Why ‘She’ll be Right’ is the Wrong Attitude for Estate Planning

By 19 March 2021Future Planning
Estate Planning

A recent case in the WA Supreme Court illustrates why you should formalise your estate planning from the start.

In Young v Martin [2020] WASC 442, two de facto partners (Ms Young and Mr Jones) agreed to buy a house together to live in. Ms Young contributed her half of the purchase price in cash. They then took out a mortgage of $185,000.00 to cover the other half. The intention was that Mr Jones would pay the mortgage payments and eventually pay off his half of the house.

The mortgage and title were in joint names, and the house was bought as a joint tenancy. However, Mr Young failed to prepare a new will or co ownership agreement stipulating that the mortgage was to be paid from his estate.

Mr Young passed away shortly afterwards. Ms Young became the sole owner of the property and also became solely liable to pay the mortgage. As the mortgage was for half the value of the house, her net gain was effectively zero.

She brought a case against Mr Young’s executor, (Mr Martin), alleging that his intention was to be solely responsible for the mortgage and that therefore it should be paid out from his estate.

The court’s opinion was that equity did not require the estate to pay the mortgage, since the property was not part of the estate. It is worth noting that if the house was held as tenants in common, and not joint tenants, Mr Jones’ portion would have formed part of the estate. In that case, it may have been equitable for the estate to pay the mortgage since otherwise, Ms Young would have had to pay the debt herself but not receive the value of Mr Jones’ half of the house.

How a co-ownership agreement could have helped

Young v Martin is an excellent example of a couple who took a ‘she’ll be right’ attitude to estate planning. They were in a de facto relationship, things were going well and they were on the same page about their future plans so they didn’t think to formalise it.

However, had they formalised their arrangement through a co-ownership agreement, the current scenario would have been avoided.

Even if you have complete trust in one another, you need something that’s going to make it binding on your executors and your attorneys should you pass on or become incapacitated.

In this case, an outsider looking in can see the agreement that was made. She paid for half the house outright. The intention was that he would pay for the other half by paying off the mortgage on his own. Accordingly, it seems very obvious that he would have wanted it to all be paid off when when he passed away.

However, because they failed to document that agreement the court found itself in a tricky position.

The house wasn’t an asset of the estate because it was held as a joint tenancy. Therefore, technically it was inequitable to make the estate pay a liability (the mortgage) that was attached to a non-estate asset. On the other hand, the agreement between them suggests that he wanted the house to go to her without his children from his previous relationship contesting it.

If the pair had had something in writing, there would have been an opportunity to reflect that intention and ensure that it happened. Instead, they presumed that because the house was jointly owned, the mortgage would be taken care of.

When to consider a co-ownership agreement

A co-ownership agreement is a useful tool for people buying property or combining assets in a second or subsequent relationship scenario. When you pass away, there are two (or more) competing family groups who may want to make a claim on your assets. To make sure that your wishes are followed, consider a co-ownership agreement.

The lesson from Young v Martin? If you rely on ‘it’ll be right’, it often won’t be.

Thinking of buying a property with a partner, friend or family member? Our specialist legal advice can help you establish your arrangement the right way, right from the start. Contact us today on 1300 068 736.

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