Legal Alert | Kenya | Succession Planning: Creating a Life Interest
A life interest is a right of possession of property that lasts only for the lifetime of its holder who is called a life tenant. When the life tenant dies, ownership vests in the absolute beneficiary named in the deceased’s will or to the next of kin in accordance with the intestacy rules set out in the Law of Succession Act (the Act), which would apply when there is no valid will.
A life tenant holds the property during his life as a trustee and stands in a fiduciary position in relation to the property. The property does not pass to the life tenant absolutely, and as such the life tenant cannot deal with it as if it was his own. This means that the life tenant is generally entitled to use the property for his lifetime, but it would not pass to his heirs upon his death.
Should a circumstance arise whereby the life tenant wishes to dispose of property, he cannot do so without the consent of all the beneficiaries (or their trustees) entitled to full ownership of the property (the absolute beneficiaries). In the case of land, the consent of the court is required for any disposal. The requirement for consent is meant to safeguard the interests of the absolute beneficiaries of the property. It is in this regard that the life interest operates as a trust over the property held by the life tenant for the benefit of the absolute beneficiaries.
Under intestacy rules, a widow receives a life interest in property and the deceased’s children are entitled to an absolute interest on her death. It is important to note that under intestacy rules the life interest of the widow would automatically terminate upon her remarriage and the property would vest absolutely in the children. Similar conditions may be incorporated in a will when granting a life interest to a beneficiary such that on the occurrence of a specified event, the life interest would automatically terminate.
In contrast, a holder of an absolute interest in property has the power to deal with it as he or she wishes.
Possible Scenarios That May Justify the Creation of a Life Interest
Mr. A has adult children and their mother (his wife) died several years ago. He recently re-married and wants to bequeath most of his assets to his adult children, but he wants his current wife to be able to live in his house for the rest of her life or until she re-marries. The adult children live in their own homes. Mr. A could state in his will that he wishes to leave his wife a life interest in the house which ends on her re-marriage. The absolute interest would vest in his adult children when the life interest ends.
Mrs. X is a widow. Upon her husband’s death several years ago, her elderly brother moved into her house. She would like her brother to be able to continue living in the house rent-free for the rest of his life. In her will, she could state that her wish is to leave her brother a life interest in the house with the remainder absolute interest to vest in her adult children on her brother’s death. If she does not make a will the apartment would vest in her immediate next of kin under intestacy rules, in this case, her children.
The life interest option may offer a solution when you wish to provide a loved one with limited proprietary rights during their lifetime. It would be important to seek legal advice when succession planning so that you may consider the various possibilities available to you to help you achieve your intended objectives.
|Mona K. Doshi
The content of this alert is intended to be of general use only and should not be relied upon without seeking specific legal advice on any matter.