December 2017

Does the distribution of assets under Deceased estates and Land Titles always match? Where inaccuracy can cost you

Care must be taken when relying upon land titles ownership when seeking to undertake action on a property that has been the subject of a deceased estate. A veritable nightmare of financial and administrative problems may be encountered through outdated titles.

Property titles are, in theory, supposed to reflect the current legal owner of the property. This is not necessarily the case in practice. It sometimes happens that, for a variety of reasons, land title documents are outdated and note owners that have died many decades ago.

For anyone wanting to acquire property, outdated title documents are problematic, often requiring the need to engage genealogical professionals to locate the next of kin of the land owner. Once located, the next of kin may have to make a Court application to empower them to deal with the property in question – all of which can be a lengthy and costly exercise.

The historical development of land title in NSW

The Torrens title system, introduced in the late 1850’s was revolutionary for its time, creating a system of land registration that was simple, reliable and accurate. Fast forward 160 years and we are still using the same system. Some would say it is a testament to the system itself that it actually works. This is not to say the Torrens system is perfect. Like most systems, it has its flaws.

Reliance on individuals to update land title documents

One of the major pitfalls of the system is its reliance on the human element to ensure the system is up to date - and the human element can sometimes let down the system.

For example, the property owners or acquirers of an interest in property need to follow the relevant procedure for updating title to ensure the Torrens title system is accurate.

Where a property owner dies with a will, it is the executor’s responsibility to identify and distribute the property in accordance with the will. The will document itself may identify the property that forms part of the deceased’s estate.

If it doesn’t, sometimes the relationship between the executor and deceased is such that the executor is fully aware of the deceased’s financial circumstances, including his/her ownership of property.

Where this is not the case, if a solicitor was involved in the will drafting process, the solicitor can sometimes assist with the identification of property that forms part of the estate.

Difficulties can arise where the will does not specify property that forms part of the deceased’s estate and the executor is unfamiliar with the deceased person’s circumstances. Whilst this problem can easily be rectified by carrying out a name search, there are many instances where this does not occur, despite the executor’s duty to identify and fully distribute the estate.

In circumstances where property is held in joint-tenancy at the date of death, the lodgement of a notice of death, albeit a simple process, does not always happen until after the death of the remaining joint tenant. This creates a further hurdle for the executor of the surviving joint tenant who needs to carry out the surviving joint-tenant’s application as well as that of the survivor’s estate.

Where a land owner dies intestate, that is, without a will or without a valid will, the statutory next of kin are responsible for the distribution of the estate in accordance with the relevant intestacy laws. Part 4 of the Succession Act 2006 (NSW) determines the priority for the statutory next of kin.

In situations of intestacy, particularly where the deceased died without a spouse or children, the first major hurdle can be to find the relevant next of kin. This, in itself, can prove to be a difficult task, sometimes requiring the involvement of a genealogist.

In circumstances where the next of kin is an indirect descendant of the deceased, there is an increased risk that the next of kin will fail to identify the deceased’s property.

Clearly, the Torrens Title system relies on the human element - executors, administrators or entities - to ensure that the system is accurate. As illustrated above, this reliance on human beings is problematic, and may cause an unnecessary financial burden.

Implications of outdated title documents

Generally speaking, issues with land title often arise when there is a problem of some sort associated with the property or land in question. The problem may be a neighbourhood dispute arising out of illegal dumping on a parcel of land that appears to be government owned or ownerless. It could also be where council rates are substantially in arrears.

By this stage, a considerable amount of time may have passed and the legal title owner is no longer alive, having died a number of years ago, and title to the land in question is outdated and inaccurate.

What is then required is to find the person legally entitled to deal with the property on behalf of the deceased’s estate. Where many decades have passed, this could require tracing the deceased’s lineage in order to find the person legally entitled to deal with the estate and, thus, the estate property.

Genealogists can be helpful in pursuing this information, but the cost of a genealogist can be significant the more outdated the title documents.

In addition to costs, this information may require a substantial amount of time, particularly where searches may lead to the pursuit of information overseas and review of documentation that requires translation. Many months may go by and thousands of dollars spent before confirmation is received of the identity of the next of kin, or the fact that one cannot be found or no longer exists.

If a next of kin is found, they are required to make an application to the Supreme Court of New South Wales as administrator of the estate, so that they may deal with the property.

Creditors of an estate may apply to the Supreme Court to be the estate’s administrator in the following circumstances:

  • where a next of kin is not found;

  • where an executor or next of kin refuses to make the application; and

  • a search for an executor, administrator or next of kin has been unsuccessful.

To obtain the grant, a creditor must undergo further procedural burden, including:

  • Where a will exists, to file and serve a notice on the appointed executor or, if there is no executor, on the beneficiaries under the will, to make the application; or

  • Where there is no known will, or the creditor is unsure as to the existence of a will, the creditor is to file and serve notice on the next of kin entitled as administrator to apply for the grant; and

  • File evidence supporting the debt owed, details of the notices served by the creditor and the steps taken by the creditor to comply with the prerequisites for the application.

Where notice has been served on any of those identified above, their failure to comply with the notice must occur before the application is made by the creditor.

By this point in time, the creditor has invested time and incurred significant costs.

The hurdles a creditor must undergo to obtain the grant, makes it clear the legislature perceives the rights of creditors to obtain grants as significantly inferior to next of kin or beneficiaries.

Once the grant is obtained by the creditor, in order to be paid, the creditor will be required to undertake the sale of the property – normally by way of public auction. Again, this is an expense initially borne by the creditor which may, depending on the circumstances, be reimbursed from the sale proceeds.

In Summary - no easy way out

The need to undertake lengthy and expensive genealogical searches and administration applications by creditors of an estate means they essentially have to spend money in order to be paid the money owing to them.

It seems the administrative and financial nightmare that is created through outdated titles cannot be avoided if people are not aware of the procedures or fail to take legal advice about what needs to be done to property titles following a property owner’s death.

Authors: Danielle Verde and Gerard Basha