Home Rules: Failure To Make Plans For Properties Can Cause Family Squabbles
SINGAPORE - Real estate is one of Singapore's great obsessions but it is surprising how many of us don't know the ins and outs of the key laws that govern property, especially around the occasionally incendiary issue of legacy planning.
This is especially worrying given how missteps in this area have a tendency to cause serious rifts in families. After all we all have relatives who don't see eye to eye, particularly when it concerns money.
Take joint property ownership - if you own your home jointly with your spouse, you should know that you cannot give your share to your child, for example, by simply stating so in your will. This is because the "rule of survivorship" allows a joint owner to inherit the whole property when the other dies.
A reader who learned of this rule from an Invest feature recently was aghast because this was what she had stated in her will - that she wants her share of the home, which is in joint name with her husband, to go to her kid.
"My lawyer never told me this when I did my will last time," said the senior human resource executive.
Here are three important points to note for all property owners.
Extra Planning For Properties
To be fair to lawyers, most people get their wills done when they are young and in their prime as a precaution in case they die unexpectedly.
Many just opt for simple wills with standard clauses that state their wishes to give all "movable and immovable assets" to certain beneficiaries. But this risks neglecting the implication of joint properties.
After all, when making wills, few people will actually provide a list of all their assets along with instructions on what to do with each item to their lawyers. Even if they do, the list can never be complete, because it will not cover new properties that are bought after the will is drawn up.
This is why wills are known as "living documents" because you will often need a new one done at critical milestones of your life, such as when your wealth status changes or when you want to make changes to your beneficiaries.
Lawyer Ivan Lee advises that if you want to give your share of properties to specific people, you need to instruct your lawyer to sever the "joint tenancy" so you can become a 50 per cent owner as a "tenant-in-common".
"Of course, the other joint owner has to agree to this," he adds.
The process differs for private homes and Housing Board flats but in essence, if all the joint owners agree to the conversion, a declaration of severance will be executed.
The legal fee for getting this done is about $2,000 but it will save your beneficiaries from getting caught in costly disputes later.
Additional Buyer's Stamp Duties
This cooling measure has inadvertently given rise to an unusual property arrangement among some Singapore couples who want to avoid paying the additional buyer's stamp duties (ABSD), which is levied on second and subsequent properties.
To save on this cost, which can easily exceed $200,000 for private homes, these folks "de-couple" their first home - let one spouse own it in his or her sole name - so that the other is free to buy another home without the need to pay the ABSD.
While it is perfectly fine for couples to hold separate properties, they should ensure they have proper legacy planning so that part of their real estate assets don't end up with unintended beneficiaries.
For instance, if a childless couple each own a property in their sole names and neither makes a will, half of the property that belongs to the spouse who dies will go to that spouse's parents. But if there are kids, half of the same property will be shared equally among them instead.
What about adding your kids' name to your properties early as tenants-in-common so that everyone is clear about the fixed share they will get?
While this sounds like a good plan to prevent siblings from slugging it out in court, it can wreak havoc on the kids' own plans for a family due to Singapore's property regime.
For instance, if your kids have shares of your existing home, they are effectively disqualified from applying for HDB flats, as only non-property owners can buy.
Even if they can afford to buy private properties later, their new home will be deemed as their second property and so they have to pay the prevailing 17 per cent ABSD for citizens and 25 per cent for permanent residents.
Property Owners Must Have Wills
Those who don't make any legacy planning for their properties can end up inflicting hardship on their relatives should something happen to them.
Take a case involving a man who has two properties - a shophouse financed by a loan and a fully paid up house.
Assuming he is married with two young children - half of his properties will go to his wife while the other half will be shared equally between the two kids if he dies without a will.
If the wife does not have the financial means to take over the loan for the shophouse, it has to be sold to pay off the mortgage.
If the value of the property exceeds the loan, the family will receive some money from the sale. Otherwise, they may have to bear the burden of paying the remainder since they are the new owners.
Letting the kids own a quarter share of the house may inevitably cause problems in the future as they won't be able to apply for HDB flats and may face an ABSD levy if buying other properties. Even if one of them wants to give up the share, the other owners may not have the means to buy him or her out.
If there is proper planning, all the properties could go to the surviving parent so that he or she can then decide how to take care of the family.
So giving everyone a share of the properties may not always be the best arrangement for many families.
For instance, it is common for some children to live with their elderly parents while the rest have their own homes.
In such cases, if the parents neglect to make a will to provide for the live-in children, their home will be shared equally by all siblings when they are no longer around.
When this happens, the residence is probably going to be sold, rendering the live-in children homeless, unless they are able to buy the shares of their siblings.
If parents want to ensure that those who live with them are provided for, they can make a will that gives the home to these children so that they can continue to live there. They could consider giving cash and other assets in lieu of shares in the property to the kids with their own homes.
Property is likely to be the most expensive asset you own so you should take extra care to ensure that the legal titles rest in the hands of those who deserve them.
So don't let your home sweet home turn into a house of cards that tumbles when families fight and break up over it.
Credit: Straits Times