Life Estate or Right of Residence? Which one is better for your beneficiaries?
Often, a person when making a Will wants to make sure that their surviving partner can continue to live in the family home after their death and preserve their interest in the property so it is ultimately inherited by their children or other beneficiaries. This is a popular choice by a will maker in a blended family with children from a previous marriage or de facto relationship.
The will maker can grant either life interest or a rights of residence in the family home in favour of the surviving partner. Either option is available if the will maker owns the property solely. The right of residence option is available even if the will maker owns only a share of the family home.
A life estate is an entitlement under a Will that gives a beneficiary a right of exclusive use, enjoyment and possession of a property usually for the rest of their life. The life estate gives the beneficiary a proprietary interest in the property which is capable of being registered on its title.
Upon the death of the life tenant the property is inherited by the remainderman, being the person nominated by the will maker to receive the property.
A life estate in a property can be granted without conditions or be made subject to conditions.
A contingent life estate terminates on the death of the life tenant or on the occurrence of a specified event such as re-marriage or bankruptcy of the life tenant. The life tenant has the right to any income generated from the life estate. After the life estate terminates the remainderman can apply to Landgate to be registered as proprietor.
The life tenant is responsible for the upkeep of the property and must pay council and water rates and other outgoings, keep the property insured and maintain and repair the property.
Issues can arise if the life tenant wants to sell the property or if they cannot afford to maintain the property.
Therefore, life estates are not suitable for all families.
Right of Residence
A right of residence under a Will is the grant of a personal right to a beneficiary to live in a property:
for specified number of years
for the rest of their life
until they remarry or enter a de facto relationship
until they reach a specified age or
for as long as they are caring for certain specified people such as your children.
The beneficiary receives a licence to live in the property on the terms specified in the Will.
The right of residence may be abandoned and the beneficiary may lose their right if they do not take it up.
Unlike a life estate, a right of residence gives no proprietary interest in the property to the beneficiary.
A right of residence is not registerable on title. A beneficiary of a right of residence cannot profit from the property such as by renting out the property.
The will maker can specify that the beneficiary granted the right of residence must pay council rates, water rates, insurance premiums, strata levies and maintenance and repair costs. Alternatively, the will maker may leave a fund to be held by the executor to cover such expenses for as long as the person lives in the property.
A right of residence can include an arrangement under which the property can be sold and a new smaller property can be purchased in its place if the beneficiary wants to downsize.
Usually, the Will states that when the beneficiary with the right to live in the property dies or ceases to live in the property, in other words a terminating event occurs, the property reverts back to the estate and is to be gifted to a specified beneficiary or must be sold and the proceeds of sale distributed among several beneficiaries.
This option can create difficulties where there is a strained relationship between the surviving partner, the executor and the residuary beneficiaries as it will require the parties to maintain contact following the will maker’s death.
Both, a life estate and a right of residence can be challenged by an unhappy partner who believes they have not been provided adequately under the Will.
Therefore, it is important to seek legal advice to make sure you have considered alternative methods of providing for the surviving partner and that your decision is the right for your beneficiaries.