The problem is that at times when emotions are heated and financial stress is rife, family feuds, fallouts and arguments easily erupt.
Here are the 5 most common property fights that are tearing families apart… and how to prevent them.
Fight 1: Borrowing from the bank of Mum and Dad
For years the Bank of Mum and Dad has been touted in the media as one of Australia’s largest lenders.
A whole generation of parents has been reportedly dishing out a seemingly bottomless pool of funds to help frustrated first-home buyers get on the property ladder amidst skyrocketing property prices.
A recent report by the Australian Housing and Urban Research Institute revealed that 40% of Australians aged 25-34 are considering turning to their parents for financial help to buy their first property.
But the problem arises when it's unclear whether the Bank of Mum and Dad is handing out a ‘gift’ or a ‘loan’.
Some assume that the money will be repaid when possible, while others don’t expect to see the money again.
And it can create some heated disputes when the communication goes awry.
How to overcome it
Parents need to be very clear about whether they’re providing their children with a gift or a loan.
If the money is a gift, this should be made clear in writing to avoid confusion down the track.
If the money is a loan, it is recommended that parents write up a loan agreement detailing the size of the loan, the term and how it will be repaid.
It should also detail what will happen should the property owner (their child in this case) be unable to make repayments on the parent ‘loan’, and also if they look set to default on the property repayments themselves.
This is especially important if parents have been used as guarantors for the property purchase.
It would also be advisable to come up with an agreed exit strategy, including if the child wanted to pay off the amount of money borrowed at a faster rate, or in a lump sum.
Fight 2: Making verbal agreements
Many issues arise within families when verbal agreements are made and then each party has a different understanding of what has been agreed, upon or can’t remember the full details.
With property, it can end up with a nasty argument down the track, especially if a death, divorce or illness changes the circumstances for some of the parties involved.
How to overcome it
Write the agreement down, including terms of what has been agreed and what should happen should circumstances change.
This should include everything that has been discussed, with details of who has agreed on what and an idea of the timeframe.
Remember, verbal agreements are as legally enforceable as written ones, but you will have problems when you need to prove they exist.
Your document should cover:
- Roles and responsibilities of each person rough dates for regular business meetings throughout the year (quarterly, for example)
- A dispute resolution process for those times when an agreement can’t be made
- An end-clause for when a party wants to leave the investment.
Fight 3: Split allegiances of blended families
When it comes to family fights over property, not surprisingly blended families have the most disputes.
And this is because members of that blended family will have allegiance to one parent or side of the family over another.
And, in general, they come from different financial backgrounds with one parent bringing more money into the relationship than the other and they often have different goals and aspirations.
How to overcome it
The best way to avoid family disputes within blended families is to plan your estate properly.
List what will go to who, and ideally put this into a will or legal document.
It should include what will happen to the property (and its contents) if one dies, both die or in the case of a separation.
Alternatively, a family trust can be established to give a surviving spouse the right to live off the income and property for the rest of their life.
The estate would then go to the children, or be divided as agreed when both parents have died.
Alternatively, a couple can set up a tenancy in common, where they each have, say, 50% and each is able to do with it whatever they wish.
As always, proper planning negates the need for a nasty argument down the track.
By the way…the team at Metropole Wealth Advisory specializes in helping families set up their affairs to minimize disputes.
Fight 4: Pressuring elderly parents
As Australia’s property market tips further out of reach for young Australians and first-home buyers, there is more and more pressure on elderly parents to provide financial support or even release their inheritance early through gifts, loans or even downsizing to free up equity for other family members to capitalize on.
If a family member is acting in their own best interest, rather than in the best interest of others, it’ll certainly lead to several problems along the way.
How to overcome it
Estate planning is different for everyone, especially in today’s modern environment of potentially blended families.
So, with more people remarrying, it's critical to prepare for the distribution of your wealth upon your passing or if you lose your capacity to make financial decisions.
Appointing an enduring power of attorney who will step in if an elderly parent loses the capacity to manage their finances, is one way to ensure that the parent (or those parents) will continue to be looked after.
It will also avoid the issue of pressuring elderly parents to make a significant financial decision or move that is against their wishes and avoid the family property fight over an asset ahead of due time.
Fight 5: Unclear (or non-existent) wills
Unclear and poorly communicated wills, with no proper guidance about execution, can create heated arguments between families who all believe they deserve their share.
Conflict is rife when a family member passes away and without a legally binding document with clear and concise instructions, it can be easy for messages to get mixed and disagreements to drag out.
How to overcome it
A will is vital for successfully transferring property from one person to another after they die.
To ward off any unnecessary family feuds, you should also constantly review and update your will as time goes on.
Things change, people separate or die and assets come and go - the latest version of the will should be the most up-to-date to ensure that all scenarios are covered and the beneficiaries are protected.
But remember…
Assets not owned in your own name are not distributable directly from a will – these are typically superannuation and assets held in a trust.
Superannuation assets need either a Binding Death Nomination or a Superannuation Will written to conform with the requirements of the superannuation deed.
And as you do not own the assets in a trust control needs to be passed on, which will be via a Memorandum of Wishes nominating a new appointor.
The shares you own in the trustee company of the trust (which are really worthless as the trust itself owns the assets) can be passed on through your will, and the new shareholders will vote in new directors – usually your beneficiaries.
A final note…
Research shows that many Australians don’t have a will or any estate planning whatsoever.
But, by working with estate planning and wealth creation experts, they could have ensured their wishes and their wealth was passed on to the next generation when they were no longer around.
That’s what everyone wants at the end of the day, isn’t it?
We all know that money and inheritances bring out the worst in people, even your own family.
So when it comes to avoiding a family feud over your inheritance, or lack of it, it’s vital to create a will and plan your estate.
Estate planning involves arranging your assets and circumstances in a way that ensures that after your death your beneficiaries receive the maximum from your assets maximum at a minimum cost in taxes and heartache.
Good estate planning aims to anticipate and plan for financial and personal problems beneficiaries of your estate may face after your death.
It goes into the nitty gritty of everything from who gets what, to a medical directive and even homeownership structure and tax.
You can then implement strategies that will make sure that the estate, asset or even money doesn’t drive families apart.
The team at Metropole Wealth Advisory can review your situation make recommendations and then help you implement any required changes.
If you’re looking for independent expert advice about you your financial circumstances why not allow our team to provide you with a Strategic Wealth Plan?
Imagine the benefits of having a new level of support, guidance and insights into the critical drivers of your wealth:
- Minimise Your Tax
- Build Your Wealth
- Manage Your Risk
- Create Your Legacy
Click here now and we’ll be in contact to discuss how we can help you and your family.
