Family homes are often a special, sacred place. We understand that sometimes people want to keep their family homes within the family. A comprehensive Estate Plan can ensure that your family home stays that way - even following your death.
A family home is more than just the place you go after a long day at work. For most people, a family home is their most valuable asset and is somewhere memories are made; it’s where your kids took their first steps, where the whole family went to celebrate Nan’s 90th birthday, where you’ve been putting up the same Christmas Tree and homemade decorations for the past 20 years.
At BlueRock Law, we understand how important it is to cherish and protect the memories we make – along with the places we make these memories. Unfortunately through a lack of proper estate planning advice the very place these memories are made can be exposed to potential asset risk and tax implications upon the death of a loved one. Many people don’t realise it, but by implementing a proper estate plan, you can ensure your family home stays protected, particularly from asset risk and future relationships.
When it comes to estate planning, understanding the various interests that can be created in property is crucial. One such interest is a right to occupy or right of occupancy, which can have significant implications for both the estate and the beneficiary. In this article, we’ll explore what a right to occupy is, how it differs from other property interests and its potential impact on your estate plan.
Protecting Your Home Through a Right to Occupy
For business owners and directors of companies, it’s common practice for the family home to be owned in the name of the spouse who has less exposure to outside liabilities (creditors, litigation etc) because they are not a director of a company.
What is a right to occupy or right of occupancy?
Through a comprehensive will , you can include clauses that protect your family home and enable your surviving partner/spouse to continue to reside in and maintain control of the family home for themselves and your children without conferring ownership to the surviving partner. This is known as a right to occupy or right of occupancy A right to occupy essentially gives someone the right to live in the property, without the property having to be taken in the personal name of the beneficiary. The right of occupancy is is normally subject to certain conditions such as, maintaining the property and paying property expenses. A right to occupy does not carry with it a right to income from the family home.
Right to occupy vs life interest
Another proprietary interest to compare with a right to occupy is a life interest or life estate. A life estate is an interest in a property that lasts for the lifetime of a specified individual. A key distinction from a right to occupy is that a life interest will often include the right to income from the property (ie for the property to be rented out).
What are the Benefits of a Right to Occupy?
Asset Protection with Flexibility
A right to occupy allows the surviving spouse to maintain control of the property without it having to be passed into their personal name (key for business owners!), which can come with increased exposure to outside risk. A common inclusion in a right to occupy is to grant the surviving spouse the ability to sell the current family home, potentially to downsize or purchase something more suitable, and still enjoy the asset protection benefits of a right to occupy for so long as the sale proceeds are used to purchase another principal residence.
A right to occupy can also be granted to the legal guardians of your children should you both pass, allowing your young family the benefit of being able to remain living in your family home through an often stressful time. In this way, your children would be entitled to remain in the family home with their guardian (if your children are under 18) and until your children reach a certain age such as 25. This will ensure the family home will not be sold and your children’s living arrangement preserved.
Tax Benefits
Another key benefit of a right to occupy is that it allows the surviving spouse to maintain the full capital gains tax main residence exemption, which applies from the date of death through to when a property is sold, as opposed to the usual capital gains tax rules which require a beneficiary who inherits a deceased’s main residence to sell it within 2 years of date of death in order to obtain a full tax exemption.
Conditions of a Right to Occupy
Despite the many benefits that come along with a right to occupy, you should also take note of a few conditions before considering if it is right for you and your family:
- Beneficiaries cannot lease the property (a life interest would be more appropriate if you wish to grant the right to lease the property);
- Beneficiaries are unable to make a profit from the property.
When the Right to Occupy ends:
- the property will be transferred to established trusts outlined within the deceased’s will or
- the property will be sold with the remaining net proceeds paid out to the remaining beneficiaries outlined in the will.
Talk to an Estate Planner
Here at BlueRock Law, we take a multidisciplinary approach to estate planning. If you’re interested in hearing more about how you can protect your family home through a will or estate plan, get in touch with our experienced Melbourne-based estate planning lawyers by submitting the form below.
Disclaimer: This article is intended as general information only and should not be considered as advice on any matter and should not be relied upon as such. The information in this article has been prepared without taking into account any individual objectives, financial situation or needs. You should therefore consider the appropriateness of the information in regards to these factors before acting, or seek advice before making any financial decisions.
