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What to Do if You Inherit a Main Residence in Your Will

If you're wondering what to do when you inherit a residence, and how you can pass on the ownership of your home in a tax-effective way, read on!

We are often asked to advise around the issue of how to pass the ownership of a main residence in your Will. In this article, our BlueRock estate planning lawyers explain what to do when you inherit a family home, and how you can tax-effectively pass on the ownership of your family home. 

Check How Your Residence is Owned

Before making any decisions, we recommend first confirming how your home is owned. Is it tenants in common, or joint tenancy

A joint tenancy is severed by the death of one joint tenant. The surviving tenant becomes the sole owner under property law, so what your Will says is irrelevant because ownership automatically arises under State Property Laws, which override Estate Planning Laws. 

It’s important to note that only a sole ownership, or an interest as a tenant in common in a property, can be passed through your Will. 

Be Aware of Capital Gains Tax Exemptions 

There are special capital gains tax (CGT) exemptions around the disposal of a main residence. For houses that are inherited due to the death of the owner, it’s crucial to take note of the following:

Understanding Market Value and Actual Cost Base 

If the house was acquired by the Willmaker before 20 September 1985, then the executors are required to find out what the market value was at the date of death. That value becomes the cost base for the house for CGT purposes. This is beneficial as only the market growth in value from date of death onwards will effectively be exposed to tax on a future disposal by the executor or beneficiary who sells the property. 

If the house was acquired after 19 September 1985, then the actual cost base that the deceased person had at date of death becomes the executors or beneficiaries cost base. 

Trust for Sale Clause

Some Wills may have a trust for sale clause. This means that the executors must sell the house. If the house is sold within 2 years of death (and even if it is rented out for two years before selling), then the sale will be CGT exempt for the estate or the beneficiaries. 

If the house is sold, for example, 10 years after death (and was rented prior to sale), then only a proportionate CGT exemption will apply to tax the total days of ownership where the house was not utilised as a main residence. 

Right to Occupy Clause 

If the Will has a right to occupy clause to particular beneficiaries and someone is living in the house until it is sold, then the sale is CGT exempt. Surviving spouses would commonly use this right. 

Expert Estate Planning Advice at your Fingertips 

Here at BlueRock, we understand the sensitivities that are often involved in inheriting a main residence from a loved one. If you’re interested in learning more about the steps you should take when inheriting a main residence, or are considering how to dispose of a main residence in your Will, our multidisciplinary Melbourne-based estate planning lawyers are best placed to offer you advice and support every step of the way. 

For a free estate planning consultation, get in touch with our estate planning lawyers today

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