What is a life interest?
An interest in an asset is an entitlement to the income or capital proceeds of the asset.
A life interest is an entitlement to an asset for the term of the beneficiary’s life. For example a life interest in a property would involve an entitlement to live in a property for life. A life interest in an investment portfolio may involve receipt of income generated by the portfolio for life.
On the death of the life beneficiary, the asset which had been subject to the life interest may be liquidated, and the proceeds distributed to the nominated capital beneficiaries. This interest in an asset, subject to the death of the life beneficiary, is the remainder or residual interest.
Life and remainder interests are themselves examples of contingent interests. A contingent interest is any interest where the entitlement depends on a certain event occuring. A life interest depends on the individual surviving. Another contingent interest would be an individual who, under the terms of a will, becomes entitled to a certain asset on reaching a given age.