Hypotheticals by Manny Wood. Published in the Coffs Coast Advocate on 3 September 2016.
Estate Planning: Life interests as a solution
Jack marries his second wife, Jill in the 1990’s. Jack makes a will leaving his estate to Jill and the four children to his previous wife, in equal shares.
When Jack unexpectedly passes away 20 years later, Jill realizes that he had not updated his will.
Jack leaves a modest estate which consists primarily of the house in which he and Jill had resided for many years.
Jill is concerned that the house will now be sold and that her 20% share of the proceeds will not give her the ability to comfortably relocate.
Jill seeks legal advice and ultimately negotiates a settlement with Jack’s Executor, whereby she receives a “life interest” in the house.
If Jack had updated his will and included provision for Jill of this nature, the stress and legal fees incurred by all concerned, could have been avoided.
What is a life interest?
Under a will, a property can be held by a Trustee, normally your Executor, subject to a right for a beneficiary to reside in the property for their lifetime. At the end of the life interest, the “remaindermen”, often residuary beneficiaries, can register the property in their sole names and sell the property if they wish.
The “life tenant” will normally have a duty to insure the property, pay the rates and outgoings and keep the property in reasonable repair.
Some wills create flexible life interests which give the life tenant the ability to rent the property out and derive an income and can also grant the right to the tenant to purchase another property in substitution. This is important if the tenant wishes to relocate or downsize.
It is also important to consider whether a life tenant may need to fund a position in a nursing home or retirement village and whether the flexible life interest can also cater for these circumstances. Proper estate planning can address these issues.
