Last week, we spoke about the different estate planning consequences of owning property as joint tenants and as tenants in common. This week, we explain why owning property as tenants in common, coupled with a life interest in your Will, could avoid problems down the track.
Firstly, a reminder
Joint tenants means you both own all of the property, and your share automatically goes to your co-owner when you die. Tenants in common means that you each own a percentage share and you can each gift your share in your Wills.
In our last example last week, Jim and Jane owned their property as tenants in common, and Jim had a simple Will leaving everything to his own children and nothing to Jane. When Jim dies, Jane continues to own her part of the property, and Jim’s children own the share previously owned by Jim.
What’s a life interest?
A lifeinterest is a way of giving someone the right to use property without giving them actual ownership. They can live in the property, or lease the property and live off the proceeds, or sell the property and buy a new one and live in it, or invest the proceeds of sale and live off the income. They can’t be forced to move out or to sell against their wishes. They can’t give the life interest away in their Will, and they have to look after the property. That person’s interest lasts for the rest of their life – hence the name – and ends when they die.
A life interest, or a right to reside?
A right to reside is more limited than a life interest – it just gives someone the right to live in the property. They can’t rent it, nor sell it. If they are unable to stay in the property (for example, due to ill health), then the interest ends.
Can you show me how this would avoid problems?
Sure, Jim and Jane, the couple who both have children from previous relationships, decide to buy and own their property together as tenants in common – each owns 50%. This time, they get good estate planning advice, and draft their Wills giving each other a life interest in their home, and when the life interest ends, their respective shares of the property go to their own children. As a result, when Jim dies first, Jane is free to stay in the property for the rest of her life. She owns her 50% share of the house, and she has a life interest in Jim’s 50% share. When Jane dies, her life interest in Jim’s share ends. The house is sold, and Jim’s children get half of the sale proceeds, and Jane’s children get the other half.