CONSIDERING RIGHTS OF RESIDENCE IN WILLS
By Max Williams
It is often said that a person’s house is his or her castle. But when the owner passes away, a house can also be the major asset of the estate, particularly in capital cities with high property prices. While usually the house will be sold and the net sale proceeds distributed among the deceased owner’s beneficiaries in his or her will, this may not always be the desired result.
An owner’s will may leave his or her home to certain beneficiaries. However, the owner may be living with someone else and he or she may want to allow that person to continue residing in the property after the owner dies. This is common in blended family situations where a will-maker may want to provide accommodation for his or her spouse while at the same time leaving the house to adult children from a prior relationship.
One of the ways to provide the spouse (or other person) with the necessary accommodation is for the owner to include provision in his or her will granting that person a right of residence in the home. However, there are several matters that a will-maker should consider before including such a provision. These matters can also apply to the similar topic of life interests (or life estates), which are briefly explained below.
1. Duration
The will-maker should consider how long he or she would like the relevant person to reside in the home. The longer the right lasts, the longer the beneficiaries have to wait to receive their final inheritance.
Where the will-maker would like the person to reside in the home for his or her lifetime, a life interest should be considered instead of a right of residence as this provides the recipient (called a ‘life tenant’) with greater flexibility in terms of purchasing substitute properties if he or she wanted to move or downsize. A life interest also entitles the life tenant to income earned from renting out the property and/or investing any surplus sale proceeds.
Consideration should also be given to any events that would terminate the right of residence (other than the recipient’s death, of course). For example, if the recipient were a spouse, would that person’s remarriage or recoupling terminate the right? What about if the recipient stopped living in the house? What if the recipient stopped taking care of the house? These are all important questions to ask and answer.
2. Outgoings
A will-maker should also consider who will be responsible for paying the outgoings of the property as well as any insurance and maintenance costs. This will probably depend on the financial circumstances of the recipient as well as the size of the estate. Depending on these variables, the most appropriate person to bear this liability may be the executor rather than the recipient, particularly if the recipient has limited financial means. If the executor is chosen to be responsible for outgoings, then a separate fund should be established from estate money to cover these costs.
3. Supervision
Especially where the duration of the right of residence is lengthy, the right person will need to be appointed to supervise the right of residence, specifically the recipient’s compliance with its terms. This supervisor will usually be the same person as the executor. Where the recipient and the beneficiaries do not get along (e.g. a second spouse and adult children from a prior relationship), it may be preferable to appoint an independent party as the executor to minimise any potential conflict between the parties.
4. Litigation
It is worth noting that a right of residence is not a perfect solution and could invite estate litigation. If the recipient’s only benefit under the deceased owner’s will was the right of residence, he or she could apply to the court for further provision (i.e. a family provision application), especially where the recipient has limited financial resources and/or was dependent upon the deceased owner.
Another cause for dispute may be if the recipient refuses to vacate the house when the right of residence ends. Usually, the police will not be able to assist, which means the executor would need to apply to the court for the appropriate remedy. While the executor would probably succeed in the final analysis, this could be a costly exercise to the estate. This underscores the care that a will-maker should take before granting anyone a right of residence and thinking through whether the recipient is likely to comply with its terms.
By properly considering the above matters, a will-maker can aim to minimise conflict and avoid disappointing beneficiaries.
If you would like to discuss rights of residence or any other matter relevant to wills, please contact us.
