My mother died a few years ago and my dad has remained in their home. They have owned it since the early 1980s, so it is pre-capital gains tax. Earlier this year, my dad's partner moved into the home. We have suggested he sell the house (it is large and in disrepair) and buy a new place with his partner, but he wishes to stay in the former family home. My dad later told us his intention is for my sister and me to inherit the house, with his partner having the right to stay there for up to three years after his death. The house is in a desirable area and land value alone is around $2 million. My sister and I would most likely sell it after his death, although I have not seen his will, so I do not know the exact terms of the arrangement. What tax implications would his arrangement have on us? Since we are both his beneficiaries, I understand there is no CGT payable by us as we would acquire the house on the date of his death. However, would there be tax or other cost implications if his partner continues to live in the house for the full three years and we sell after this time? E.M.
The situation could become complex unless you take steps to make sure everybody involved understands what is happening.
![Don't make decisions for your elderly parents for your own benefit.](/web/20160930124624im_/http://www.theage.com.au/content/dam/images/g/r/0/p/h/2/image.related.articleLeadwide.620x349.gr0p67.png/1472088451316.jpg)
In simple terms, the will could create a "right of residence", and this sounds like what your father has in mind. In effect, it is a form of trust and you two will be trustees and "remaindermen" in legal jargon. Legally you will inherit a post-85 property with an asset value as at the date of death, but as long as the partner lives in the house under the terms of the will, you may be able to disregard any capital gain or loss. See ATO Tax Ruling 2006/14 on the ATO's website.
If poorly worded, the will might simply create a "right of occupancy", which would allow occupancy of a room or a part of the house.
Most such wills create either an "equitable life estate" (with ownership resting with the "remaindermen" and the partner given a lifelong residence) or a "legal life estate", in which ownership is legally registered in the standard manner in the name of the partner, with the asset passing to the beneficiaries when the life estate ends. But it doesn't sound as though this is what your father intends.
I think you should ask your father what he expects his partner to be able to do after three years, then ask him to seek legal advice and clarify the matter for all four of you.
I invested $50,000 into Investa Diversified Office Fund in September 2007. It later became Australian Unity Office Property Fund and has recently listed on the stock exchange. At the time, I bought 35,250 units at $1.4184 but after the listing I hold 14,682 units. The fund statement advises that the IPO conversion balance at June 22, 2016 was $28,706.25. It surprises me that any property fund could lose so much value in the Australian property market since 2007. Do investors need to be warned about unlisted property funds? J.M.
I'm not sure I know the answer in this specific case. I know that property funds generally took massive hits in the aftermath of the global financial crisis and the recovery in the sector has been abysmal. The ASX 200 Property Index (officially the S&P;/ASX 200 A-REIT Index i.e. Australian Real Estate Investment Trusts) is still some 42 per cent below its 2007 peak.
The latest price of the fund (ASX code AOF) at the time of writing was $2.18 a unit, valuing your holding at $32,006, some 36 per cent below your initial investment, so you are marginally ahead of the pack.
I must admit, the events of the past 20 years, since the 1990s, has destroyed my faith in unlisted property trusts and mortgage trusts, both of which previously offered above-average incomes but have since lost enormous amounts of capital. I am even hesitant with listed property trusts, preferring to look at managed funds whose professional managers will presumably pick the eyes out of that sector. Even then, I restrict such investment suggestions to only a small portion of a portfolio.
We have done our time in the 'burbs and want to move closer to the city. We have seen a property we like and an offer of $1.05 million would be acceptable. Our house is valued at $600,000 to $650,000. We would take out a reverse mortgage on Dad's property (valued at $650,000 by the bank and $800,000 by agents) so we would have a $400,000 mortgage (plus the $260,000 from Dad's place) with repayments of about $550 a week. Dad is good at 94 but not ready to live with us. He could do so in the future as there would be room in the new house. He will not go into care. I will look after him in my home if he gets sick, as I did my mother. He is a full pensioner and has top-level private health cover. We would pay the loans out on his death. Or, is it possible for dad to sell his home, combine funds with us and put the new one in his name which, on his death, I would inherit? My fear is that homes close to the city will get more out of reach as they appreciate in value more quickly than they do here and that I will get too old to want to move. We have about $330,000 in super now, are aged 53 and 54 and will be working for another 10 years. D.S.
It seems to me you are planning your father's finances, for your benefit, when he doesn't particularly want or need to move. It's his house and not yet yours, so my advice would be to let him be.
If you have a question for George Cochrane, send it to Sunday Money, PO Box 3001, Tamarama, NSW, 2026. All questions answered. Helplines: Financial Ombudsman, 1300 780 808; Centrelink pensions, 13 23 00.