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The Rising Popularity of Life Interest Trust Wills

Estate planning is a crucial aspect of individual and family finances.

Among the various tools available for estate planning, Life Interest Trust Wills have gained significant public attention, especially from the MoneySavingExpert Martin Lewis; who is a common source for a sudden influx of incoming Will appointments.  These types of Wills provide a flexible and secure way of maintaining control of how your assets are distributed.

What is a Life Interest Trust?

A Life Interest Trust Will, also known as an Interest in Possession Trust, is a mechanism to preserve/ring fence an asset for your loved ones and is set up by creating a Will. It is most commonly used for married couples who own a property together, wishing to ensure as much of their property as possible passes on to their children.

How it works

The most common form of joint ownership for property is as ‘beneficial joint tenants’; this means you both own the whole property together. If one owner dies, the survivor owns the whole, automatically (irrespective of what your Will or the intestacy rules provide). This is not ideal where care home fees may be expected or your estate may be split between a blended family, or where the survivor may remarry, change their Will or otherwise redirect their estate.

For a Life Interest Trust, the property must be held as Tenants in Common, where each party owns a distinct individual share of the property (usually 50:50). These 50:50 shares allow the deceased’s share to be ringfenced by a trust in their Will.

When the first spouse dies, the survivor (“The Life Tenant”) will not receive the deceased’s share as capital, but rather they will benefit from it by virtue of the Will trust. This does not stop the Life Tenant living in the property, and they could move and the trust can move with them. Similarly, the property could be sold, and the deceased’s share of the sale proceeds would be retained in the trust and invested.  The terms of the trust allow the Life Tenant to live in trust property, and to receive any income (rental, interest, dividend) arising from the trust fund.  

When the Life Tenant dies (or in some cases, remarries, or voluntarily gives up the trust) the beneficiaries named by the first deceased (usually their children) will receive their inheritance.

Benefits of forming a Life Interest Trust

The Trust can be advantageous for several reasons.

  1. The deceased’s share of the property is ringfenced and not exposed to the circumstances of the survivor, for example if they entered into care, remarried or became bankrupt.
  2. If you die first, you have control over who will inherit your share of the property. The survivor cannot change this.
  3. There is flexibility over the terms of the trust, for example, you can stipulate the conditions for maintaining the property and add the provision for consent from the beneficiaries before the property is sold.

Disadvantages of forming a Life Interest Trust

Despite the overall benefit of having a Life Interest Trust in place, there are several matters to consider before forming a trust:

  1. You may not like the prospect of part owning your property with a trust, expecting to own your home outright on the death of your co-owner.
  2. Any trust arrangement does, by its nature, require a greater level of administration. On first death, the trust will likely need to be registered with both the Land Registry and HMRC.
  3. There may also be tax implications. Understanding and managing these tax implications can be complex and you may require professional advice.

Here to help

At Glanvilles, you can consult one of our Solicitors in the Private Client team for tailored advice to suit your individual needs as well as in an office location that works best for you. 

Fareham - 01329 282841             Havant - 02392 492300            Chichester -  01243 787899            Petworth - 01798 342391

 

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice, and should not be relied upon as advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. All content was correct at the time of publishing. Legal advice should always be sought in relation to specific circumstances.