Estate Settlement of Property
Property (i.e. real estate) to most people living in Singapore is an emotional asset. Putting aside its unique ability to increase in financial value over time, property is also a place where family is raised and grows together. Yet there are many instances where the death of a property sole- or co-owner results in the forced sale of the property and, sometimes, the breakup of the family. This is due to a lack of awareness of the issues and costs involved in estate settlement and the continuous maintenance of property.
Estate Settlement of a Property under Sole Ownership
If the property is in sole ownership of the deceased without mortgage, the legal representative could transfer the ownership according to the will or the Intestacy laws (if there is no will). Alternatively, the property could be sold and the proceeds be distributed amongst the beneficiaries.
During the estate settlement of property process, the legal representative needs to be mindful that there will be property up-keeping costs involved. These include a property tax, property management and sinking fund, utility bills, insurance etc. These costs should be paid by the estate account.
If you are a Muslim, you need to give serious thought to the sole ownership of your matrimonial property. Because upon your death, your legal representative would most likely sell the property and distribute the proceeds according to the Faraid (Muslim Intestacy Law). Your surviving spouse could end up without a home.
Estate Settlement of a Property under Joint Ownership
This is the most common form of property ownership in Singapore, especially between husband and wife. In legal language, this is known as “joint tenancy”. The title deed will state the co-owners hold the property as “joint tenants”. In a joint ownership, there is a single title, interest, time of commencement of title, and unity of possession. These are known as the 4 unities.
When a joint-owner dies, his/her right is extinguished and vested in the surviving joint-owner(s) until the last surviving owner becomes the sole owner of the property. This is the unique feature of joint tenancy which is commonly known as the “right of survivorship”. The joint owner is legally incapable of transferring (or gifting) his joint interest in the property by will to others. On his/her death, his/her property interest will pass to the surviving joint owner(s) automatically.
If there is an intention to give one’s share to another, the joint tenancy can be unilaterally severed. Agreement from the other joint owner is not required, but the joint owner will be informed (Section 53(5) of Land Titles Act). This is most applicable in an estate planning situation when two parties are going through separation leading to a divorce.
Estate Settlement of a Property under Tenancy in Common
The other co-ownership structure is “Tenancy in Common”, where each co-owner has a separate title and interest in the property, but the shares may vary according to the co-owner’s contribution. This form of property ownership is popular when two or more people pool their funds together to co-own a property for investment purposes; or business partners co-own a commercial property. Usually the owners have no legal relationships with each other, unlike a husband and a wife.
The co-owners have an undivided possession of the property. Unlike joint ownership, tenancy in common has no right of survivorship. Upon the death of a co-owner, the deceased person’s share passes to the persons named in his will, or, in the absence of a will, according to intestacy laws.
Therefore, in the estate settlement of a property under tenancy in common, the legal representative could call in the deceased person’s share of the property and distribute it accordingly without the need of agreement from existing co-owners.
Estate Settlement of a Property under Mortgage
Assuming Peter needs to purchase a property, XYZ, without which Jane will not agree to a marriage with Peter. Peter approaches ABC Bank for a mortgage on XYZ property. A mortgage would mean Peter (the borrower, also known as the mortgagor) transfers XYZ property to ABC Bank (the lender, also known as the mortgagee) as a security for the repayment of a $1M loan (also known as a mortgagee loan).
When a bank lends money to a borrower to enable him to buy a property, the main term of the loan is that the borrower will execute a legal mortgage of the property to the bank to secure the repayment of the loan. The legal mortgage is created by a registered transfer of the legal ownership of the property from the mortgagor (borrower) to the mortgagee (lender), subject to the mortgagor’s right to redeem the mortgage.
Therefore, if the borrower dies before discharging the mortgage, the lender (i.e. bank) has the legal ownership of the property instead of the deceased person’s estate. If there is insufficient cash from the estate to settle the outstanding loan, the bank has every right to force sell the property. In this situation, the deceased family members could be left without a home.
The problem could be magnified if the deceased has not one, but two or three mortgages (a common situation especially for property investors), the legal representative has to prioritise the limited liquidity within the estate to resolve the issue.
Point to pay attention to:
- It is very common for parents to help adult children to own a matrimonial property by paying the down-payment. In return, the children would repay every month to the parents. It is advisable and a responsible act for the children to include in their estate plan to return the capital back to their elderly parents, should they die before their parents. Otherwise, it is extremely difficult for the deceased person’s parents to seek from the surviving spouse the capital borrowed when one party dies, and, through joint-ownership, the property is transferred to the surviving spouse.
A German poet once wisely said:
“In a world, a home; in a home, your world.”
Pay some serious attention to the estate settlement of your home; it is your family’s world after all.