NSW Supreme Court clears up inheritance concerns over property

NSW-Supreme-Court/legislation/regulation/estate-planning/

7 July 2017
| By Hope William-Smith |
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‘Your debts don’t die with you’ is the reminder being touted after an estate case in the Supreme Court of New South Wales saw a beneficiary deemed liable for a mortgage on a gifted property, despite a specific intention for outstanding debt to be settled from the residual state of the benefactor, according to Townsends Business & Corporate Lawyers.

The firm said that the case of Winn v Harding [NSW] demonstrated an extra layer of complexity for beneficiaries in the estates process that meant encumbered properties remained a financial risk if a residual estate did not have adequate funds to pay out a mortgage.

The question of whether gifted property or the rest of the estate were liable to bear outstanding mortgage debt arose in the case of Winn v Harding [NSW], after the residual estate of Karen Winn did not have sufficient funds to pay out Bankwest for the repayments on a mortgage for a property gifted to executor Maureen Harding.

“As it turned out, Karen’s residual estate at her death did not hold enough funds to cover the payment of the remaining mortgage debt,” the law firm said.

“In light of this, the courts decided that the property was liable for payment of the remaining mortgage debt, essentially reverting back to the default position.”

Harding inherited the house in Bathurst from Winn, after which the concern was raised over whether the property itself was liable for repayments.

“The effect of this section is that money from the general pool of assets contained within someone’s estate will not automatically assist to pay out a mortgaged property upon their death,” the law firm said.

“This notion is based on an old English legal principal and is mirrored in almost all Australian states.

“Accordingly, Maureen may not have inherited the property itself, unless she was in a financial position to help pay out the remainder of the mortgage to Bankwest.”

Townsends Business & Corporate Lawyers said gifted properties could present this catch and that in planning an estate, it needed to be remembered that debt outlives its maker and the responsibility would always fall first on the residual estate.

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