Life interests are popular now that second marriages and de-facto relationships are commonplace in society.
Life interests enable you to provide for someone by giving them the ability to use your property after your death. A life interest provides many of the benefits of property ownership, such as the ability to live in the property and to generate income from it, without full legal ownership.
These arrangements are useful where you want to take care of someone after your death, but wish that your property ultimately be left to another person, such as a child from a first marriage.
How life interests work
A life interest is created as a term in your will. It creates a trust where your executors retain legal control of your asset whilst the asset can be used by a beneficiary of the estate during their life. A common asset used for a life interest is the family home.
A life interest granted in the family home gives the beneficiary (known as the life tenant) the ability to live in the home for the duration of their life. However, a life interest is much more than just the right to live in the house.
A life interest can provide significant terms, such as the life tenant may request that the property be sold to purchase another property. Alternatively, if the life tenant needs to move into aged care, they can request that the property be sold to fund a refundable accommodation deposit. As such, a life interest can be a particularly flexible interest and is adaptable to the complexities of family life.
When the life tenant dies, the life interest ceases and the subject property can be distributed as per the will-maker’s wishes, usually passing to their children. Whilst the life interest is active, two trustees must be appointed to oversee the life interest and ensure that that the subject property is managed appropriately.
How is a life interest different to a right to reside?
A life interest is substantially different to a right to reside, which only enables a person to live in the property. They cannot request the sale of the property, rent the property or use it for any other purpose.
In practice, rights to reside are appropriate when the will-maker wants to give somebody accommodation but only for a specified time, such as a certain number of years. A right to reside ceases when the person can no longer live in the property, or when the term specified in the will ends.
Whether a life interest is a right to reside or a life interest is often the subject of legal disputes within families. It is therefore essential that an experienced solicitor clearly drafts the relevant clause in the will so that your wishes are correctly reflected.
The making of a will is about balancing the needs of those you wish to provide for. This is why if you are making a will, it is important that you speak to an experienced solicitor. An experienced solicitor will be able to give you the best advice about how to provide for your loved ones in a manner that will achieve your objectives, whilst minimising the likelihood of disputes.
If you wish to make a will or update your current will please contact Phillips and Wilkins today..
Grant has been a partner at Phillips & Wilkins since 1990 having joined the firm in 1983. He is a member of the Law Institute of Victoria Elder Law Committee. Learn more about Grant's legal experience.