If death doth give me home for life
Such interest might place me in strife
For after all, my life is marked
By he who follows when I’ve carked
For he gets nil – and that’s for certain
While being a Remainderperson
Anon Wordsworthless – (Poet Lorikeet)
Although some practitioners look at life estate as relics from a bygone era, there are two highly likely factors to bear in mind:
- Particularly in blended family situations, they may be the only viable option
- Practitioners are likely to end up having to sort out the drafting inadequacies of others – often the DIY Willmaker.
Simple examples of recent disasters we have dealt with include:
- Granting “use-rent free” of a property for life to a beneficiary under 40; and
- Granting a life interest in a property to a widow with the residual estate being left half to the widow and half to the Willmaker’s children from his first marriage.
No provision was made in either case for the retention of an amount to fund the property while being used. In the first example, the rent-free use could go on for 60 years!
In the second example, the Willmaker meant to give the widow half of what was left not including the property. But the effect of the poor drafting was to give her half the property after she died. Only Tutankhamun fared better!
Some points to bear in mind if you are going to grant a life estate:
- Consider other options first and only proceed if the other options do not suit. One likely better option is a capital protected interest in a trust although it also needs to be considered carefully.
- Who will be responsible for the expenses during the life? If the estate, is the pie big enough?
- Who will inherit after the life estate has concluded (the remainder interest)? Has provision been made if that person has died before the life beneficiary?
- Is the interest ‘portable’?
- Have tax considerations such as CGT been considered (see Section 118-195 ITAA 97)?
- What provision has been made if aged care is required for the life beneficiary? [Remember, the RAD – refundable accommodation bond – will belong to the life beneficiary’s estate].
All this and more! This is where the expertise of AV Lawyers can help calm the waters.