When planning your estate, it is important to think about what will happen to your family home when you pass away.

For many people, their home is their most valuable asset. They may want their surviving spouse, partner or another family member to continue living in the property, rather than having to sell it or move out.

One way to achieve this is by including a Right to Reside in your Will.

A Right to Reside can provide security for the person living in the property while allowing the property to ultimately pass to someone else. Importantly, when structured correctly, it may also help preserve valuable Capital Gains Tax (CGT) exemptions.

What is a Right to Reside?

A Right to Reside is an arrangement that allows someone to live in a property, usually for the rest of their life, without actually owning the property.

For example, a person may leave their family home to their children in their Will but give their spouse the right to continue living in the property for the rest of their life.

The children ultimately receive ownership of the property, but they cannot simply force their parent to leave while the Right to Reside remains in place.

This arrangement can be particularly useful in blended families, where someone wants to provide for their new partner while making sure their children eventually inherit the family home.

When should you consider a Right to Reside?

There are several situations where a Right to Reside may be worth considering.

1. Second marriages and blended families

This is one of the most common reasons to use a Right to Reside.

You may want your current spouse or partner to have somewhere to live for the rest of their life, but you also want your children from an earlier relationship to inherit your property.

A Right to Reside can help achieve both objectives.

2. Protecting a surviving spouse

A Right to Reside can ensure that a surviving spouse is not forced to sell the family home or move out following the death of their partner.

It provides certainty and security at a difficult time.

3. Protecting family assets

You may want your property to ultimately pass to your children, rather than becoming part of your surviving partner's estate or potentially passing to other beneficiaries.

A carefully drafted Right to Reside can help achieve this outcome.

How can a Right to Reside help avoid Capital Gains Tax?

Capital Gains Tax, commonly called CGT, is a tax that can apply when a property is sold for more than its cost base.

The good news is that Australian tax law provides exemptions for certain properties, including a person's family home.

There are also special CGT rules that apply when someone passes away and their family home is dealt with through their Will.

In some circumstances, a full CGT exemption can be available when the property is eventually sold.

A properly prepared Right to Reside in a Will can help preserve access to this exemption.

This is particularly important where a surviving spouse or another eligible person is given the right to continue living in the property after the owner's death.

The arrangement needs to be properly established in the Will and meet the requirements of the tax legislation.

Getting the wording right from the beginning can make a significant difference to the tax outcome when the property is eventually sold.

Why is the wording of your Will so important?

A Right to Reside needs to be carefully drafted.

It is not enough to simply say that someone can stay in the property if the family agrees.

The Will should clearly set out:

• Who is entitled to live in the property.
• How long the right will last.
• Who pays council rates, insurance and maintenance costs.
• Whether the property can be rented out.
• What happens if the person moves into aged care.
• What happens if the person chooses to move out permanently.
• When the property can ultimately be sold or transferred.

The wording is also important for CGT purposes.

The ATO has issued guidance about what qualifies as a Right to Reside under a deceased person's Will for the purposes of the main residence CGT exemption.

The requirements are quite specific. An informal family agreement or an arrangement made after someone has passed away may not be enough.

This is why it is important to get proper legal advice when preparing your Will.

Getting the right advice

A Right to Reside can be a valuable estate planning tool.

It can provide security for your loved ones, protect family assets and potentially help avoid unnecessary Capital Gains Tax.

However, getting the structure and wording right is essential.

A poorly drafted Will or an informal arrangement may result in unexpected tax consequences, family disputes or difficulties when the property eventually needs to be sold.

At Fox & Staniland Lawyers, we can assist with preparing Wills and estate planning arrangements that take into account your family circumstances and your long-term intentions.

If you are considering a Right to Reside, or want to review your existing Will, contact Fox & Staniland Lawyers to discuss your options.