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Writer's pictureYanique Russell

What is a life interest?

If your spouse is the only one with title to the matrimonial house, they will need to secure you with a life interest. A life interest is a right given to an individual (the grantee) from another (the grantor) to live and enjoy a specific property for the remainder of their life. The life interest holder is also called the income beneficiary. Life interests do not only apply to property, but can also extend to investments and incomes generated from those investments. When the life interest holder dies, the ownership will be then be passed to the beneficiary listed in the Will who is also called the 'remainder man' or capital beneficiary. If the grantee dies before the grantor, then their interest reverts to the grantor. It must be noted that the grantee of a life interest cannot dispose of the property without consent from all beneficiaries. The grantee of a life interest can also relinquish their right if they so choose.

When is a life interest used?

The most common usage of a life interest is in a Will. In modern times, many individuals remarry after getting divorced. In these instances, there may be children from the first marriage that the divorcee may wish to leave an inheritance. A life interest would then be inserted into the divorced parent’s Will to ensure the children from their previous marriage receive the desired property while maintaining that their current spouse can live in the house till their death. This ensures everyone is cared for, since the children will receive their inheritance after the life interest ends, and the living spouse will have a place to live without the fear of being evicted. Without this life interest, the surviving spouse would legally have 60 days to remain in the house before the executor, who is oftentimes an adult child from the previous marriage, can assert their rights to ask them to leave the property.

Another common occurrence is where a living parent transfers title of the property to their child, but drafts an agreement that ensures they will maintain a life interest in the property. This allows the parent to remain in the property until they pass away.

This same principle is also applied to investments where a spouse will give their child a capital investment but give their spouse a life interest so they can use the income generated from the investment during their lifetime to sustain themself.

While a life interest may seem simple and straightforward on the surface, there are further elements that must be considered to avoid complications later down the line.


Who is responsible for the property?

This is a fact often overlooked when people are drafting their Wills and can lead to turmoil in the future. Who will handle the financial upkeep of the property like utility bills, mortgage payments and maintenance costs? Should it be the beneficiary's responsibility, since they will ultimately get the property, or should it be the life interest holder since they are directly benefitting from the property in the interim?

This is an important factor that should be addressed in your Will to avoid uncertainty and your estate trustee seeking the intervention of the courts for direction. In this case, sections of the Will may be invalidated to allow for the administration of the estate according to the law. If your Will is silent about responsibilities and payments, then the court may be forced to allocate these responsibilities between the beneficiaries and life interest holder. This allocation would be assessed based on the age and resources of both parties, the intentions of the testator or any other conditions placed on the life interest. In estate matters, the courts place a heavy emphasis on the intention of the testator, and will always try to assess as best as possible what his or her wishes were.

It is therefore imperative to meticulously document your wishes and have your Will drafted by a legal professional to avoid any future issues. In most instances, the testator creates a Will that gives a life interest to a loved one. These Wills usually come with a clause that documents who is responsible for the day-to-day upkeep of the property and utility bills during their life time. This type of clause is known as a conditional clause and ensures that once they occupy or benefit from the property, they take care of it. This is called a conditional life interest. This ensures when the life interested grantee dies and interest is passed to the beneficiaries, the beneficiaries do not inherit a dilapidated and rundown property.

The testator can also identify a dedicated account with funds which would provide for the upkeep for the property if they so choose. This would remove the financial burden from the life interest holder and beneficiaries. This is dependent on whether the testator has that amount of disposable income.


How Can Yanique Russell Law Help you?

Our team at Yanique Russell Law can help you with your estate planning needs. Our lawyers will draft your Will with your specific needs in mind. We also provide legal advice on the most appropriate way to structure your Will to ensure your beneficiaries are provided for. Schedule your free 15-minute consultation today on our website.

Conclusion

A life interest can be a useful tool to help you protect your loved ones as it allows everyone to benefit. Ensure you seek legal advice to ensure your wishes are upheld upon death.


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