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‘Life Estate’ or ‘Right of Residence’

Willmakers have many options available to them on how they wish to divide the assets of their estate when they pass. If a willmaker owns real property (a house or unit), they may need to make arrangements to allow a spouse or other person to remain in the property until that other person passes away. The other person gets the right to live in the property until they die.

This situation is becoming increasingly more common when a willmaker has remarried and has children from their previous marriage or relationship. The willmaker wants to ensure that their current spouse has somewhere to live but also wants to ensure that their children get the property once their spouse has passed away.

There are broadly two types of ‘interests’ which a willmaker can leave through their Will. Though each option is similar, there are some key differences which a willmaker should be aware of due to the benefits and implications of each. If the terms of the Will are unclear and the type of interest left unclear, disputes may arise after the death of the willmaker, which can lead to a costly will dispute or challenge to a will.

Life Estate

A Life Estate gives the owners of the Life Estate, the ‘life tenant’, ownership of the property for the duration of the person’s life. The life tenant has a right to possession and enjoyment of the assets, including any income derived from the asset for their life.

Once the life tenant dies, the property is distributed to other beneficiaries listed in the Will, known as the ‘remaindermen’. The life tenant can lease the property during their life, however, he or she may need Court approval in some circumstances, and must protect the interests of the remaindermen and cannot diminish the value of the property. Also, the lift tenant is not obligated to repair the property unless the obligation is mentioned explicitly in the Will.

Right of Residence

A Right of Residence gives the beneficiary a personal right to reside in the property. The beneficiary does not have an ownership interest in the property, and their rights are more similar to a leasehold interest in comparison with a Life Estate. The holder of the right of residence cannot rent the property or receive income from the property.

Considerations

Consideration should be given before including a Life Estate or Right of Residence in your Will. Careful attention must be given to how the gift is drafted in the Will to ensure that the willmakers intentions are accurately covered in the Will. Many will disputes arise when the inclusion of a Life Estate or Right of Residence is included in a Will, but it is unclear about who must maintain & repair the property, who will pay the rates and what happens if the outgoings for the property are not paid.

Further consideration needs to be given to what will happen if the Life Tenant or holder of the Right of Residence requires alternative accommodation, for example, needs to move into an aged care facility, and whether there are fund available to secure the alternative accommodation.

If you are considering including a Life Estate or Right of Residence in your Will or need advice on interpreting a life interest in a Will, get in contact with our experienced estate planning lawyers now.

For more information on Wills & Estate Planning, see our page Wills & Estate Planning.

Stephen is the founder and principal of Stephen Wawn & Associates. Stephen has been providing advice and representation to clients in diverse areas of law for over 40 years.

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DISCLAIMER

No part of these notes can be regarded as legal advice. Although all care has been taken in preparing all notes, readers must not alter their position or refrain from doing so in reliance on any of these notes. Stephen Wawn & Associates do not accept or undertake any duty of care to readers relating to any of these notes. All inquiries should be directed to Stephen Wawn & Associates.

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