Mid Mountains Legal Blog

Life Interest vs Right to Reside

Anthony Steel

When you own a property or part of a property in your own name, your Will determines what happens to that property. You may wish to give a loved one such as your partner or spouse (“the beneficiary”) the ability to live in a property, yet ensuring that it ultimately ends up with someone else (e.g. children from a previous relationship). One way to do that is by allowing the beneficiary to reside in a property (i.e. to have a right in the property) by giving them a Right to Reside or a Life Interest.

Right to Reside

A right to reside is where you give the beneficiary the right to live in your property for the period specified in your Will. The right to reside can be for the life of the beneficiary or for a specified time (e.g. 12 months from the date of your death), or until an event happens (e.g. when they remarry or enter into a de facto relationship).

The beneficiary’s entitlement to live in the property is normally subject to conditions such as maintaining the property and paying property expenses. The beneficiary has a right to live in the property but not to any income it generates.

The beneficiary’s right in the property is relinquished once they have ceased residing in it. When their right to reside ends, the property can either be:

  1. sold and the proceeds paid to the “remainder” beneficiaries named in the Will; or
  2. transferred into the names of the beneficiaries.

Some reasons you may want to include a right to reside in your Will include:

  • If your home is in your sole name and you want it to go to your children upon your death, but also want your partner to reside in the property until his/her death; or
  • You have an adult child who you want to have the benefit of residing in the property but not the income from renting it out; or
  • You have a new partner and children from a previous relationship, and you want the property to go to those children and your new partner. However, you want to allow your new partner to live in the property so that they are not forced out.

Life Interest

Leaving your beneficiary a life interest in your property is similar to a right to reside, but it gives the beneficiary more power and rights in relation to the property. The beneficiary (“the life tenant”) retains the interest in the property for life. On their death it reverts to the estate and is paid out in accordance with your Will.

The beneficiary has no entitlement to the capital of the property but is entitled to income generated from the property during their lifetime.

A life interest is a way of giving the beneficiary the right to use the property after you have passed away without them having actual ownership. The life tenant can live in the property or lease it and live off the proceeds. They can also sell the property and either use the sale proceeds to buy and live in a replacement property or invest the sale proceeds and live off the income. The life tenant cannot be forced to move out of the home or sell it against their wishes.

Example of a life interest

Christine and Chris are in relationship. This is the second relationship for both and they each have children from a previous relationship. They buy a property together as tenants-in-common, each holding a half share. They leave each other a life interest in the property in their Will and when that ends their share in the property goes to their own children.

Chris dies first. The life interest he leaves to Christine means that she can stay in the property for the rest of her life. She continues to own her half share in the house and has a life interest in Chris’s half share.

Christine decides the home is too big for her now that she is alone. In conjunction with Chris’s executor, the home is sold and a unit is purchased for Christine to live in. The unit cost less than the sale proceeds from the property. Christine uses her own money to pay half the purchase price of the unit. The other half is owned by the estate with Christine as the life tenant. In accordance with Chris’s Will, the extra money is held in trust and the income is paid to Christine.

When Christine dies, her right in the life interest in Chris’s share in the unit is relinquished. The unit is sold with Chris’s children receiving half of the sale proceeds and Christine’s children receiving her half.

Contact us now if you would like to include a right to reside or life interest in your Will.

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