John and Sue are married out of community of property.  They both have children from a previous relationship.  They moved into a retirement village due to the "resort style" living, security and easy access to specialised medical care.  John bought the life right on their behalf (which he paid for).  The contract is signed in both their names.  They lived stress free, happily ever after, until the day that John unfortunately died.  This article deals with what happens to their life right on John's death as well as on Sue's death.

It will only be fitting for me to start with a very general definition of a life right, namely that "you" as the retiree (a person 50 years or older), purchase the right to live in a home in a retirement village for the remainder of your life while the developer retains the unit's ownership.  The amount that your deceased estate will receive on your death as compensation is outlined in the contract"

It is important to keep in mind that you cannot bequeath your life right to anyone in your Will.  The right will revert to the developer on your death and they will in turn, resell the unit. Alternatively if you bought the right as a couple in both your names, the right will first revert to the surviving spouse (or partner).  No compensation is paid to the surviving spouse on the first dying's death – the life right simply continues in favour of the survivor.  Only on the death of the surviving spouse will an amount become payable to that spouse's estate as per a default clause in the contract.  *"The life right cannot be split.  This means that the estate of the first spouse to die, receives no benefit or compensation.  This is a very important consideration if you and your spouse have different provisions in your Wills.  Depending on who dies first, there may be a significant gap in what you thought your loved ones would be inheriting."

If John had children from a previous relationship and he died first, his children would certainly not benefit from the resale of the unit, as the right to compensation would pass to Sue, in terms of the contract.  Therefore, unless you, before signing the contract, specifically alter the standard default clause (which normally reads:  "The proceeds of the sale on the survivor's death to his/her deceased estate" - in this case to Sue's estate), she will most probably bequeath the proceeds to her children (from a previous relationship).

My advice to the reader of this article is to make very sure that you amend the default clause in your life right contract for the balance of the resale/compensation price to be paid to your beneficiaries/heirs of your choice and not necessarily end up in the hands of your surviving spouse/partner's children or heirs.

All of this seems so simple, yet in my experience in the administration of deceased estates, at least 8 out of 10 couples have not thought this through. This then leaves the executor of both deceased estates to explain to the children, of John in this case, why their father paid for a life right, of which they no doubt expect the proceeds of the resale to come their way and which most probably won't, when eventually sold.

The intention of this article is not to deal with the pros or cons of life rights, but should you be in need of more detailed information regarding the legal and/or financial implications of buying into such a scheme, you are welcome to contact myself, T Tannous at Millers Inc, George.

The Life Rights Scheme has been officially recognised by the Housing Development Schemes for Retired Persons Act 65 of 1988 (HDSRPA).