In succession planning work we are sometimes asked if a house can be left to someone for their life and then left to someone else?
So for example assume Mary wants to make her will and wants to leave her house to her daughter Anne but wants to make sure that her brother Mark, Ann’s uncle, can live there until he dies.
In those circumstances we generally have two potential options.
The first option is to insert a clause in Mary’s will to leave the house to Mark for life with the remainder interest falling to Ann. In this circumstance Mark will first receive a benefit from Mary’s will and when Mark dies, Ann receives a benefit of the house. Ann’s benefit comes from Marys Estate.
In the alternative we could include a clause that allows for the house to be left to Ann subject to a right to reside for Mark. In that circumstance Ann takes an inheritance of the house on Mary’s death but her benefit is restricted by Marks right to reside in it until he dies.
It should be noted that a right to reside is not as full an interest as a life interest. In our example, Marks life interest entitles him to the use of the property exclusively. A right to reside only allows Mark to reside in a property and doesn’t allow for its exclusive use. In fact, Anne could possibly rent out other rooms in the house so long as she continues to allow Mark to reside there.
From a tax point of view a valuation table is provided to enable us to calculate the capital value of a life interest. The capital value of the house is reduced by an amount which is calculated using a factor of the life tenants age and gender. Alternatively, we can get an actuary to value it. A right of residence is generally valued by Revenue using a rule of thumb equal to 10% of the property. This right to reside value will increase to 20% in circumstance where the right to reside includes a right to support and maintenance.
So take care when preparing wills, as we have come across situations where a person was left a right to reside but actually thought they had a life interest and it is important to be precise in drafting your intentions.
Please contact Leanne Lennon at email@example.com or 01 872 5255 to arrange a consultation with Cathal.