Legal Tip 78: What is a life interest in property?

What is a life interest in property?

There are many different interests in property, one interest that used to be popular is the life interest. This sort of interest arises when someone gives someone else certain rights over property without actually giving them title to the property. These rights may be rights of possession – they will not own the property but may live in the property like it was their own. Other rights might be rights to income – so someone could get the income from renting the property without actually owning the property.

These, life interests, were common in wills many years ago. They are still used today, but more flexible testamentary trusts have largely meant not many people give life interests these days. However they still have their place.



Example. Mum has remarried and has children from her first marriage and a new bloke. If she dies she wants her property to go to her kids, but she doesn’t want to kick out the bloke so she decides to leave him the right to reside in the property until his death and then the property will pass to her kids.



There are many issues, naturally, and I will talk about some of these next time.

 

Here is an interesting article

Kathleen owned a property and she died in 1972 and left that property to the University of Sydney, but she gave her sister a life interest in the property and the sister only died last year. That meant the sister was able to live in the property for another 40 years before the end beneficiary (the remainderman) could sell it.

That probably worked out well in the long run as the property was worth about $50k when she died and now is worth about $8.5million

Joy’s sister gifted her £9750 home to Sydney Uni, with a catch that lasted 49 years

 

How do you convert 9750 Oz pounds to $ equivalent so we can work out the annual growth rate?

 

You may like to play around with this calculator from the RBA and see what happens.

Inflation Calculator | RBA

 

It's as rough as guts but better than nothing.

 

purchased for 9750 Pounds in 1957
=
£9750 s d is roughly equivalent to $19,500.00

64 years has passed

Now worth $8.5mil

So what is the annual return needed to turn $19,500 into $8.5mil in 64 years?



Compound Interest (Rate) Calculator