It is typical for parents to have Wills drafted leaving their assets to their children in equal shares following their passing.
It is often the case that these children agree to change the terms of their parent’s Will so that one sibling receives a particular asset in its entirely and pays the other sibling an agreed sum of money to do so. An increasingly common scenario is when one sibling wishes to purchase from another his or her share of a house that was gifted to them equally in a parent’s will.
In circumstances where there are not enough funds in the estate to allow one sibling to receive the house and the other sibling the equivalent value in cash (and assuming the power to change the distribution of assets in this way is given to the Executor named in the Will), a Deed of Family Arrangement (‘DOFA’) should be entered into.
What is a Deed of Family Arrangement?
A DOFA is a legal document that alters the distribution in a Will. In the above scenario, the DOFA would be signed by the Executor and both siblings and act to formalise the agreement to the altered distribution of the estate assets.
How does a Deed of Family Arrangement work?
It is crucial that all parties entering into a DOFA are aged 18 or over and have legal capacity. A properly drafted DOFA should be prepared by a solicitor for the parties to sign once they have all obtained legal advice as to the consequences to them of signing the DOFA.
What details should a Deed of Family Arrangement contain?
- The parties to the agreement (in this case, the executor and both siblings)
- The property being purchased by one sibling
- The agreed price the purchasing sibling will pay the other sibling and when that amount will be paid
- Who is responsible for the payment of legal and other transfer fees, duties and taxes. For example, will these expenses come from the estate or be paid by one or both of the siblings?
Once signed, the property transfer takes place and the DOFA is usually stamped by RevenueSA before any payable Stamp Duty is paid.
What to consider before entering into a Deed of Family Arrangement
Anyone considering entering into a DOFA should obtain legal advice in a timely manner as to their rights under the estate and how those rights will be altered once the DOFA is entered into. Failure to do so could result in unexpected capital gains tax and stamp duty consequences.