A recent decision by the Supreme Court of Queensland has provided guidance on the distinction between a Will maker granting a right to reside and a life interest to someone in their Will.
What is a right to reside?
If a Will maker grants a beneficiary a “right to reside” at a property, they are granting the beneficiary the right to occupy the property for a specified time, or for the beneficiary’s lifetime. The entitlement to reside at the property is usually subject to conditions, such as keeping the property in good repair and paying rates and other expenses. The beneficiary cannot rent the property to someone else, nor receive any income from the property. When the beneficiary’s entitlement ends, the property is either transferred or sold, and the proceeds of the sale are distributed to the beneficiaries in accordance with the Will maker’s Will.
What is a life interest?
A life interest is granted if a property or other asset (eg. shares) is held on trust for someone’s benefit, for their lifetime. The life tenant, as that person is known, is entitled to any income generated by the property or asset and on the death of the life tenant, the asset is distributed to the remaining beneficiaries of the owner’s Will.
The facts in McElligott v Public Trustee of Queensland
The background of McElligott v Public Trustee of Queensland is as follows:
- The deceased died in September 2012.
- The deceased’s estate had a number of debts, which could not be paid without selling the deceased’s property, worth approximately $700,000.00 – $800,000.00.
- Ms E was the deceased’s daughter, and was made bankrupt one week prior to the deceased executing her Will.
- Clause 6 of the deceased’s Will stated that her house and land were to be held on trust to permit Ms E’s daughter and son to have full use of the property for a period of five years from the deceased’s date of death, and that the income actually produced by the property was to be applied as income under the deceased’s Will. Further, that “On the failure or termination of this life interest my Trustee is to hold the property on trust to form part of the residue of my estate”.
- The Executor, Mr E, submitted that the construction of Clause 6 entitled Ms E’s daughter and son to a personal right to occupy the property (a “right to reside”), whereas the Public Trustee submitted that the daughter and son had an equitable estate in the property (a “life interest”).
- As the Executor needed to sell the house to pay the Estate’s debts, whether the entitlement to reside at the property was a “right to reside” or a “life interest” consequently determined whether Ms E’s daughter and son would be entitled to the proceeds of the sale, or whether the funds would be distributed to the remaining beneficiaries in the Will.
The Court’s decision
The Court found that Ms E’s daughter and son had been granted a “right to reside” at the property, not a life interest, so they were not entitled to any of the proceeds from the sale of the property.
What should I do if I want to grant someone a right to live in my house after I’m gone, or if I am disputing my right to live in a property?
If you would like to grant someone a right to reside or a life interest in your property, you should consult an experienced estate planning lawyer. Also if there is any dispute relating to the terms of a Will in which you are a beneficiary, you should also contact an estate lawyer. Please contact me if you would like advice or assistance.
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