Nicholas Kyriakoudes
In some cases, you may wish to leave someone a right to live in your property after you die, but you want to gift the legal ownership of the property to someone else. This right can be given by either a life estate or a right of residence.
Life estates
A standard life estate allows a person to live in your property for the duration of their life. Once that person dies, the property is gifted to other people. For example, you may wish to allow your spouse to live in your property after your death for the remainder of their lifetime. However, once your spouse dies, you want to gift your property to your children. In this scenario, your spouse is the beneficiary of the life estate and your children are the residual beneficiaries of the property, but your children only receive their benefit of the property after your spouse dies.
The essence of a life estate is that the beneficiary of the life estate is allowed to live in the subject property without interference even though the property is technically owned by someone else (for example, your children). The residual beneficiaries of the property can only receive full ownership and control of the property when the person granted the life estate dies.
A life estate may also be “pur autre vie” – that is where you give one person the right to live in your property for the duration of another person’s life. For example, you may give your sibling a life estate to live in your property to provide care for your elderly parent for the duration of your parent’s life, but after your parent dies, the property is to be transferred to your nieces and nephews.
A life estate is registrable on the Title of the subject property to ensure the interest is known and the property cannot be sold without the life tenant’s knowledge and consent.
A life estate may be transferrable, meaning the beneficiary of the life estates does not necessarily have to occupy the property for the duration of their life. The beneficiary may choose to rent out or otherwise use the property for their personal profit. For example, you may choose to leave your spouse a transferrable life estate for the duration of their life, but you wish for the property to be gifted to your children upon the death of your spouse. In this scenario, your spouse may choose to live with their children and rent out your home pocketing the rental proceeds. Your residual beneficiaries cannot benefit from the home until your spouse dies.
Additionally, a testator may leave directions in their will which allow for their executor to sell the residence subject to the life estate and purchase (with the sale proceeds) another property which is subject to the same conditions of the life estate stipulated in the will. This has the advantage of allowing the beneficiary of the life estate to exercise their rights under the will in any other property for example if they wish to downsize or need to move into a care facility and pay an accommodation bond.
Right of residence
A right of residence is a right of occupation of a particular property for a specified duration. The period of occupation of the property can be set by the testator, for example for five (5) years or twenty (20) years, rather than being determined by the life of a person which may be longer or shorter than anticipated.
A right of residence is most commonly used where a testator only wants a beneficiary to reside in their property for a set period of time or if the testator wishes for the right to end in particular circumstances – such as if the beneficiary should enter into a de facto relationship, gets married or vacates the property for a continuous period of time. A right of residence would be appropriate if you want to ensure that the property is solely used for occupation and not some other purpose by the beneficiary. As a right of residence is a personal right, it may be abandoned, and the beneficiary may lose their right where they do not take it up.
The terms of the right of residence should state who is responsible for the outgoings associated with the property, for example, the person who is left a right of residence or the estate.
A right of residence is not registerable on title. A beneficiary of a right of residence cannot profit from the premises such as by renting the property. In this way a right of residence is akin to a right of occupation to live in the specific property.
Construction in wills
Whether a life estate or a right of residence has been conferred by a will is a question of construction and testamentary intentions. If a dispute arises, the court will look at the “words of gift”. The court looks at the individual facts of each case and will read the will as a whole to determine whether a life estate or a right of residence exists.
Given the implications that arise from whether a life estate or right of residence has been given by a testator, including those related to the duration of the right, whether the beneficiary can profit off the property, tax implications such as capital gains, who pays for outgoings, and whether a legal or an equitable life estate should be created, a carefully drafted will should be executed. (To read more about why professionally drafted wills are important see https://hansonslawyers.com.au/the-dangers-of-self-made-wills/ ).
Please call our office or email us if you would like advice in relation to life estates and rights of residence, their uses and advantages, and whether conferring one under your will is appropriate.
If you require to review your will or make a new will please contact us on 42 222 666 or by email at hansons@hansonslawyers.com.au