Live Course on Drafting of Appeal and Reply of Penalty Notice by CA Sachin Sinha. Register Now!!

capital Gains

C.Balaji (Learner) (1867 Points)

03 April 2010

What does "Life Interest" means???

How it has to be done????

Reply
Follow
Share

2 Replies

Ratan Deep Saxena (Asstt Manager (Accounts & Finance)) (2998 Points)
Replied 03 April 2010

A life interest is an interest in an immovable property. It is created for the lifetime of the person or persons concerned

In many documents, you may come across the term “Life Interest” or “Life Estate”. It may not be clear as to what is meant by this term.

The implications of a person having a life interest in a property may also not be clear. In the event that you are thinking of settling a property or creating a trust also, reserving a life interest may be a useful option. If you have an idea of what it is, it would be helpful in dealing with properties.

A life interest or a life estate is an interest in an immovable property. It is created for the lifetime of the person or persons concerned. The ultimate interest is always in favour of another person. The life interest or the life estate ends on the death of the person in whose favour it is created. At times, the persons who hold life interest are also called “Life Tenants”.

A life interest holder is entitled to certain benefits in the property. He or she can receive rent or other income derived from the use of the property.

The person concerned will have a right to reside in the property, if the nature of the property permits the same. However, there are certain limitations as well.

One is that as the term itself implies, a life interest holder does not have absolute interest or control over the property. He or she cannot deal with the property independently. A life interest cannot be sold or transferred as a further life interest in favour of any third party. The life interest holder cannot create a better interest in favour of any other person. Although the life interest holder can exercise various rights, there may not be an immediate commercial value attached to the life interest. A life interest holder cannot by himself or herself, undertake even development of properties, without the consent of the ultimate interest holder. A life interest holder cannot commit acts of waste and damage to their property, which an absolute owner is entitled to.

A life interest can be normally created by a Will or by deeds such as settlement, gift, formation of Trust, etc. There are many types of life interests. The owner can reserve a life interest for himself or herself. The owner can create a life interest in favour of a third party. The owner can create a life interest in favour of one or more persons including the owner himself or herself. A life interest can also be created for the life of the longest lives of several persons.

Good strategy

Though there are certain limitations for a life interest holder, it is also a very useful tool for distributing or bequeathing one’s property. It can be a good strategy to adopt depending on one’s requirements and necessity to dispose of the property.

The interest of oneself, one spouse and other family members can be reasonably protected by means of creating a life interest.

It can be ensured that the ultimate beneficiary does not deprive certain rights and benefits which are available to a life interest holder. If created by proper use of documents, it can also create an immediate interest and further result in transfer of property to the ultimate beneficiary without obtaining Probate or Letters of Administration. It can be used as an effective method of settlement of claims and disputes. It can be used as a balancing mechanism to reduce the scope of disputes and litigations. Further, it gives clear and exercisable rights for the persons in whose favour it is created.

As such, the usefulness of creating life interest in matters like Estate Planning cannot be understated.

It is however, advisable for a person to understand full implications of this in implementing a plan for the Estate.

A few issues may arise in the implementation of a Life Estate Plan. There could be a situation where the life interest holder survives the ultimate beneficiary.

Take for example, that ‘A’ creates a life interest in favour of ‘B’ and the ultimate interest in favour of ‘C’. It is possible that ‘C’ may die earlier than ‘B’. In such cases, ‘C”s legal heirs will be entitled to the interest of ‘C’.

There could be another instance where the life interest holder has alienated or purported to alienate his interest. In such cases, whether such interest will also last for the lifetime of the transferee in addition to the lifetime of the life interest holder may be an issue which can arise. In such cases, it will last only during the lifetime of the original life interest holder. The life interest is a valid interest created in law and is recognised as such. In the event the property in which a life interest is created is to be sold, the life interest holder and the ultimate beneficiary can together sell or deal with the property provided they are otherwise competent to do so. The life interest holder can also receive a consideration for transferring his or her interest in such sale or other transactions.

Although, I have used the words “Ultimate Interest Holder”, ‘Ultimate Beneficiary’, etc, they are in law known as “Remainder-man”, meaning persons entitled to the ultimate estate. The difference is that they get an immediate interest in the property, but absolute ownership and title is postponed during the lifetime of the life interest holder. These words have to be understood in the context.

A life interest can be extinguished or released or relinquished in favour of the ultimate beneficiary as well. This has to be done by a proper document and registered wherever it is necessary. The ultimate beneficiary can also transfer his or her interest in favour of the life interest holder by a suitable document.

A person creating a life interest in favour of another has to undertake certain precautions. The life interest must be effectively created to meet the requirements and plans of the person granting the same.

These are only broad guidelines and it will be good for a person to take professional advice when creating or reserving life interest in properties. The intention of the person, who creates such interest, can be best implemented only if all the aspects relating to creation of life interest are fully understood and properly captured in a suitable document.

regards,

ratan

1 Like

Anuj Aggarwal (Academic content developer) (31 Points)
Replied 03 April 2010

what really has been proposed regarding replacement of previous year concept in the budget???

Recent Topics

More recent discussions | Post

Related Threads

Popular Discussion

Start a New Discussion

Trending Online Classes

5th Live Batch for Basic and Advanced MS Excel

CA Vishal Zawar

Enroll Now

20 May 2024
Live Course on GST on Online Gaming(With Recording)

CA Vishal G Poddar

Enroll Now

11 May 2024
Live Course on Drafting of appeal and reply of penalty notice, Rectification and stay of demand (with recording)

CA Sachin Sinha

Enroll Now

25 May 2024

view all classess

Subscribe to the latest topics :

Search Forum:

Forum Home

Popular Threads