As Abraham Lincoln once put it, “Private property is a result of hard work”.
Indeed it is, but, it is also a result of inheritance. Hard working people know the value of property, and hence, they create wills and testaments to transfer their legacy. Lazy people however do not care to create new property and dispose off what they have inherited. It is always important to preserve your hard earned property and for that you should be aware of the all the possible ways you can do it. One of the important things that you can do with your property is that you can create a life interest on people whom you would prefer.
What is life interest?
In order to understand life interest, let us assume that an owner of an estate transfer that estate to a person. In normal circumstances that person to whom that estate is transferred will have all the rights over the estate including the right to transfer that estate to someone else. In a life interest, however, you can transfer the estate to a person for his lifetime after which the property gets vested in the next generation or as defined in the will or deed. The person in whose favour a life interest is created can be considered a life tenant. Such person can enjoy the property as the owner but he cannot transfer it to someone else.
Benefits and Drawbacks of creating a life interest
Like every legal instrument, a life interest also has certain benefits and drawbacks. By creating a life interest one can avoid the long and slow probate process, which is a process done by the courts to determine the legal heirs according to the will i.e. execution of the will. . In India, an interest can also be created in favour of a unborn child.
Section 13 of the transfer of property act, reads as under:-
Where, on a transfer of property, an interest therein is created for the benefit of a person not in existence at the date of the transfer, subject to a prior interest created by the same transfer, the interest created for the benefit of such person shall not take effect, unless it extends to the whole of the remaining interest of the transferor in the property.
So if a interest is created in favour of an unborn child, the person who holds the property as long as the child is not born (or is of the age of majority) will have the life interest in the property.
In this way, a property can also be protected for a posterior generation.
However, there is a major disadvantage of a life interest ¾ the person who has life interest will often lose interest in preserving the property and will not maintain the property because of which the property will lose value or become non-usable. This defeats the whole purpose of a life interest which is to preserve the property so that another person can benefit from it.
How to create a life interest?
- Consult an advocate. The first step that you should take is to consult an advocate. An advocate who is well versed in the matters of property can guide you in creating a legally sound life interest deed, which can withstand the challenges in future.
- Create a life interest deed. The advocate and then help you drafting the life interest deed and have it registered. Mainly, the deed should have the personal details of the life tenant and the transferor. The deed should have a separate clause which talks about the life interest that is granted to the life tenant and the deed should be signed by both the parties. The life interest deed can be effected through a will. .
- Register the deed. The final step is to get the deed registered at the place where the property is situated, just like how it is done with the will. Registration is necessary to make the deed valid, and this will create a record which can be used for a future reference.
Here, we should understand that the life tenant, who gets the property for life, can collect all the income and profits arising out of the property. But benefits always come with burdens. The life tenant should maintain the property during the lifetime. In other words, the life tenant should bear all the costs including reparation costs, tax payments etc. So, before you make a will bear these things in your mind.