Parents as co-purchasers of property

These days, more and more young people require parental support to purchase a first home. There are different ways in which parents can give this kind of support. One way is to become a co-purchaser with their adult child.

Becoming a copurchaser allows the parent to be more involved in the purchase of the property. This can provide a number of advantages, such as reducing the amount that needs to be borrowed to finance the purchase. For example, if a parent can pay cash for 30% of the purchase, then only 70% of the purchase price needs to be borrowed. In many cases, this will allow things like mortgage insurance to be avoided.

When two or more people share ownership of a home, there are two broad ways to do so. The first is as tenants in common. In this situation, each owner owns a particular share of the property. That share can be bought or sold separately from the other shares in the property. For example, a parent might own 60% of the property and their adult child own 40%. Either person could sell their percentage share to another person without affecting the share of the remaining owner.

If one of the owners dies during a tenancy in common, then their share of the property will generally form part of their estate and will be managed according to the terms of their will.

Tenants in common can be a good way for a parent to help a child where there is a number of other siblings. Let’s take a simple example where a widowed mother has two adult daughters. Mum and daughter 1 co-purchase a property as tenants in common, each taking a 50% ownership share. Mum writes a will that states that each of her two daughters receive 50% of her estate. Assuming that mum has no other assets, when she dies each daughter will inherit 25% of the property. So, daughter 1 will now own 75% of property and daughter 2 will own 25%.

It is unlikely that mum would have no other assets, however. So assuming that she does have other assets, then her 50% share of the house simply becomes part of the estate to be shared between her two daughters. Let’s say mum’s share is worth $500,000 and she has another $500,000 of assets. When she dies, it can be a very simple matter for daughter 1 to take full ownership of the property and for daughter 2 to take the other financial assets.

If the value of the property and the value of the other assets are not the same (which is very likely), then the daughters can simply make an adjustment between themselves.

The other way to own a property is as a joint tenant. When two or more people and property as joint tenants, the property is equally owned by all parties. This means that no single party can sell his or her share of the property to another person. Property is owned as joint tenants are also treated differently when one of the owners dies. Basically, their property rights and upon their death and the remaining owners acquire that interest. This is known as survivorship.

The most common way for joint tenants to exist is for a couple to own a home together. When one or the other partner dies, the other partner becomes the sole owner of the property. Where the two owners are from different generations, the same principle applies. Ordinarily, the parent is likely to die first, at which time his or her adult child will become the sole owner of the property.

Joint tenancy can work very well in cases where the adult child would inherit the parent’s wealth anyway. Single child families are an obvious case. However, if there are two or more adult children, a parent might contribute an equal amount to become a joint tenant with each of the adult children as they purchase a home. Upon the parent’s death, each of the adult children becomes the sole owner of the relevant property.

As you can see, coownership of the property has implications for many aspects of financial planning. Estate planning is obviously one of them. But other aspects such as Centrelink planning can also be affected. Therefore, we encourage you to come to talk to us if you would like to know more about how a parent can assist an adult child as a copurchaser of their property.