Life Estate in Australia: 2025 Guide for Homeowners & Heirs

As Australian property prices soar and families seek more flexible ways to manage inheritance, life estates are emerging as a strategic tool in estate planning. But what exactly is a life estate, and how do recent legal updates in 2025 impact homeowners, retirees, and beneficiaries?

What Is a Life Estate?

A life estate is a legal arrangement that allows someone (the life tenant) to use and live in a property for the rest of their life, after which ownership automatically passes to another person or entity (the remainderman). Unlike a full transfer of property, a life estate splits the rights: the life tenant enjoys possession and use, while the remainderman holds the future interest.

• Example: Mary grants her house to her son Tom, but keeps a life estate. Mary lives there until her death; then Tom gains full ownership without going through probate.

• This arrangement is common when elderly parents want to stay in the family home but ensure a smooth, direct transfer to children.

2025 Legal and Tax Updates Affecting Life Estates

Recent reforms in 2025 have brought life estates into sharper focus for Australian families and advisors. Here’s what’s changed and why it matters:

• Stamp Duty Exemptions: Several states, including Victoria and Queensland, now offer partial or full exemptions on stamp duty for life estate arrangements passed between immediate family members, provided certain conditions are met.

• Centrelink Assessment: Life estates are now specifically recognised in Centrelink’s asset test, with the value of the life tenant’s interest calculated using new actuarial tables updated in March 2025. This can impact pension eligibility.

• Capital Gains Tax (CGT): The ATO clarified in its 2025 guidance that the transfer of a remainder interest may trigger a CGT event if the remainderman is not a direct family member or if the property is not a main residence. Planning is crucial.

These updates mean life estates are more transparent and accessible, but also require careful structuring to avoid unintended tax or benefit consequences.

Pros, Cons, and Practical Considerations

Life estates can be a powerful solution, but they’re not for everyone. Here are the key factors to weigh:

Pros:

  - Ensures the life tenant’s right to remain in the property for life, regardless of changes in family relationships.

  - Can help avoid probate delays and disputes, as the property automatically passes to the remainderman.

  - Potential asset protection against third-party claims or aged care means testing, if structured correctly.

Cons:

  - Limits what both the life tenant and remainderman can do: the life tenant can’t sell or mortgage the property without the remainderman’s consent, and vice versa.

  - Complex tax implications if the property is sold during the life tenant’s lifetime.

  - Possible family friction, especially if the remainderman wants to sell or needs liquidity.

Best suited for families with clear communication and where the property is intended to stay in the family long-term.

When Does a Life Estate Make Sense?

Life estates are gaining popularity among:

• Retirees wishing to downsize their estate but remain in their home

• Blended families who want to provide for a surviving spouse while preserving inheritance for children

• Rural property owners who want to ensure smooth farm succession without forced sales

In 2025, legal templates and professional advice have become more available, making it easier to set up a life estate tailored to your needs. However, it remains critical to document all parties’ rights and responsibilities clearly, including maintenance, rates, and insurance obligations.

Conclusion

Life estates offer Australians a flexible, legally robust way to manage property succession and security in 2025. With updated laws and tax guidance, they’re more accessible than ever—but also demand careful planning. If you’re considering a life estate for your family or your own retirement, weigh the benefits and complexities to ensure it aligns with your long-term goals.