Helping protect your family in the future is an important reason for creating your will. You probably want to look after loved ones in different ways and continue to provide for them long after you’re gone.
First up, you’ll probably think about who will inherit your assets. But you can also set up your will in a slightly different way which provides your family use of the asset, for example the family home. This is called giving a “life interest”. For many, it’s a great way to structure a will.
Gary is a good example of this. Gary wants his wife Ellie to continue living in the home for the rest of her life after he dies. But ultimately, he wants his children from a previous relationship to inherit the property. By giving Ellie a life interest in his will, he can look after her, and know she will still have a house to live in. Gary also feels good that he’s still providing for his kids, who will get the home after Ellie dies.
What is a life interest?
A life interest is when you give someone named in your will the right to use and/or generate income from something for a set period. The most common example we see of a life interest is in property, for example, letting someone remain living in the family home.
A life interest usually lasts for the recipient’s lifetime, but it can also end earlier if you choose. For example, after a certain number of years or if the person remarries.
A life interest doesn’t transfer the ownership of something – it’s just about the right to use it. Ownership of the asset stays with your estate until the life interest ends. Then it’s transferred to the beneficiary or beneficiaries named in your will.
It can be a way to provide for dependents but still making sure the asset will go to the beneficiaries you have chosen. A life interest is often used in situations where there are blended families or a need to protect assets for certain beneficiaries in certain situations (for example, beneficiaries with capacity issues).
Another example of how life interest works is Tia. After she dies, Tia wants her husband to receive the income from her investments for as long as he lives, but to preserve the capital for her children from a previous relationship. She gives her husband a life interest in her will so he gets the income it earns during his lifetime. After his death, Tia wants the money distributed among her children.
I’m considering including a life interest in my will. What do I need to think about?
There are important things to consider with a life interest.
There can be ongoing admin costs: As the property has not been gifted outright, it will need to be held on trust by your executor/trustee for the beneficiaries’ lifetime. This can be a matter of years or even decades. This means that there will be ongoing legal administrative and accounting costs until the life interest expires. You’ll need to consider whether your estate can meet these costs.
What about house repairs? Typically, when a life interest is left in property, the beneficiary will be financially responsible for all outgoings (rates, insurance, repairs, maintenance). Think about if the beneficiary can meet these costs for their lifetime. Can a substitute property be bought and on what terms?
Family dynamics: A beneficiary who has been given a life interest in an estate may be upset that they have not been gifted this asset outright by you. Despite being given a life interest, this beneficiary may still try to make a claim against the estate.
Delay to estate distributions: A life interest included in a will might place limitations and restrictions on the beneficiary which are unintended by you. It can also delay estate distributions/inheritance to your beneficiaries. It’s best to be up front with everyone involved about why you structured your will this way and the implications, so there are no surprises for anyone later on.
A life interest included in a will can be complex, so make sure you understand how it works and that it’s in line with your wishes – and let your loved ones know.
Need help with more information about a life interest in your will? Our experts can help.