Brisbane’s Legal Lowdown: Balancing Family Interests in your Will – Life Interests and Rights to Reside

Sofie: Shifting our attention though, now to this week’s Brisbane Legal Lowdown with Attwood Marshall Lawyers.

This is where we unpack some of those legal issues that impact each and every one of us in the community more broadly. And if you’ve got questions, you can always pick up the phone 133 882.

Imagine this, you want to make sure that your partner can keep living in the family home after you pass away, but you also want to make sure that that property eventually goes to your children. How do you balance both of those wishes fairly?

It’s where the concept of something called life interest or right to reside comes into play when you’re looking at your estate planning. These are two powerful tools that can provide security, and they come with some conditions that families need to understand. And they’re the two things we’ll focus on today as we’re joined once again by Attwood Marshall Lawyers Estate Litigation Senior Associate Duncan MacDougall.

Welcome back to Afternoons.

Duncan: Thanks for having me again.

Sofie: I did ask you when you came in how you survived the Ekka last Wednesday?

Duncan: After going through all the crowds, I didn’t manage to get my ice cream.

Sofie: You managed to get the ice cream. You told me you saw some cows but you didn’t make it to the wood chop.

Duncan: I know. Unfortunately not.

Sofie: Do you know what that means?

Duncan: What’s that?

Sofie: You’ll be going back to the Ekka next year.

Duncan: Okay, you can find me.

Sofie: Let’s unpack these two terms that you want us to talk about today. This idea and the difference I think, between life interest and right to reside.

Duncan: Yeah, sure. So, upon somebody’s passing, you’ve got a will in place and it’s actually a term under the will, where you’re given a right to somebody to actually reside or occupy a deceased property. The real difference there being is the right to reside is a little bit narrower in that it comes down to specific terms and conditions as to when and how long that they can reside there.

Whereas that life interest is their right to reside there for their lifetime. So, they essentially become the life tenant. Now, when somebody passes away, that property is in the name of the deceased. What naturally occurs there is that that property has to be transmitted to what’s called the legal personal representative of the estate, also known as the executor. So, they’re the ones who’s going to be changing title to their name. But if there’s this life interest in place, this person, perhaps it is a partner, gets to the right to reside there during their lifetime.

Sofie: So this might be in situations where there is a little bit more complexity, not necessarily that it is a husband and wife or partners that are living together in this property. It could be that it’s a de facto relationship, for example.

Duncan: Yeah, certainly. Or even instances where you’ve got maybe a parent that’s residing with you for a certain time.

Sofie: Right. Or a child who maybe you’ve been caring for. That happens. And those questions come up a lot.

Duncan: Certainly, yes. And whether it be that parent or otherwise, there’s certain conditions, maybe there’s certain conditions in the will that specify, okay if they go into aged care, for instance, at that point in time that that right to reside ends. And then you’ve got your beneficiaries that are outlined in the will who will ultimately benefit from the sale of that property.

Sofie: And is that the reason why someone might choose to leave a right to reside in their will rather than just handing the home over outright to someone as an inheritance?

Duncan: Yeah, it’s a bit of a balancing of interests that you’re going to take into consideration. So, in that instance where you’ve got a partner, for example, you’ve got a new partner, you’ve got kids from a previous relationship, you want to ultimately benefit the property to your kids or leave the property to your kids, but also you want a roof over your new partner’s head at the end of the day and allow them to either find alternative accommodation or reside there for an extended period of time.

Sofie: You can also imagine that this can happen when there might be a little friction in families.

Duncan: Yes, and it’s almost used as a tool to balance those interests.

Sofie: Is there a specific example that you can recall that you’ve actually worked on where you’ve had to sort of make that decision about whether or not it is life interest or right to reside and what the circumstances were, just out of curiosity?

Duncan: Yeah, generally again, it comes down to those blended family situations. You see that that happen a lot.

More often, if it’s a right to reside, it’s generally somebody kind of in the later years of life, for example, like a parent who’s only going to be there for X amount of years, you know. In this instance, they’re not renting the property out to anybody else. They’re not receiving any income, whereas somebody who has a life interest will generally receive income as well.

Sofie: I can imagine too in the case where it might be people who have come together later in life. They each have families, they buy property together, they get advanced in age. One passes, the other one doesn’t want to feel like they have to sell to give that half back to their family as their inheritance. That would be one of those situations as well.

Duncan: Yeah. And even during the estate planning, we have to look at how that property is owned, how it’s structured, whether there has to be some restructuring that involves there as well, whether it is owned as joint tenants and really your ultimate benefit is to go to your respective kids rather than automatically passing to your surviving spouse. All sorts of things will come into play there, and the specific conditions under the will as well, and those limitations and those conditions that if they now enter into a new relationship. Yep.

Sofie: What happens then?

Duncan: Yep. OK. If they enter into a new relationship, they remarry, they’re not residing there for a continuous period of X amount of days. These are all conditions where that right then ceases.

Sofie: And obviously there would also be conditions that are put in place on how you live there. So, can you rent it out. Like if you decide you want to go and live overseas for a period of time, what happens then? And then who’s responsible for ongoing maintenance and insurance and rates and the costs that are associated with that property?

