Five common property conflicts that cause family rifts and proactive strategies to prevent legal battles 🏠⚖️
In recent times, disputes over the “Bank of Mum and Dad” loans, complexities within blended families, impatience over children’s inheritances, and concerns about adult children living at home have become increasingly common legal battles. Apart from tearing families apart, these disputes can lead to significant legal expenses, with daily fees for senior barristers averaging around $10,000, coupled with additional costs for junior counsel, solicitors, expert witnesses, court charges, and paperwork.
Susan Bonnici, senior counsel with Burke Lawyers, emphasises the importance of mindfulness when dealing with real estate matters within families. She warns that relationships and needs are continually changing, and failure to plan for such changes could result in catastrophic financial consequences for individuals and their loved ones.
To alleviate stress and prevent potential legal battles, legal experts highlight specific situations that often lead to disputes and provide strategies to avoid them.
Bank of Mum and Dad
According to a recent report by the Australian Housing and Urban Research Institute – With approximately 40% of individuals aged 25 to 34 considering financial assistance from the “Bank of Mum and Dad” for home purchases, clear communication is crucial. Craig Hollett, director of Solomon Hollett Lawyers, emphasises the need for parents to be clear about whether they are providing a gift or a loan to their children. Parents providing a gift do not expect to be repaid, or have any interest in their children’s property, he clarifies.
Strategies include:
- Detailed Loan Agreements: Clearly outline loan terms, including size, duration, repayment terms, interest rates, and whether it’s registered against the title.
- Ownership Structure: Decide on co-ownership or tenancy in common, specifying the rights and responsibilities of each party.
- Default Contingencies: Establish an exit strategy and regularly review arrangements. For instance, consider allowing the child to accelerate repayments as their income grows.
- Legal Advice: Seek legal advice to create binding financial agreements that comply with relevant laws and ensure enforceability.
Verbal Agreements
Many disputes arise from reliance on verbal agreements, leading to conflicting beliefs about what was agreed upon. Verbal agreements around the kitchen table are just some of the triggers. Memory fallibility and life changes can compound these issues.
“It only takes one element, such as a family death or divorce, to throw a verbal agreement into uncertainty,” McKenzie says. “These disputes often come to the fore many years later, so the fallibility of memory often compounds the issue.”
Strategies include:
- Encourage Discussions: Facilitate open discussions where parties listen to each other’s plans and treat each other fairly.
- Scenario Workshopping: Before signing an agreement, discuss potential scenarios, stress-testing agreements for possible changes over the years.
- Legal Advice: Seek legal advice to ensure agreements are reduced to legal documents, signed by all parties, making them enforceable. The cost of doing so now will be significantly less than the emotional and financial cost of a family dispute, down the track.
Blended Families
Blended families face more disputes due to split allegiances between new partners and children from previous relationships. Darryl Browne, principal of Browne Linkenbagh Legal Services, suggests proactive estate planning.
“Compared to earlier generations, there are more assets to argue about because many people have significant interests in superannuation funds and real estate prices in many parts of Australia have increased greatly,” Browne says.
Strategies include:
- Discussion with Family: The testator (person making a will) should discuss expectations and reasons with family members to address potential disputes.
- Mutual Wills Arrangement: A husband and wife can make a will giving the interest in the family home to each other, ensuring that upon the death of the survivor, the combined estates are split between the children.
- Establishing Trusts: Create a trust that gives the surviving spouse the right to live off the income until a specified time or event. The estate goes back to the children of the deceased spouse if the right expires. This ensures clarity and avoids conflicts.
- Legal Documentation: Utilise deeds to confirm agreements, creating a binding obligation on involved parties.
Vulnerable Older Parents
Elderly parents over 65 face pressure from children to provide financial support, often involving gifts, loans, or accelerated inheritances. Legal expert Susan Bonnici recommends careful planning. “Property prices are sky-high and a lot of wealth is tied up in homes owned by elderly parents. They are often pressured by their children to transfer the family home and move into aged care,” she says.
Strategies include:
- Enduring Power of Attorney: Create an enduring power of attorney for decision-making capacity, appointing someone with the donor’s best interests to oversee financial and legal matters.
- Legal and Financial Guidance: Seek legal and financial guidance for agreements related to granny flats or financial assistance to avoid potential risks. “This can be a very good solution for some families but is fraught with risks,” she says. – Transferring the title of their property to a younger family member in exchange for care and accommodation requires a written agreement recording the parents’ life tenancy or other interest in the property and the rights and responsibilities of each party, Bonnici adds.
Wills
Detailed and clear instructions are crucial for successful property transfers. Anna Hacker, client director for Pitcher Partners Advisory, emphasises the importance of discussing estate plans with beneficiaries and, in some cases, creating a family charter. “Part of succession planning is putting in place rules of play,” says Hacker. “A written charter can help everyone come together and identify potential problem issues, rather than hope they do not exist. It can also put in place a dispute resolution mechanism to resolve disagreements.”
Strategies include:
- Direct Instructions to a Lawyer: Provide will instructions directly to a lawyer to ensure accuracy and compliance with legal requirements.
- Avoid Inclusion of Reasons: Refrain from including reasons for exclusion in the will to prevent potential grounds for a legal challenge.
- Family Charter: In some cases, create a family charter to discuss potential issues openly and establish a dispute resolution mechanism.
By proactively addressing these potential pitfalls and seeking legal guidance when needed, families can navigate property matters smoothly and avoid the emotional and financial costs of legal disputes down the track.
