What Is a Life Interest?

M. Lupica

A life interest is defined as a right of possession of either real or personal property that lasts for the lifetime of the holder of the life interest, called the life tenant. When the life tenant dies, ownership reverts to another party, called the remainderman. These interests are most commonly given in trusts or real property. One particular form of interest is called life estate, which usually involves a property that is possessed for the life of the life tenant, but reverts to the remanderman upon the life tenant's death.

Life interest refers to the right of possession of real or personal property that lasts for lifetime of the life tenant.
Life interest refers to the right of possession of real or personal property that lasts for lifetime of the life tenant.

An interest in possession trust is one of the most common ways that a life interest is conveyed to a life tenant. The life tenant acts as the beneficiary of the trust and receives all the income of the trust, after expenses are deducted. The beneficiary generally holds no ownership of the trust assets, though depending how the trust is structured, they may be entitled to capital disbursements of the trust assets. There are usually tax benefits to keeping certain property in an interest in possession trust, which is usually the reason for their creation.

Another common instance of a life interest is in real property. Often a deceased person will convey to their heirs a life interest in a piece of property with a remainderman to whom the ownership of the property will revert upon the life tenant’s death. This allows the decedent to allow someone of their choosing to enjoy the property for their lifetime and still dictate that another person retain the benefits of ownership upon the life tenant’s death.

Whether their life interest is in real property or a trust, a life tenant’s interest dissolves upon their death and they have no right to convey their interest to any heirs through a will. They may, on the other hand, convey their interest to a third party while alive. That third party’s interest will still revert to the remainderman when the original life tenant dies.

While acting as a life tenant, there are some restrictions. The doctrine of waste gives any remaindermen a cause of action if the life tenant is acting in a way that devalues the land for future owners, since their interest in the property is not absolute. Most commonly, the remedy is simply an injunction to cease the damaging activity. If the waste is particularly egregious, the court has discretion to award monetary damages to the plaintiff as well.

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