When drafting Wills, it is common for a couple to leave their entire estate to each other and to provide that after the death of both of them, their estate will pass to their children in equal shares. But what happens if you have children from a prior relationship?
With blended families becoming increasingly common in New Zealand, life interest Wills are being used as a basic level of asset protection to provide for a person’s children in their Will, but also look after a new partner.
If you grant somebody (e.g. a spouse or partner) a life interest in an asset, you are giving that person the right to use that asset for their lifetime. On their death, the asset will pass to the people named in your Will (e.g. your children). Any assets subject to a life interest are held by the trustees appointed in the Will and do not legally belong to the person who has the life interest.
The life interest gives the spouse or partner the benefit of the use of and, in some cases, income from such asset and ensures they are supported during their lifetime, while guaranteeing that the asset will eventually pass to the will-maker’s children. A life interest will usually be for the survivor’s lifetime, but it can have conditions attached if preferred. For example, you can request that the life interest ends earlier if the survivor was to remarry or enter into a de facto relationship.
A common example is where a property is owned by a couple as tenants in common in equal shares, which means that each party is free to leave their half share of the property as they choose. In this instance, a person may leave a life interest in their share of the property to their spouse or partner and, once the life interest ends, their share in the property will pass to their children. The spouse or partner is also able to make a Will leaving their own half share in the property to whoever he or she chooses.
A person may also choose to extend a life interest to other income earning assets owned in his or her sole name such as term deposits, shares, or a life insurance policy. The deceased’s spouse or partner would have the use of the income generated by such assets during their lifetime, after which the capital is distributed to the will-maker’s children. It is important to note that this can be restrictive for the surviving spouse or partner. However, if you were concerned that the income generated would not be enough to support the survivor, you could give your trustees discretion to use the capital for the maintenance of the surviving spouse or partner.
Jointly owned assets cannot be subject to a life interest and will automatically pass to the surviving owner when one owner dies, regardless of what is in that person’s Will. If you wish to leave a life interest in property that you own jointly, you will need to change the form of ownership so that you each own a half share of the asset.
If you would like to chat with us about creating a life interest Will or whether a life interest Will is right for you, please contact us at firstname.lastname@example.org to find out more.
By Hannah Cull | Solicitor
The information contained in this article is provided for informational purposes only and should not be construed as legal advice on any subject matter.