Here's a note for attorneys involved in probate matters and the creation of testamentary instruments.
If you are involved in the administration of an life estate after the death of the life tenant, or if you are asked to prepare an instrument creating a life estate, beware that the rule that a life tenant may consume life-estate property during his or her lifetime does not automatically apply to life-estate property in cash or its equivalent, such as mortgage notes, stocks, or bonds.
Instead, the right to consume life-estate property automatically extends only to those things which cannot be enjoyed without consuming them. Contrary to intuition, cash or its equivalent is, as a matter of law, not one of those things.
In In re Estate of Bozarth, 2012 IL App (4th) 130309, the Fourth District revisited the supreme court's 1938 decision in Quigley v. Quigley, 370 Ill. 151, 18 N.E.2d 186 (1938), which held that “[i]t is well settled that a gift of the use of money to a life tenant is a gift of interest and not of the corpus.”
An easy work-around exists: the right to consume life-estate cash or its equivalent must be explicitly stated in the instrument creating the life estate. This language must be very explicit. At ¶ 42 of the Fourth District opinion, the court cites examples of language that would seem to most attorneys obviously sufficient to confer the right of consumption over life-estate property. However, courts have consistently held that no right to consumption exists unless the right of consumption is explicitly conferred. Merely granting the right "to use and enjoy" is not enough.