Life Interests: The Overlooked Estate Planning Move You Should Know About
Did you know?
You can transfer ownership of your home to someone else and still keep the right to live in it for life? This is called retaining a “life interest” (or creating a life estate).
What does this mean?
A life interest lets you transfer ownership of your property, often to your children, while keeping the right for you to live there until you pass away.
After your death, the new owner automatically becomes the full legal owner.
Why do people choose this?
People often use this strategy to:
- Ensure a specific family member will receive the home.
- Simplify their estate and avoid probate or disputes later.
- Manage Centrelink asset tests or prepare for aged care planning.
Tax and duty considerations
Capital Gains Tax (CGT)
If it is your main residence, the main residence exemption usually means no CGT is payable when the property is transferred. If it is an investment property, CGT may apply which is calculated as if sold at market value.
Stamp Duty (Transfer Duty)
In South Australia, stamp duty applies to any property transfer, even if no money changes hands. Duty is based on the remainder interest (property value minus your life interest), or the consideration (price), whichever is greater.
Example:
Imagine your home is worth $800,000 and you’re 75 years old.
If you transfer ownership now but keep the right to live there for life:
- Your life interest (your right to stay) is valued at about 35% of the property:
$800,000 × 35% = $280,000
- The remainder interest (the part you’re giving away) is:
$800,000 − $280,000 = $520,000
- Stamp duty is calculated on $520,000, not the full $800,000. That means duty is about $20,430 instead of $34,830 if you transferred the whole property.
Bottom line: Keeping a life interest can save you thousands in stamp duty.
Things to keep in mind
- You lose full ownership (you can’t sell or mortgage without consent).
- Risks if the new owner divorces, becomes bankrupt, or dies by which your right to live there could be affected in not properly protected by legal documentation (for example, a caveat or a life tenancy clause in an agreement with the new owner).
Compare this with leaving the property in your will
If you keep ownership until your death and pass the property under your will, the outcomes differ:
- No CGT during your lifetime.
- No stamp duty is payable on transfers made through a will or intestacy.
- You retain full control and flexibility during your lifetime.
- However, the property remains part of your estate and can be subject to family provision claims or delays in probate.
Final thoughts
Transferring your property now while retaining a life interest can be a smart estate planning move but it is not for everyone.
Because stamp duty and CGT can be significant, always seek legal and financial advice before deciding.
Want to explore your best option? Contact us today for tailored advice.
This information is general in nature and does not constitute legal advice.
