When you own a property or part of a property in your own name, your Will controls what happens to that property. We often see clients wishing to provide a loved one (usually a spouse) with the ability to live in that house, and yet still ensuring that the house ultimately ends up with someone else (usually children from a previous relationship). This can be achieved by allowing them to reside in one of your properties. This is what we would refer to as a right in the property and there are two main types- Rights to Reside or a Life Interest?
Right to Reside
A right to reside is where you give your loved one (beneficiary) the right to live in your property as specified in the Will. The period for which they can reside in the property can be determined by you. In most instances, the right to reside can be for the life of the beneficiary although it can also be for a specified time, for example 12 months from the date of your death. It can also be until a certain event happens, for example until they remarry or enter into a de facto relationship with another person.
The beneficiary's entitlement to live in the property is normally subject to certain conditions such as maintaining the property and paying property expenses. The beneficiary does not have a right to any income generated by the property, they only have a right to live in the property. Once they have ceased residing in the property their right in it is relinquished.
Upon the right to reside ending, the property can then either be sold and the proceeds paid the remainder beneficiaries as per the Will or alternatively, the property itself can be transferred into the names of the beneficiaries.
Some reasons you might want to include a right to reside in your Will include:
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- If the home is solely in your name and you want your property to go to your children upon your death, but at the same time want to allow your partner to reside in the property until his/her death.
- You have a new partner and children from a previous relationship, and you want your house to go to your children from the previous relationship and your new partner. However, you want to allow for your new partner to live in it so that they are not forced out.
- You have an adult child or another person who you would like to allow to reside in your house. To have the benefit of residing in the property but not have the benefits of renting it out and its incomes.
Life Interest
Leaving your beneficiary a life interest in your property is a little similar to a right to reside, however, it provides he beneficiary with more power and rights in relation to the property. The interest in the property remains with the beneficiary for their life, upon their death it reverts to the estate and is paid out according to the deceased's Will.
Unlike a right to reside, the beneficiary, also known as the life tenant, is entitled to the income generated from the property for their lifetime but have no entitlement to the capital of the property.
A life interest is a way of giving your loved one the right to use the property after you have passed away without giving them actual ownership of the property. The life tenant can live in the property or lease the property and live off the proceeds. They also have the option to sell the property and a buy a new one and live in that one or invest the proceeds of the sale and live off the income. The life tenant cannot be forced to move out of the home or sell it against their wishes.
An example of a life interest -
Ariel and Eric are in relationship, this is the second relationship for each of them and they each have children from their previous relationships. Ariel and Eric decide to buy a property together as tenants-in-common, with each party holding 50%. They both leave each other a life interest in the property in their Will and when their life interest ends their respective shares in the property are to go to their own children.
Eric dies first, the life interest left to Ariel in his Will means that she is now free to stay in the property for the rest of her life. This means she owns her 50% share in the house and has a life interest in Eric's 50%.
Ariel decides the home is simply too big for her now that she is alone. In conjunction with Eric's executor, the home is sold and a new unit is purchased. Ariel purchased 50% of this with her own money, and the other 50% is owned by the estate with Ariel as the life tenant. The unit cost less than the home, so there is extra money. In accordance with Eric's Will, this money is held in trust and the income is paid to Ariel.
Ariel then dies, which relinquishes her right in the life interest in Eric's share in the property. The house is then sold and Eric's children get half of the sale proceeds and Ariel's children get her half.
If you would like more information about right to resides and life interests or are looking at including one in your Will, get in touch with our friendly team and they will be able to help you out.