For most Australians, your most significant asset is your home. 

Home ownership accounts for almost 50% of average household wealth.

So, it’s pretty awesome that if you sell your home, and your home is worth more than when you bought it, the tax office charges you 0% tax on the money you make (main residence CGT exemption).

What does that mean? Most Australians will benefit from SIGNIFICANT tax-free asset growth in their lifetime.

Still with me?

But what if you die, do your VIPs still get the 0% tax rate if they sell your home?  Does the main residence exemption still apply to your VIPs after death?

Here’s what your will specialist should be asking you:

1 – If your spouse dies, will you continue to live in the same home?

Let’s use Michelle and David as an example:

·       both aged 41;

·       Michelle has her own business;

·       David is employed;

·       2 daughters aged 7 & 4; and

·       they live in Brisbane, Queensland.

Michelle & David’s home is worth around $900,000 dollars.  They have debt of about $350,000 but expect to have this paid down in 7 years.  They bought the property in David’s name.

If David dies and the 0% tax rate:

·       applies, the total sale value (say $900,000) will be available for Michelle and their girls; or

·       doesn’t apply, Michelle could pay 50%-100% of any increase in value from David’s date of death. 

Depending on how long she holds the property before selling, this could be substantial.

Never fear!

Your will specialist can prepare your will to make sure the main residence exemption (0% tax rate) applies for any spouse or dependent who continues to live in the same home after your death.

2 – Do you hold your home as joint tenants or tenants-in-common?

Most people when I ask this question look at me like I’m speaking a foreign language.

Fair enough.  It’s legal jargon.

Here’s the plain English version.

In Australia, if you hold a property in your own name with another person (not in a trust), it is possible to hold it 2 ways.

As joint tenants means if you die, your share will automatically pass to the surviving owner on your date of death.

As tenants-in-common means if you die, your share will pass to the beneficiaries of your will (via your estate).

This means, how you hold your home can have a MASSIVE impact on whether your wishes will be followed.

If you want your share of the property to go to someone other than your co-owner, but you hold the property as joint tenants = estate planning FAIL.

Don’t stress!

Changing from joint tenants to tenants-in-common, or visa versa, is a relatively straightforward process.

3 – Do you want whoever inherits your home, to also inherit any associated debt?  Or do you want the rest of your assets to be used to pay off the debt?

If your share of your home goes to your spouse, it’s pretty likely they will take on any associated debt too.

Have you taken out life insurance to help them pay down the debt if you die?

Are they in control of any life insurance payout?  Or does the payout legally need to be shared between them and your other VIPs?

It’s really important when gifting land via your will that thought has been given to any associated debt.

If you do nothing, the general law is that the debt will pass with the property.

Have any questions?

Feel free to give me a call, or use my FREE15 minute booking https://calendly.com/g-law/free15

Image credit: Abbie Melle