Life Interest Wills — Protecting Your Assets

I believe it is rarely appropriate for a couple to own their assets jointly. All of the assets end up in the name of the survivor — they can all become vulnerable under the Property (Relationships) Act regime (matrimonial and de facto property division), they are all available to creditors or shysters, they all become liable to meet rest-home subsidies, all of the income on the assets is taxable in the name of the survivor and they may be liable to meet asset testing or death duties.

Everyone should maintain an up to date will but that will often not be enough by itself. The survivor may remake their will (for instance after remarriage) — achieving a totally different result than was originally intended. It’s worth remembering too that marriage or re-marriage will nullify a will.

A life interest will is designed to give some protection against the above eventualities. This is a more complex form of will. Here is the scenario:

  • The ownership of the assets is amended so that each party owns a half share which will not, on the death of that party, automatically go to the survivor. That would include your house and any investment assets.
  • The surviving wife or husband and a third party are appointed trustees and executors.
  • All of your one half of the assets remain in the name of the trustees during the life of the survivor.
  • The survivor has access to capital and income during their lifetime (or sometimes until remarriage).
  • On the death of the survivor what is left is divided equally amongst your children.

The survivor has the use but not ownership of the assets.

The assets are not available to a subsequent spouse/partner nor to the Official Assignee or a fraudster. The assets cannot be attached for asset or income testing in the name of the survivor nor can they be liable to meet rest home subsidies or debts nor is the income necessarily taxed in the name of the survivor. The assets cannot be ‘Willed away’ by the survivor.

But (in particular with rest home subsidies) if both husband and wife go into a rest home then all of the assets can still be attached for rest home subsidies purposes. It won’t work for many purposes whilst both spouses are still living. Someone has to die. There is a good chance that with rest home subsidies anyway (and with other taxes) that it is going to provide an answer to some of the problems but it won’t be the complete answer.

The government now, in effect, guarantees inheritances to next of kin up to (in 2008) $180,000 (increasing each year) and you should take advantage of that by taking steps to double that guarantee with a life interest Will or, if your assets total less than $360,000 (in 2008), doubling the amount you would have otherwise had to pass on. At a likely less than $1,000 in fees, it is a worthwhile investment.


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