3 legal tips all property owners should know
It is prudent to know how the law governs real estate ownership, especially in cases involving legacy and property transfers to prevent problems further down the line.
If you look at the property market today, you would be forgiven for thinking that it is all going really well.
Sales of both private homes and Housing Board flats are getting stronger by the day, as if the pandemic never happened.
What this means is that overall, there are likely to be more property owners today than, say, a year ago.
Many of them are likely to be joint owners, especially couples buying their first property.
A considerable number of people will also have a home in their sole names. It is an open secret that many couples who want to own more than one property as an investment have "decoupled" their joint names from their first matrimonial home.
This is to enable the other spouse, who no longer owns any property after his or her name was removed from the first one, to buy a new one without incurring the additional buyer's stamp duty (ABSD), which is 12 per cent for Singaporeans buying a second home.
Then there are parents who buy HDB flats or other units jointly with their children, especially when the kids are not married.
Whatever the motivations behind these purchases, one thing is certain. Property is likely to be the most valuable asset many families will ever own.
So it is prudent to know how the law governs real estate ownership, especially in cases involving legacy and property transfers.
1. WILLS AND JOINT OWNERSHIP
If you own property, it goes without saying that you should have a will in place so that your beneficiaries get their deserving share. Otherwise, all assets will be divided equally among the closest relatives.
This situation has created problems for at least one family here.
A man and his family had lived with his aged mother for years in her bungalow as he was her sole caregiver.
When she died without a will, the bungalow was divided equally among her four children. As the man could not afford to buy out his siblings' three-quarter share of the house, the property was then sold, leaving him and his family homeless.
The situation would have been different if the mother had made plans in her will, such as giving the whole house to the child living with her, if this was her intention.
The outcome would also be different if the house was in the joint names of both mother and son. Under such joint ownership arrangements, if one party dies, the surviving one inherits the entire property without the need for a will.
There is an important caveat that all property owners here should note: The joint ownership rule overrides the will, and a joint owner will not be able to will his part away to another party.
For instance, a parent and son A are joint owners of a property. The parent then writes in his will that upon his death, he wants his 50 per cent share to go to son B.
Lawyer Sim Bock Eng, who heads Singapore's Society of Trust and Estate Practitioners, says that when the parent dies, the property will automatically go to A, and B will not get a share.
The only way the parent can safely pass his share to B would be to make a prior application under the law to "sever" the joint ownership so that it becomes clear that he does not want A to inherit his portion when he dies.
"The fact that his will provides for the giving of 50 per cent share to B does not in law sever his joint interest," Ms Sim says.
This is something that all joint owners should note because it is not uncommon for relatives or even friends to sometimes invest in property together. So if you do not want to be caught by the "survivor takes all" rule, you should consult your lawyer and get the necessary papers done so that every owner is assigned a certain share of the property.
2. PROPERTY AS INHERITANCE
People usually think that inheriting a property from a parent is truly a windfall because the value of real estate in Singapore is relatively high. But things can get quite complicated if you do not make adequate plans.
A businessman who died recently had two properties - his house that was fully paid for and a commercial property, which carried a large mortgage.
As he did not have a will, half of the properties went to his widow, who is in her 60s, while the other half went to his son and daughter.
The son is married and has his own HDB flat, while the daughter is still in school.
The transfer did not go smoothly. The commercial property has a mortgage so the family had to take over the loan, but none of them has the same earning power as the husband. That leaves them with only two choices - pay off the loan or sell the property.
Selling at such short notice usually comes with risks. You may not get a good price and there may be the additional stamp duty to pay if the property was bought less than three years ago.
From the daughter's perspective, it may not be an actual monetary gain to own a quarter share of her late father's house. This is because there is no real value in owning that share unless the family home is sold or her mother and brother buy the share from her.
If she continues to hold the share, she will not be able to apply for an HDB flat like her brother, since she is already deemed an owner of a private property.
And if she decides to buy another private home in the future, she will have to pay the ABSD of 12 per cent as her new property will be deemed her second one.
As for her brother, even if he wanted to buy over his sister's share, he would need to pay the 12 per cent stamp duty as this constitutes buying a second property.
3. PRUDENT PLANNING FOR PROPERTY TRANSFER NEEDED
It is common for some parents to invest in property so they can pass on some assets to their children, but they should take note of the rules governing such investments so that the transfers will not create financial issues for their kids.
Property given to beneficiaries under the direction of a will does not attract any taxes, even though the beneficiaries may already own other real estate.
But once the transfer is completed, the new owners will be deemed to have one more property and this can affect their future dealings.
For instance, a man has a bungalow and he wills it to his three sons, who each get a one-third share. If all of them already own their homes, the brothers will have to pay at least 12 per cent stamp duty if they buy out one another's shares.
And if they want to buy another property, this would be deemed a third one and would attract the highest 15 per cent stamp duty.
Mr Alfred Chia, chief executive of financial advisory firm SingCapital, says one way to avoid problems of giving shares of properties to all children is to give whole properties to the ones who need them most and then give cash to the rest.
Alternatively, leave instructions to sell the property and then distribute the proceeds because as these cases show, part shares can create problems among siblings.
Ultimately, if you plan it well, your beneficiaries will be grateful for your foresight.
Source: Straits Times © Singapore Press Holdings Ltd. Permission required for reproduction.