You act for Robert who is the executor of his late wife Maggie’s estate, along with Maggie’s three children. Robert brings in the original will which was prepared by another solicitor in 1998.You are surprised when reviewing the will that Robert was not left anything, instead all of Maggie’s estate went to her three children. However Robert explains that Maggie had been married previously and the three children were to her first husband, and that although they had been married for twenty years, they had always kept their finances separate.Maggie and Robert owned a half share each in a unit and a house as tenants in common.
Pursuant to Maggie’s will, this means that Robert would own the unit and house jointly with his three step children as tenants in common, an outcome no one wanted, especially Robert. Robert tells you that Maggie had planned to update her will so that he would get the unit and they were then going to transfer the house to the children, but she kept putting it off because she didn’t’ want the kids to have to pay stamp duty. Now Robert was left with the mess. Robert tells you that the unit has been valued at $450,000 and the house at $500,000 and that the kids were happy to do a swap whereby Robert gets the unit and the kids the house, ignoring the difference in value.
You are aware of the partition concessions under s30 of the Duties Act. You know that valuations are required to do a partition, (which Robert had provided) and ad valorem duty is paid on the higher valuation which pays ad valorem duty on the difference between its value and half of the combined value of both properties. You provide Robert with a quick calculation: stamp duty on $25,000 (being the difference) is $340 which is payable by the kids and Robert only has to pay nominal duty of $50 on the unit. Robert is impressed and tells you that as there is a bit of tension between him and the kids an agreement should be prepared as soon as possible. You prepare a simple partition agreement to transfer the unit and house which everyone signs, and then attend to preparing probate documents to finalise the estate.
The simple agreement to transfer the unit and house is a dutiable instrument and is therefore liable for ad valorem duty.Section 30 of the Duties Actstates that a partition occurs when dutiable property comprised of land in New South Wales that is held by persons jointly (as joint tenants or tenants in common) is transferred or agreed to be transferred to one or more of those persons.
At the time the agreement to transfer was signed, Robert held the unit and house as tenants in common with the executors of the estate.
While on the face of it this seems fine, DUT 035 says:“As land which is the subject of a partition is required to be held jointly, any partitioning of estate land in NSW which is held by a trustee, executor or executrix does not fall within Section 30. A transfer to the beneficiaries should be stamped under Section 63 of the Duties Act 1997 prior to partitioning.”
What you should have told Robert to do was to transfer the unit and house pursuant to the will first, (then he would own the unit and house jointly with the kids) and then enter into the partition agreement to take advantage of the partition concessions.
It is important to note that although s30 of the Duties Act could have removed the stamp duty problem, if CGT was an issue a partition agreement does not remove a CGT problem.
This article is general information only and should not be relied on without obtaining further specific information.