Why people with investment properties need a will

Investment properties are different

Unlike your family home (which is usually CGT-free), investment properties come with significant tax implications when you die:

• No CGT exemption or “death uplift” for beneficiaries
• Your cost base passes to your heirs
• All capital gains since you bought accumulate
• When they sell, they pay CGT on the full gain

Ownership structure matters

How you own your investment properties affects what happens when you die:

Joint tenants:

• Property passes automatically to the surviving owner
• Bypasses your will
• Surviving owner’s cost base stays the same
• No immediate CGT event

Tenants in common:

• Your share goes through your will
• You choose who inherits
• Beneficiary inherits your cost base for your share
• May need to work with remaining co-owners

Company or trust:

• Different rules apply
• Asset doesn’t pass through your will
• Need succession planning for directors/trustees

Multiple properties, multiple decisions

If you have several investment properties, consider:

• Do all beneficiaries get equal shares of all properties?
• Do specific properties go to specific people?
• Should any be sold and proceeds distributed instead?
• Who manages them during estate administration?
• Do any beneficiaries want to keep them?

Rental income during administration

When you die, your investment properties still generate rent (and expenses). Your will should consider:

• Who receives the rental income during administration?
• Who pays the expenses (rates, insurance, maintenance)?
• How long might administration take?
• Should properties be sold quickly or held?

Your executor needs clear direction — and possibly access to funds to cover costs.

Tenants and leases

Existing leases continue when you die:

• Tenants have rights that don’t end
• Leases must be honoured
• Bond money must be properly handled
• Property management arrangements continue

Your executor steps into your shoes as landlord.

Mortgages and debt

If your investment properties have mortgages:

• Who keeps making repayments during administration?
• Does insurance cover the debt if you die?
• Will beneficiaries need to refinance in their names?
• Can they afford to keep properties with existing loans?
• Should properties be sold to clear debt?

Your estate plan should ensure your family isn’t trapped with debt they can’t service.

Tax planning strategies

Several strategies can help manage the tax burden:

Leave properties to spouse:

• They inherit at your cost base
• But CGT is deferred until they sell
• May be appropriate depending on their age and plans

Use testamentary trusts:

• Properties can be held in trust
• Rental income distributed tax-effectively
• Multiple beneficiaries can share income
• Flexibility for future decisions

Consider selling before death:

• You control timing and pay CGT
• Beneficiaries receive cash (no CGT for them)
• May be worthwhile if you have capital losses to offset
• Simpler for beneficiaries to manage

Beneficiary considerations

Different beneficiaries have different tax situations:

• Adult children pay CGT at their marginal rate
• Spouse defers CGT until sale
• Trusts have special tax treatment
• Some beneficiaries may want property; others prefer cash

Your will can provide for different outcomes.

What to do now

1. List all investment properties and their ownership structures
2. Understand your cost base for each (purchase price plus improvements and costs)
3. Estimate potential CGT for beneficiaries
4. Review how each property is financed
5. Consider whether structures should change
6. Decide which properties go to whom (or whether to sell)
7. Update your will to reflect these decisions
8. Get professional tax and estate advice

Related: What Your Will Doesn’t Cover · Why new homeowners need a will