Avoid making a gift of real estate as it may fail

Avoid making a gift of real estate as it may fail.

The high home ownership rate in Singapore means many if not most people will have real estate as the largest asset they own. In most cases that real estate is a HDB flat.

Given the need to be able to qualify to be eligible to own a HDB flat and having to wait for a flat the temptation is to bequeath the HDB flat to someone in the Will. Is that the best course of action?

Basics of property ownership

Real estate may be owned by a single owner or by joint owners. Joint owners may hold real estate as joint tenants or tenants in common (in equal or in unequal shares).

Real estate that is owned in joint tenancy cannot be given away in a Will by one of the joint tenants. The nature of a joint tenancy means the interest of the deceased joint tenant automatically passes to the surviving joint tenant or tenants. The interest of a joint tenant is not part of the deceased joint tenant’s estate.

Real estate subject to a mortgage or loan

If real estate you owned has an outstanding home loan or mortgage and you bequeath that in your Will to a beneficiary than he or she will take that real estate interest subject to the debt (see: Section 58 (1) Probate and Administration Act Chapter 251). It is only if there is an expressed contrary intention that the property may be transferred free of the debt. So a beneficiary will have to pay off the existing debt to be able to have the property transferred into his or her name.

Gift of real estate that may work

If someone owns a 50% share of real estate as a tenant in common and wishes to bequeath that 50% to the other 50% tenant in common that would generally be possible.

However, if the real estate is a HDB flat than HDB eligibility rules apply. That may change things.

An alternative approach to a specific bequest of real estate

Notwithstanding what is in a Will beneficiaries are free to come to an agreement to do things differently. They may do so by entering into a Deed of Family Arrangement. So, if a mother leaves her entire estate equally to her three children with a house as the main asset, the beneficiaries can enter into a Deed of Arrangement with two of them agreeing, subject to valuation, to buy out the third’s share of the house. The two can then retain the house. The two buying may need to take out a bank loan to pay off the third beneficiary but the property stays in the family.

So if keeping a property is important it can either be left to one or more beneficiaries or you can just divide the entire estate between the beneficiaries and leave it to them to work out if one or more may wish to buy out the others.

The risks with bequeath the property to one or more beneficiaries are:

  1. The bequest may fail for some reason (in the case of a HDB flat it may be that the ‘chosen’ beneficiary turns out to be ineligible to own a HDB flat);
  2. If the property is being left to one beneficiary you may then leave something else of similar value to another beneficiary to ‘equalise’ between beneficiaries. However, the value of the property will change over time. Any ‘balance’ you may seek to make may fall ‘out of alignment’ if there is a dramatic shift in the property value;
  3. There may be perceived ‘favouritism’ if one beneficiary is given the property but not the others.

However, if the entire estate is just divided between the beneficiaries leaving them to work out if any of them wishes to keep the property it could be much easier. If that property is a HDB flat then only a beneficiary eligible under HDB rules to own the flat will want to have the flat transferred into his or her name.

So even if you do not specifically give or bequeath your real estate to anyone in particular if your beneficiaries agree they may be able to come to an arrangement to allow for your real estate to be kept in the family instead of just selling it. However, this will only work if beneficiaries are not in dispute with each other.

Please note: Nothing in this article should be seen as providing legal advice. Any opinions expressed in this article are general only and not intended as criticisms of any person, business or website or how someone may lead their lives or may be involved in the making of someone else’s Will. Please consider taking appropriate legal advice if needed. If you have any questions you may send them to mail@ezwills.com.sg