Estate planning is about more than just deciding who gets what—it’s about ensuring loved ones are supported while preserving wealth for future generations. One tool that can help achieve this balance is a portable life interest. This arrangement provides housing security for a surviving spouse or dependent while allowing flexibility to accommodate changing circumstances.

What is a Portable Life Interest?

A portable life interest is a legal structure that grants a person (the life tenant) the right to benefit from a specific asset, such as a home, for their lifetime. Unlike a fixed life interest, a portable life interest allows the life tenant to relocate or substitute the property under certain conditions.

When the life tenant passes away, the asset (or its substitute) is transferred to the designated remainder beneficiaries—often the deceased’s children. This structure can be particularly useful in blended families, where a testator wants to provide for a surviving spouse while ensuring that assets ultimately pass to their children from a previous relationship.

How Does a Portable Life Interest Work?

1. A property is placed into a trust under a will.
2. The life tenant has the right to live in or receive income from the property.
3. If the life tenant decides to move (e.g., downsizing or relocating), the property can be sold, and the proceeds used to purchase a substitute asset.
4. The life tenant does not own the property outright, meaning they generally cannot sell or gift it to another person.
5. Upon the life tenant’s death, the property (or its substitute) is transferred to the remainder beneficiaries.

Example: How a Portable Life Interest Works in Practice

Scenario 1: Jane’s Life Interest
Jane’s husband, Mark, passes away and leaves their family home in a portable life interest trust for Jane. Jane can live in the home for as long as she wishes. If she later decides to downsize, she can sell the home and use the proceeds to buy a smaller unit. This unit remains part of the trust and cannot be passed to Jane’s own beneficiaries. Upon Jane’s passing, the unit (or its value) is transferred to Mark’s children, as specified in his will.

Scenario 2: Joint Ownership with a Life Interest
John and Mary own their home as tenants in common, each with a 50% share. When John dies, his will grants Mary a life interest in his share, with his children as the remainder beneficiaries. Mary owns her half outright and can live in the property for life. If she chooses to sell, she can retain the proceeds from her half, while John’s 50% remains in trust. The trust may use these proceeds to buy another home for Mary’s use, preserving John’s share for his children.

Key Considerations and Challenges

While a portable life interest offers flexibility and security, it comes with certain complexities:

1. Restrictions on Use

• The life tenant does not have full ownership and cannot gift or bequeath the property.
• Any sale or substitution may require trustee or beneficiary consent.

2. Ongoing Costs and Responsibilities

• The life tenant is usually responsible for rates, maintenance, and insurance.
• Disputes may arise over who pays for major repairs.

3. Family Disputes

• Conflicts can emerge between the life tenant and remainder beneficiaries regarding:
  • Selling the property
  • Investment decisions
  • Maintenance and financial obligations

4. Centrelink and Tax Considerations

• A portable life interest may impact pension eligibility.
• Capital Gains Tax (CGT) implications arise if the property is sold and replaced, depending on tax exemptions and trust structures.
• Trustees should consider CGT rollover provisions and seek professional advice.

5. Risk of Estate Disputes

• A surviving spouse may contest the will if they feel a portable life interest is insufficient for their needs.
• Courts consider financial need, the estate’s size, and the deceased’s obligations.
• Alternative strategies (e.g., direct financial support) may sometimes be more appropriate.

6. Aged Care and Accommodation Costs

• If a life tenant moves into aged care, funding a Refundable Accommodation Deposit (RAD) can be challenging.
• The RAD is refunded to the life tenant’s estate upon their passing, not the trust, which may create unintended estate distribution issues.

Alternatives to a Portable Life Interest

Depending on the family’s circumstances, other estate planning tools might be preferable:

• Fixed Life Interest or Right to Reside – A simpler option where the life tenant stays in the home but cannot substitute it.
• Gift with Conditions – The property is given to a beneficiary outright, with an agreement allowing the surviving spouse to stay for a set period.
  Life Interest with Capital Access – A trust that allows the life tenant access to some capital if needed.
  Superannuation & Life Insurance – Instead of using a property-based structure, financial support can be provided through superannuation or insurance.
  Mutual Wills or Contractual Will Agreements – Ensures assets pass to intended beneficiaries while supporting a surviving spouse.
  Shared Ownership – Leaving the property to both the spouse and children as tenants in common rather than using a life interest.

A portable life interest can be an effective estate planning tool, offering a balance between housing security and asset preservation. However, it is not a one-size-fits-all solution. Careful drafting and legal advice are crucial to:

• Minimise disputes between life tenants and remainder beneficiaries
• Ensure financial and tax implications are properly managed
• Provide sufficient support for a surviving spouse or dependent

If you are considering incorporating a portable life interest into your estate plan, seeking expert advice is essential to tailor a strategy that meets your unique needs.

For specialist estate planning advice, contact Nurture Law today.