Estate planning can be complex in certain circumstances such as when the Will-maker has remarried and there is a blended family dynamic, there is perhaps some family disharmony, or one of the beneficiaries suffers from a disability.  Professional estate planning can help to reduce costs to the estate after the death of the Will-maker.  Failure to obtain proper advice can result in issues surrounding the construction of the Will, or documents being poorly drafted and incorrectly reflecting the Will-maker’s wishes.

1.    Do I Have a Right to Reside or a Life Estate?

A ‘right to reside’ or ‘right to occupy’ creates a personal interest in the land only.  It grants the beneficiary the right to occupy the property subject to certain conditions or timeframes which are generally set out in the Will.   Once the conditions in the Will are no longer met, the ‘right to reside’ ceases.   The right is personal to the person who has been given the right and does not carry with it the right to let the property to others or to receive any rents or profit: Firriolo v Firriolo & Anor [2000] NSWSC 1039.

A life estate, on the other hand, is where a Will-maker leaves the whole or part of their estate (such as property) to the executor on trust for a specified beneficiary so long as that person lives and, upon that person’s death, the asset is transferred to other specified beneficiaries (known as the remaindermen).  A life estate gives the life tenant full proprietary rights in the asset (such as possession and enjoyment of the asset and its income (rent or profits) until that person’s death), other than the right to pass the asset to the person’s own heirs.

2.    Where Do I Stand?  O’Brien v Warburton [2012] WASC 82

In the case O’Brien v Warburton [2012] WASC 82, the deceased’s last Will was prepared by him or at his direction without any legal advice or assistance.   Difficulties arose in determining the proper construction of various clauses in the Will.

Various sections of the deceased’s Will which related to his half interest in a property in Mosman Park were published as follows (with specifics omitted from this article):

1.2        Generally, the property at [address], Mosman Park, Western Australia owned 50% by myself and 50% by [name] as tenants in common.

1.3        My wish is that my share 50% pass on in cash to my children, … , within 12 months of my death – others are generally gifted as detailed in the Attachments.

2.6       The process is such that:

             2.6.1    [name] remains in [address], Mosman Park.  

The question for the Court was, ‘Did the Will give the deceased’s de facto wife a right to reside or did the Will create a life estate?  The short answer is that the Will created a right to reside.  His Honour concluded that clause 1.3 of the Will must be read subject to clause 2.6.1, and the family context was consistent with the language of the Will conferred by clause 2.6.1 permitting the deceased’s de facto wife to ‘remain’ in the house.  That is, she has a personal right of occupation derived under the deceased’s Will.  The deceased’s interest in the house and land will remain a capital asset of the estate for eventual sale and distribution as provided by clause 1.3 to the deceased’s children.

It was acknowledged by Bryson J in Hatzantonis & Anor v Lawrence; Cox v Lawrence [2003] NSWSC 914 that decisions reviewed typically turn on the meaning of the very words used and that meaning ought not to be ascertained narrowly from expressions relating to directions, or rights of residence, or otherwise referring to opportunities to reside, or to use and occupy; the words were considered by courts in context, an important part of the context often being the terms in which other benefits were given in the same Will.

It was held that during the right of occupancy that the de facto wife was required to pay all outgoings associated with the occupation of the property including, but not necessarily limited to, expenditure for regular maintenance or repairs of a non‑capital nature.  During this period, the estate was held to be responsible for insurance and any capital expenditure, repairs or alterations of a capital nature.

3.    Where Do I Stand? Firriolo v Firriolo & Anor [2000] NSWSC 1039

In Firriolo v Firriolo & Anor [2000] NSWSC 1039, the deceased’s Will contained some ambiguity.  The object for the Court was to ascertain the testator’s intention as expressed in his Will when it is read as a whole: Perrin & Ors v Morgan & Ors [1943] AC 399.

Clauses 3 and 4 of the deceased’s Will read (with our emphasis):

3 I GIVE the house and its contents in which I reside at the date of my death to my trustee on the following trusts:

(a)    to allow my wife to reside therein so long as she shall live provided she pays all outgoings in connection with the house including insurance premiums on an insurance policy acceptable to my trustee;

(b)    on the death of my said wife to allow my son B to reside therein for his life providing he pays all outgoings in connection with the house including insurance premiums on an insurance policy acceptable to my trustee;

 (c)     on the death of my son B I give the said house and contents to my son M absolutely.

 4 IN THE EVENT of my son M predeceasing me or dying before the end of the life estate of B then the share that he would have taken under this will shall be divided equally among his children, who shall survive him on attaining the age of 18 years.

 On the one hand, the Will referred to B being able to ‘reside therein for his life’ and, on the other hand, it referred to a ‘life estate’ for B.

The Plaintiff submitted a literal construction of the words ‘to reside therein for his life’ in clause 3(b) ought to apply – that the words create a mere right of residency as opposed to a life estate.  On behalf of B, it was submitted that the words ‘life estate’ in clause 4 evince an intention of the deceased for B to be granted a life estate as opposed to a mere right of residence.

The Court was required to determine whether on a true construction of the Will (and having regard to various events which had occurred), the gift contained in clause 3(b) of the deceased’s Will conferred a ‘right to reside’ only and therefore was capable of abandonment, or an actual “life estate”.  If the answer was that the clause conferred a ‘right to reside’, then the following question was whether the right to reside had been abandoned by B such that the Trustee could distribute the estate in accordance with clause 3(c).

The Court held that the words ‘life estate’ in clause 4 provided a sufficiently clear indication of what the deceased really intended – he intended to grant a life estate.  Had those words not been used, it would have been easier for the Court to conclude on a proper construction of clause 3(b) that B only had a right to reside personally in the house.

This article highlights the importance of obtaining proper estate planning advice.  Professional advice helps a Will-maker consider all the options available to them when distributing their assets through their Will, and to understand the distinction which different rights grant to their beneficiaries.

If you would like advice, please contact Rob Durey or Jacinta Binstead on (08) 6166 9000.