variables.

 

[SYD]

What a life interest does of course is keep the assets "in the family". For example I am in that position where I have a life interest in one of the properties in the will of my mother.

I had remarried prior to the Will being drafted (and subsequent death of the testatrix) and it was at my instigation, that the will be drafted in this particular way.

In the event of my death the property passes to grandchildren (my kids) of the testatrix and not to a "relative newcomer" to the family, which it no doubt would have in my will.

Two further points:
- the trustees have power to sell the existing property and buy another for my life tenancy, and
- My current wife and I are busy acquiring a piece of real estate she can call her own...

I think I want to achieve something similar to the outcome provided by JandJ.

It is not an attempt to short-change the wife and it is not an attempt to tie the wife to the PPOR forever after. I like to think we are both youngish and if I were to die early then it is possible for my wife to remarry. If that happened and my wife later died I would not want our children mounting a legal fight against their step-dad.

I'm looking to make the life entitlement as flexible as possible so that if my wife wanted to move house or if my wife needed to move to assisted care then the life entitlement would not stop that.

JandJ, as you are a living example of a life interest, could you please inform me whether the property is subject to land tax, and, as the property is owned by a trustee for your benefit, is it now subjected to CGT? And if I may intrude further, is your trustee paying things like the land rates, water rates and electricity?

Thanks,

SYD

 

[JandJ]

SYD, have sent a pm

 

[Terryw]

Life estates are not very common today. Testamentary trusts would be much more common.

The taxation issues are very complex.
Try reading TR 2005/D14
Income tax: capital gains tax: consequences of creating, and dealing in, life and remainder interests in property
http://law.ato.gov.au/atolaw/view.htm?locid='DTR/TR2005D14/NAT/ATO'&PiT=20051019000001

I skimmed it a few years ago, but think that a life interest may be CGT exempt if the property was the main residence of the spouse before death. But there would possibly be a CGT event if the person with the interest ever gave it up before their death.

re the land tax issues. If your property is in NSW, then the property may be exempt from land tax for up to 2 years (if it was main residence etc before death). Then the exemption may be continued at the discretion of the Chief Commissioner under certain conditions.

 

[SYD]

Hi Terryw,

Thanks for posting the link. I agree it is a complex issue and I am finding the article is not the easiest thing to read.

In another post, you posted a link to an OSR ruling on principal place of residence for land tax purposes,
http://www.osr.nsw.gov.au/lib/doc/rulings/rrlt82.pdf

The clauses I am interested in are Schedule 1A, Clauses 9 & 10.

From my reading, there is a 12 month exemption after the death of the owner.
And the principal place of residence exemption continues to apply if the right of occupancy was created in the will.

SYD

 

[Terryw]

Hello Syd

For the concession on the death of the owner see Schedule 1A, cl 9 of the Land Tax Management Act 1956 (NSW)
http://www.austlii.edu.au/au/legis/nsw/consol_act/ltma1956173/sch1a.html

I read it as 2 years exempt then the Commissioners discretion ables this to be extended in certain instances.