Continuing the Blended Families Series, another way to protect your assets in blended families is the use of life interests.
A life interest provides limited rights with respect of a property to a beneficiary for the duration of their life without giving away complete ownership of the property.
A common approach to protecting the interests of children from a former relationship or step-children or children to a new relationship is to create a ‘life interest’ of your property in your Will.
This is an approach available if you own property in your sole name or with someone as tenants in common.
Often, a ‘life interest’ in the property is given to your spouse. This can include:
- a right to occupy the property for use and enjoyment during your partner’s lifetime;
- a provision where your partner can benefit from the income generated by the property;
- the possibility to sell the property to purchase a new residence for the spouse during their lifetime or to fund any aged care bond. The ‘remainder interest’ (that is, the interest in the property after the death of the spouse) can then be distributed to other beneficiaries through your Will such as your children.
This approach ensures that your spouse is provided for during their lifetime and that your children are provided for after your spouse’s death. This also safeguards your children from your spouse re-partnering and gifting all of their assets in the favour of the new partner.
Renewing a Will in the event of separation is essential, particularly where it gives a life interest in a property to your spouse. Consideration should also be given to the impact on a child who has a remainder interest in a property which is the subject of a life interest, in the event the child separates from his/her spouse.