Once the weapon of choice for wealthy land Baron to provide for a surviving spouse while keeping the land asset in check, a life interest is used by lawyers as a tool to balance different interests between beneficiaries. An example of a modern use of the tool is to counter the surviving spouse remarrying, where there is a competing need to provide for a spouse as well as a need to preserve or quarantine the asset for the benefit of other beneficiaries.
In those circumstances, the life interest is regarded as beneficial to secure the property so that the children can be raised in it, and subsequently, it can also be passed to them once the interest of the surviving spouse has ceased.
The use of a life interest is also prone to some down-sides in the form of its inflexibility and are frequently the victim of inadequate drafting, particularly the life estate agreement.
Giving clear and complete instructions on the part of the will-maker are as important as the need for the will drafter to ensure that they are accurately reflected in the document. Particular consideration should be given by both parties to:
- Who bares responsibility for rates, taxes and outgoing;
- Who is liable to effect insurances and what entity is the insured party;
- How and by whom other expenses in relation to the property and its maintenance will be met;
- Who is responsible for maintenance and upkeep of the property and will there be any shared payment for those items between the estate and the interest holder;
- What rights the estate and/or other beneficiaries have in the event the interest holder is in breach of any of their obligations;
- Is the right to occupy the property exclusive; and
- Should the will include a right to terminate or surrender the life interest and if so, what are the conditions and requirements of effecting that change; and will there be any exchange of value between the interest holder and the estate in that event;
It is also imperative that the will drafter is made aware of any financial planning or structuring has been undertaken so that it can be contemplated in the preparation of the will.
The importance of these considerations cannot be overstated because getting it wrong can be disastrous for all parties involved.