What is a life interest in a will?

A life interest (also called a life estate) gives a person, the life tenant, the use and benefit of a property for the rest of their life. They can live in it, and if the will allows, they can rent it out and keep the rent. When they die, the property passes to the people named in the will to take it next, called the remaindermen.

The life tenant is treated much like the owner while alive, but cannot leave the property in their own will.

What is a right to reside?

A right to reside (or right to occupy) is narrower. It is a personal right to live in the property. Nothing more. The person cannot rent it out, cannot let someone else live there in their place and usually cannot move without losing the right. It typically ends when they stop living there, when they die, or when an event set out in the will happens.

Why do blended families use them?

Take Jane and John Doe, a married couple in Western Sydney. They have 2 children together, Mia (19) and Leo (15), and John has a son, Sam (24), from a previous relationship. Their home is owned as joint tenants, which means that if John dies first, the whole home passes to Jane automatically and his will cannot touch it.

John wants Jane to keep her home for life, but he also wants his share to end up with all 3 of his children, including Sam. If Jane inherits his half outright, she can later leave it to whoever she likes, or a new partner. So the Does change the home to tenants in common in equal shares, and John's will gives Jane a life interest in his half, which then passes equally to Mia, Leo and Sam. Our guide to joint tenants vs tenants in common explains that first step.

How do they compare?

Who pays the rates, insurance and repairs?

This is where most disputes start, and the answer is whatever the will says. If the will is silent, general legal rules fill some of the gaps, but they are old, do not deal clearly with every cost and can leave the life tenant and the remaindermen in dispute. A well drafted will deals with each of these:

• Running costs: council and water rates, strata levies, building insurance and ordinary maintenance. These usually fall on the person living there.
• Capital repairs: a new roof, structural work, replacing a hot water system. These are often paid by the remaindermen or from other estate funds, because they protect the value the children will inherit.
• The mortgage: if there is a loan over the home, the will should say whether it is paid off from the estate or whether the life tenant keeps paying it. The Does still owe $400,000, so this matters for them.
• Insurance: who must keep the building insured, and for how much, so a fire does not wipe out both the home and the inheritance.

Can the property be sold and a replacement bought?

Only if the will allows it. Without a power to sell and buy, a life tenant can be stuck in a home that no longer suits them: too large, too far from family or with too many stairs.

We usually include a power for the trustee to sell the home and buy a replacement, on the same terms, with any surplus held for the remaindermen or invested with the income going to the life tenant. So if Jane wants to downsize to a villa at 72, she can, and the children's interest simply moves with her to the new home.

A right to reside usually ties the person to one property, unless the will includes a similar substitution power.

Can you rent the property out?

Under a life interest, generally yes, and the life tenant keeps the rent. If Jane moves in with her sister for a few years, she can lease the home and use the income. Under a right to reside, no: the right is to live there personally, and if Jane moves out it usually ends.

Renting the home out can affect land tax, capital gains tax and Centrelink, covered below.

When does it end?

A life interest ends on the life tenant's death unless the will says otherwise. A right to reside ends on death or when the person stops living there. Either can also end on a trigger the will-maker chooses, for example:

• Remarriage or a new partner: the right ends if the surviving partner remarries or a new partner moves in.
• Aged care: the right ends if they move into residential aged care permanently.
• Leaving the home: the right ends if the property is not their home for a set period, say 6 months.

We are cautious about rigid conditions. A trigger such as "if a new partner moves in" sounds clear but is hard to apply: does a partner who stays 3 nights a week count? Vague conditions can fail altogether, rigid ones invite disputes, and a condition that feels unfair to the surviving partner can push them towards a court claim. Aged care is the trigger that needs most thought. If Jane's right to reside ends the day she enters care, she may lose the very asset that could have helped fund her accommodation.

How does Centrelink treat a life interest or right to reside?

While the property is the person's home, a person with a life interest in it is treated as a homeowner, and the home is not counted under the assets test. A person with a right to reside may also be treated as a homeowner if the right gives them reasonable security of living there, but that depends on its terms.

The position changes if the person moves out. A life interest created on the death of a partner can become an assessable asset once the property is no longer their principal home, valued on an actuarial basis, and rent from a life interest is counted as income. Moving into aged care brings its own rules, because the aged care means test also looks at the former home. These rules change often, so check the impact with Services Australia or a financial adviser before the will is signed. See our guide to inheritance and Centrelink and the Services Australia guidance on life interests.

What about capital gains tax and land tax?

• Creating the interest: leaving someone a life interest or a right to reside by will does not trigger capital gains tax on death.
• Selling later: when the home is eventually sold, the main residence exemption can still apply if it was the deceased's main residence just before death and, after the death, it was the home of the surviving spouse or of a person with a right to occupy under the will. Renting it out, before or after the death, can reduce the exemption.
• The ATO's narrower view: in 2026 the ATO released a draft view that a right to occupy only counts for this purpose if the will itself expressly grants it to a named person. A right given through a trustee's discretion or a testamentary trust may not count. A surviving spouse is covered anyway, but for anyone else the wording of the will matters. The ATO had not finalised that view at the time of writing, it may change, and it does not say how it applies to a life interest.
• Land tax: in NSW a life tenant under a will is treated as the owner for land tax. The home is exempt while it is the life tenant's principal place of residence, and a right of occupancy under a will can also keep the exemption while the person lives there. If a life tenant rents the home out, land tax may apply and they would usually pay it.

Our guide to tax on inheritance covers the wider rules.

Can a spouse or the children still make a claim?

Yes. In NSW, a spouse, a de facto partner and children (including adult children) can apply to the court for further provision from an estate within 12 months of death (later only with the court's permission), and the court can reach some assets outside the will. A life interest or right to reside does not stop a claim.

The risk runs both ways. Jane could argue that a right to live in half a house is not enough, and that she needs capital. Sam could argue that a share he may not receive for decades, because Jane is only 24 years older than him, is not adequate provision. The narrower the interest given to the surviving partner, the higher the risk from that side; the longer the children wait, the higher the risk from theirs. A modest gift in the will that the children receive straight away, and a written statement of the will-maker's reasons, which the court can take into account but does not have to follow, may help. See our guide to family provision claims in NSW.

Is a testamentary trust a better alternative?

Sometimes. Instead of a fixed life interest, John's will could leave his share of the home and other assets into a testamentary trust, with Jane as a beneficiary and trustees chosen to look after her and the children. The trustees can let Jane live in the home, pay her expenses, sell and buy elsewhere, or help fund aged care, without the will having to predict every event in advance.

• Flexibility: the trustees respond to what actually happens, guided by a letter of wishes.
• Centrelink: if Jane does not control the trust, its assets are generally not counted as hers.
• Trust in the trustees: Jane has to be comfortable relying on the trustees, who may be the children.

The right choice depends on the family, the ages involved and how much the will-maker trusts everyone to cooperate. We work through those questions at the estate planning consultation before anything is drafted.

Whichever option is chosen, the will should also say who takes the property next and what happens if one of them dies first. Getting these details right at the drafting stage costs far less than a dispute later. Our estate planning page sets out what is included and the fixed fees.

This article is general information only, current as at October 2026, and is not legal, financial or tax advice. Estate planning, tax and Centrelink rules change over time and their effect depends on your circumstances. You should obtain advice specific to your situation before acting.