The thought of estate planning often brings to mind your will and your legacy. As you have spent your entire life on the acquisition, management and preservation of your wealth of assets for the benefit of your loved ones you leave behind, shouldn’t you pay as much attention to the prudent distribution of your assets upon your demise to ensure that your wishes are effective in bringing about the desired result and minimize the burden on your loved ones who inherit your assets? Of particular concern here is the legacy involving real estate property and joint bank accounts. The key to effective estate planning is knowing how the manner of holding such assets in the first place affects the right to transfer them upon death.
Real Estate: Joint Ownership and Right of Survivorship
Your home is commonly the single largest asset of value that you own. Many if not most homes purchased by married couples for owner-occupation as a family unit are held in the names of both husband and wife as joint tenants. For joint tenants, the law dictates that upon the death of one owner, the property with automatically go to the surviving co-owner (the right of survivorship) and will not form part of the deceased’s estate for distribution according to his/her will. Even if you were to bequeath your interest in the property away in your will, the effect of joint tenancy is such that your interest in the property dissipates upon death and you are no longer entitled to the property for disposal at the time of your death.
In order to pass your interest in the property to a beneficiary upon death, you must first sever the joint tenancy to free the property from the “survivor takes all” rule. Once severed, the joint tenancy becomes converted to a tenancy-in-common, bestowing on each owner an assigned share in the property which forms part of your estate for distribution upon death.
Real Estate: Bequeathing Mortgaged Property
Beware the pitfall should the property you own be mortgaged to a bank or financial institution. In the event of your untimely demise, without a will and adequate mortgage insurance, your family member(s) inheriting such property could potentially be saddled with a huge loan which they have to take over in order to retain the property, failing which they would have to either find some way to settle the loan or sell the property to clear the debt. The situation is compounded if you had been the sole breadwinner, your children are still young and your spouse, who has been a homemaker all along, has not the means to match your earning capacity with which to either take over the loan or redeem it. The beneficiaries may be forced to sell at short notice (which comes with its own risks) to resolve the issue, and, if the property is a residential property disposed of within the holding period, the sale would be subject to Seller’s Stamp Duty (“SSD”) at regressive rates of 12% on the market value if the transfer is within 1 year from the acquisition falling on or after 11 March 2017, 8% if more than 1 year but less than 2 years since the said acquisition, and 4% if more than 2 years but less than 3 years since the said acquisition.
Real Estate: Impact of ABSD
It would be prudent as well to consider the impact of Additional Buyer’s Stamp Duty (“ABSD”) in the scheme of things when you plan to bequeath your residential property in your will. Property acquired by way of inheritance is included in the property count for purposes of ABSD. However, as long as the beneficiaries take the property in accordance with the will, no taxes will be levied. Having a part-share interest in the property will be added to the count of properties owned by the beneficiaries for the purposes of ABSD. This count will affect the future dealings of the beneficiaries in residential property. Take, for example, where a man wills his semi-detached house and a condominium unit to his two children (all Singaporean) in equal shares. The property count for each child will increase by two (2) with the transfer pursuant to the will. If one child subsequently gets married and decides to purchase a separate property together with his/her spouse as their matrimonial home, this will be considered the third or subsequent property and he/she will have to pay 15% ABSD on the new purchase in addition to the Buyer’s Stamp Duty (“BSD”). If, on the other hand, one child buys out the other’s share in the property, he will have to pay 12% ABSD for the acquisition based on a property count of two (2) at the time of the acquisition of the sibling’s share. The child who disposes of his share in the property to his sibling may have to pay SSD if the disposal was made within the specified holding period. Stamp duty is based on the higher of the consideration or market value of the transaction.
Joint Bank Account and the Presumption of Advancement
In the case of a joint bank account, it is a common assumption that when one joint account holder dies, the survivor becomes the owner of such account by default. But this is not always the case, particularly where the joint account holders are not legally related, such as unmarried cohabitants or boyfriend and girlfriend: the circumstances surrounding the opening of the account and the intent of the joint account holders and the main contributor of the funds in the account are relevant factors to be considered.
For joint accounts between spouses or that between parent and child, there is a “presumption of advancement” that applies in the event of death of the main contributor to the joint account to benefit the surviving joint account holder such that it may be construed as a gift to that survivor. However, such presumption may still be rebutted to negate its effect if the specific circumstances allow, for example, where fraud has been perpetrated.
Where the joint account holders are not in a legal relationship, it is arguable that the presumption of resulting trust prevails such that the moneys in the joint account will not automatically become the property of the survivor but should rather form part of the deceased’s estate to be distributed in accordance with the deceased’s will. Again, such presumption may be rebutted to negate its effect depending on the circumstances.
As a proper safeguard, you should make your intention crystal clear at the time of opening such a joint account by documenting such evidence (instead of simply an oral understanding) as well as declare in your will if you want to give the money standing in the joint account to the joint account holder, and vice versa where the joint account was opened and operated out of mere convenience.
The devil, as they say, is in the details.
For More Information
If you have any questions about this Alert, please contact Leon Yee, Zabrina Hamid, any of the attorneys in our Singapore office or the attorney in the firm with whom you are in regular contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm’s full disclaimer.