Life Interest vs Right to Reside: The Key Difference

The two concepts are often used interchangeably in everyday conversation, but their legal consequences are genuinely different.

A life interest is a proprietary interest in the property. The life tenant can lease it out, keep any rental income, and generally use the property for their own benefit, though they cannot sell it or diminish its value at the expense of the remainder beneficiaries who will eventually inherit it. The Succession Act 2006 (NSW) in full governs the broader estate distribution framework within which these interests sit.

A right to reside is a personal licence to occupy, not a property interest. The holder cannot rent the property, receive income from it, or transfer or sell the right to anyone else. Once they stop living there, the right typically ends.

Which one a will actually creates depends on the specific words used, not the label attached to the clause.

How Courts Work Out Which One a Will Created

Wills do not always use precise legal language, and disputes over whether a clause creates a life interest or a right to reside are common enough that NSW courts have developed a consistent approach to resolving them.

In Hatzantonis & Anor v Lawrence; Cox v Lawrence [2003] NSWSC 914, the NSW Supreme Court considered exactly this question. Bryson J held that the meaning of a clause should not be read narrowly from isolated words like “reside,” “occupy,” or “use.”

Instead, the words need to be considered in the context of the will as a whole, including how other gifts were expressed in the same document.

In that case, the court found the will created a right to reside, not a life estate. The deceased’s de facto partner was permitted to remain in the property, but the house itself stayed a capital asset of the estate for eventual distribution to the deceased’s children.

Who Pays What: Outgoings and Responsibilities

Once a life interest or right to reside is established, the next practical question is who covers the ongoing costs of the property. This is often where disputes arise, particularly in blended families.

Based on the outgoings split confirmed in Hatzantonis v Lawrence, the general pattern looks like this:

• The occupant typically pays for regular maintenance, day-to-day repairs of a non-capital nature, and routine outgoings connected with living in the property
• The estate or remainder beneficiaries are typically responsible for insurance, and for capital expenditure such as structural repairs or major renovations
• Council rates and land tax are usually addressed specifically in the will, since practice varies depending on how the clause is drafted

These are general patterns, not fixed statutory rules. A poorly drafted will that is silent on outgoings is one of the most common sources of later disputes between the occupant and the remainder beneficiaries.

More: What Is a Deed of Family Arrangement in NSW and How Does It Resolve Estate Disputes?

When a Life Interest or Right to Reside Ends

Most life interests and rights to reside end on one of a small number of predictable triggers, though a well-drafted will can specify others.

• Death of the life tenant or occupant, the most common ending point for a life interest
• Remarriage or entering a new de facto relationship, if the will includes this as a specific condition
• Voluntarily vacating the property, which typically ends a right to reside, though not always a life interest
• A fixed date or event specified in the will, since a right to reside does not have to last for the person’s whole life
• Sale of the property with consent, where the will or a court order permits the property to be sold and the interest converted into other accommodation

Once the interest ends, the property is usually either transferred to the remainder beneficiaries or sold with the proceeds distributed according to the will.

Making It Flexible: Crisp Orders and Portable Life Interests

A fixed life interest tied to one specific property is not always practical, particularly if the occupant later needs to move into aged care.

Courts addressing family provision claims have developed a more flexible alternative known as a Crisp order, named after Crisp v Burns Philp Trustee Co Ltd (NSWSC, 18 December 1979, unreported).

In Milillo v Konnecke [2009] NSWCA 109, Ipp JA explained that a Crisp order can allow a beneficiary to require the estate to sell the home and use the proceeds to purchase another property. This can also fund accommodation in a retirement village or aged care facility, which is why the arrangement is often described as a portable life interest.

Executors managing this kind of estate should treat it as part of the ordinary process of what happens after probate is granted, rather than a separate, unusual complication.

Will-makers do not need to wait for a court order to build this flexibility in. A life interest can be drafted from the outset to allow the trustee to sell the property and reinvest the proceeds in alternative accommodation, rather than tying the beneficiary to a single fixed address for life.

More: What Is the Statutory Legacy in NSW and How Much Does a Spouse Get?

Registering the Interest on Title

A life interest can be protected on the property’s title, which gives the life tenant practical security that the property cannot be sold or mortgaged without their knowledge.

This is usually done by lodging a caveat with NSW Land Registry Services. According to the Registrar General’s Guidelines on caveats, a caveat records a claim to a legal or equitable interest in land.

Once lodged, the caveat prevents the registration of most further dealings until it is dealt with. A right to reside, being a personal right rather than a proprietary interest, is generally not capable of being registered in the same way.

Capital Gains Tax and Life Interests

Creating a life interest or right to reside can have capital gains tax consequences, and the rules are sufficiently technical that they deserve specialist attention rather than being assumed.

According to the Australian Taxation Office’s ruling on life and remainder interests, creating these interests under a will generally does not trigger an immediate capital gain, but later events, such as the life tenant’s death or a sale, can have CGT consequences for both the life interest and remainder owners.

The ATO has also clarified the main residence exemption specifically for this scenario. Under TD 2026/D1, the Commissioner sets out when a person has a “right to occupy a dwelling under the deceased’s will” for the purposes of the main residence exemption.

Separately, the ATO confirms that where a life interest delays the disposal of a property, this is one of the circumstances that can automatically extend the usual two-year window for the main residence exemption.

How Empower Probate Lawyers Can Help

Life interests and rights to reside look simple on paper but generate some of the most persistent disputes in NSW estate administration, particularly where a will is silent on outgoings, termination, or flexibility.

We advise executors, life tenants, and remainder beneficiaries on succession planning that builds these structures correctly from the outset, and on administering the property of a deceased estate where a life interest or right to reside already exists. We help clarify the executor’s duties regarding outgoings, insurance, and the eventual transfer upon the interest’s end.

Call 1300 481 161 for an initial consultation. Specialist advice. Free initial consultation. Deferred fee arrangements are available in eligible cases.

Frequently Asked Questions

What is the difference between a life interest and a right to reside?

A life interest is a proprietary interest that allows the holder to use the property and retain any rental income for their lifetime. A right to reside is a personal licence to occupy the property, with no right to rent it out or transfer it.

Who decides which one a will creates?

The specific wording of the will determines this, not the label used. Courts look at the will as a whole, including how other gifts are expressed, rather than reading isolated words in isolation.

Who pays the rates and insurance on a property subject to a life interest?

This depends on the terms of the will, but a common pattern is that the occupant covers routine outgoings and maintenance, while the estate or remainder beneficiaries cover insurance and capital expenses.

Can a life interest be sold or converted into other accommodation?

Yes, if the will allows it, or if a court makes a Crisp order in family provision proceedings. This creates a portable life interest, allowing the proceeds of sale to fund alternative accommodation such as aged care.

Does a right to reside affect who owns the property?

No. The property remains an asset of the estate or is held by the executor or trustee. The occupant only has a personal right to live there, not an ownership interest.

Are there tax consequences to creating a life interest in a will?

Yes. The ATO’s ruling on life and remainder interests sets out the capital gains tax consequences of creating and later dealing with these interests, and provides specific guidance on the main residence exemption when a life interest delays the sale of a property.

What happens if the will does not say who pays the outgoings?

This is one of the most common sources of dispute. Where a will is silent, the parties often have to negotiate an arrangement themselves, sometimes formalised through a deed, or ask the court to determine the position based on general principles and the specific wording used elsewhere in the will.