A life interest in property is a common estate-planning tool in Victoria, especially for families who want to balance care, fairness and long-term security. It can help protect a partner’s home while still ensuring children inherit it later. It can also prevent disputes and give family members clarity about who can live in the property after death.
For many families across Australia, life interests provide peace of mind. They allow someone you care about to stay housed and supported, while preserving your ultimate wishes for the property.
It is important that before granting a life interest in a property that you properly consider the long term impact of such an arrangement as if many years time a life interest may no longer be appropriate or fair for your loved ones and family.
What Is A Life Interest?
A life interest (sometimes called a life estate) is a legal arrangement that allows someone to use and benefit from a property after your death, without giving them full ownership. It is usually created through a will.
A person with a life interest (the life tenant) may have the right to:
- live in the property
- receive income from it (for example, rent), depending on the terms of the will
- use it for as long as the will allows (most commonly, for life);
- sell the property and purchase another property on the same arrangement
- sell the property and invest the capital, receiving income from the investment
They do not own the property outright and cannot sell or transfer it. When the life interest ends, the property passes to the person or people you have nominated. These beneficiaries are sometimes called the remainder beneficiaries.
Life interests are common in blended family estate planning. They allow you to support a partner or dependent while ensuring your children eventually receive the property.
When should you include a Life Interest In your will?
A life interest can be helpful in several situations:
Second marriages and blended families
You may want your spouse or de-facto partner to continue living in the family home, but want the property to pass to your children from a previous relationship once your partner dies.
Supporting an elderly partner or dependent adult
If a partner or adult child relies on stable housing, a life interest can provide security while still allowing your estate to pass to others later.
Preventing disputes between adult children
A life interest can clarify who may occupy the property, who benefits from rent, and who will eventually inherit it – reducing the likelihood of disagreements.
Here’s an example…
Maria wants her husband, Paul, to stay in their Thornbury home after she dies. However, she wants her two adult children from an earlier marriage to ultimately inherit the property. A life interest allows Paul to live there for life, before the home transfers to the children. This also protects Maria’s children if Paul decides to remarry.
How Life Interests Work In Victoria
In Victoria, a life interest created by a will typically operates through a trust structure. The legal title to the property is held by the trustees (often the executors), while the life tenant holds the beneficial right to use or occupy the property.
This structure helps ensure the property is managed consistently with the terms of the will.
Trusts, life tenancies and the Settled Land Act
Historically, the Settled Land Act 1958 (Vic) governed life interests involving real estate. While modern wills tend to rely more on trust law and specific drafting, the Act can still apply in some circumstances.
A few points to note:
- The trustees usually hold legal ownership.
- The life tenant receives the right to occupy or receive income.
- The will sets out the rules for how the property must be managed.
A life interest lawyer will be able to guide you through the rules and requirements so that your wishes are protected.
This structure helps ensure the property is managed consistently with the terms of the will.
Typical rights and responsibilities of a life tenant
A life tenant in Victoria:
- May live in the property for life (or another period set out in the will)
- May be entitled to rental income if permitted by the will
- Must keep the property in reasonable repair
Must pay day-to-day expenses such as rates, utilities and home insurance - Cannot sell or mortgage the property
When the life interest ends, the trustees transfer the property to the remainder beneficiaries.
Will I Pay Tax Or Stamp Duty On A Life Interest?
In most cases, a life interest created under a will does not attract stamp duty, particularly when the life interest is left to:
- a spouse or domestic partner
- a child or immediate family member
Capital Gains Tax (CGT)
CGT may be relevant when the property is eventually sold by the remainder beneficiaries. Whether a main residence exemption applies can depend on how the life tenant used the property.
Land Tax
Land tax may apply if the property is not the life tenant’s principal place of residence or if the property is rented out.
Life Interest And Aged Care Asset Testing
A life interest may be taken into account when assessing aged care fees and means testing. Planning early can help families understand the implications.
Who’s Involved And What Are Their Responsibilities?
A well-drafted life interest clearly outlines the responsibilities of all parties.
- The life tenant
Has the right to occupy or benefit from the property - Must pay rates, utilities and day-to-day costs
- Must maintain the property in good repair
- May need permission from trustees to rent out the home (depending on the will)
The trustees (often the executors)
- Hold legal title to the property
- Ensure the will’s terms are followed
- Approve property-related decisions that the will does not expressly permit
- Ensure the remaining beneficiaries’ interests are protected
The remaining beneficiaries
- Do not control the property while the life interest exists
- Inherit the property once the life interest ends
- May need reassurance that the property is being maintained appropriately
When expectations are set out clearly in the will, everyone understands their role. It also makes estate administration smoother for executors and family members. For more information about this process, see our page on probate and deceased estates
Right To Reside Vs Life Interest
These terms are often confused, but they offer different levels of protection.
Life Interest
- Can allow the life tenant to live in the property
- May allow them to receive rental income
- Often includes broader rights to benefit from the property
- Typically lasts for life unless another period is specified
Right to reside
- Only permits the person to live in the property
- Does not usually allow rental income
- May be subject to conditions (such as vacating if they move into aged care)
- Can be time-limited rather than lifelong
The Victorian State Revenue Office provides a clear explanation of these differences in its ruling on rights to reside, life tenancies and life interests. The SRO notes this information is general and not a substitute for legal advice.
A wills and probate lawyer will be able to help you understand which option suits your situation. Even subtle differences can change how the property is managed, who is responsible for costs, and how the estate is administered.