Duncan: That all comes down to very careful will drafting at the end of the day because it’s going to be very specific as to who’s going to bear those costs.

Sofie: If you don’t have one of these in place, say it’s a situation where let’s go with husband and wife advanced in age, each have families with children. Come together late, buy a property together and they haven’t put a right to reside in or there is no clear pathway of what happens if one of them passes. What happens then?

Duncan: Well, and that’s where these disputes arise and we deal with these day in and day out where you’ve got somebody with an expectation and sometimes it’s even siblings. So sometimes it’s a brother and sister maybe that one person has said, well, Mum and Dad said I could reside here for as long as I want. And all of a sudden the executor now is trying to kick them out. There’s an expectation, they’ve received a bit of a detriment if they were to vacate this property as well. So all these different things will come into play and we just see that’s where disputes arise. So, it’s really that conversation that you’re going to have with the family about what your intentions are and really have a chat with your solicitor as to what these specific terms are under your will that that allows these sorts of things. And it’s not a set and forget situation because your family dynamics are going to start to change overtime, too.

Sofie: And I guess that’s the question then that comes from Peter, is like, what if the circumstances change? I guess you have to revisit it.

Duncan: Revisit your will. Yeah. And really, you can’t be ruling too much from the grave, but these terms of these wills, you’re going to have to allow a little bit of flexibility there as well especially weighing up who you’re appointing as your executor, the trustee of your estate, the one who’s really controlling the property, and who’s actually residing there as well, and what’s their relationship like, because there’s going to be some disagreements there as to who’s paying what, or otherwise. We want to make it very clear in the will as to who’s bearing those costs.

Sofie: So, I guess finally then Duncan, if someone’s listening to this and maybe wrapping their heads around it for the first time, what’s your advice to anyone who may be in a situation where they should be considering including this concept of a life interest or a right to reside in their will because they think their circumstances may warrant it.

Duncan: It’s really figuring out, first of all, what’s your relationship like with this person? What’s their immediate needs? What are these things that you can expect them to need down the track? You know, like you, you got to anticipate certain things in terms of their ongoing care, maintenance, even the property itself. Property is an expensive asset to hold, so ongoing cost maintenance.

Sofie: And if there’s debt over it?

Duncan: Debt as well, generally if there’s debt there, the estate will bear the cost of that. But again, it’s all going to come down to those conversations and really having that detailed conversation with your solicitor who will go through all of these different circumstances and try to account for all the things that could go wrong because we deal with the ugly end all the time.

Sofie: You know, I think this is this whole idea of needing to look at what the different possible scenarios could look like. Even the possibility that you have this in place, you put a right to reside in, you have somebody who’s living there, but then the executor of the will may actually pass away before the person who’s living in the property. So, what would be the circumstances then? Like what happens next? And you’re right, you can only plan so much.

Duncan: Yeah. And especially if it’s going to go over a long period of time, maybe they’ve got quite a few years on them yet, you know, and especially if you got an executor there. I’ve got a very similar situation right now where we’ve got an executor and this child has come out of the woodworks and all of a sudden it’s okay, they’re actually going to benefit from the property, but this person has since passed away, who was residing in the property. But we’ve got nobody who’s actually controlling the estate at the moment because the executor has passed away as well. So it gets a bit messy and there’s obviously there’s avenues that you can pursue to get it resolved, but it’s just trying to account for all these different circumstances.

Sofie: Finally, a quick question from Carol this afternoon. She says Sofie, quick question please. I have a right to reside in my late mother’s house. I’ve lived here my whole life but will be selling soon. Does capital gains tax apply?

Duncan: That’s some advice you’re going to have to get from a tax professional, but generally.

Sofie: Duncan is our estate litigation lawyer. Carol, you need to listen next week we might have the taxation lawyers back on.

Duncan: But there may be instances just from the top of my head, there may be cases where you, if you voluntarily exit the property for whatever reason, the tax office may treat it a bit differently.

Sofie: What we might do, Carol, for you is put you in touch with Duncan. He might be able to talk to one of his colleagues and see if they can get you a little bit clearer advice on that one, because I will say as we wrap up this afternoon that I received a lovely email from Karen, who says I’m back from Africa still a little jet lagged, I think, and I really wanted to say thank you to Attwood Marshall for answering the call. And yes, my will and enduring power of attorney was organised without delay, she says I signed all the documents the day before my trip and would have been earlier, but due to me changing my mind, it was later and she says, and she points out a couple of your colleagues, Olivia, she said was a stand out, and met you, signed the documents, and you even assisted with a little hiccup, she said with her superannuation. So, she goes on to say, hey, thank you very much. She is so thrilled to bits and thanks you and the team for helping her out and doing it so timely.

Duncan: I’m glad we got that done before she took off.

Sofie: I tell you what, Karen, I’m going to be doing the same thing. I keep putting it off. And putting it off and putting it off, but it will be happening. Thank you for your email and for taking the time to send that through.

I now will like to know a little bit more about the trip from Africa. So, send that through in the next email and look forward to having you back on again in the future. Thanks Duncan.