What Is A Life Interest Trust?

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When you make your Will to set out your final wishes, it’s easy to include a trust that gives someone a life interest in your property or any other assets, without them actually leaving your estate. Life Interest Trusts are an ideal way to give your loved ones reassurance that they’re protected and provided for after you’re gone while protecting your most valuable assets for future beneficiaries.

What is a Life Interest Trust Will?

A Life Interest Trust is a type of trust that can be written into your Will. It means a trustee (anyone with a ‘life interest’ in the asset, usually a spouse or partner) holds the assets (which is commonly a property) in trust on behalf of any named beneficiaries.

When a spouse or partner dies, the remaining spouse or partner gets the ‘life interest’ or ‘right to reside’ and can continue living in the same property for the remainder of their own life. When the trust ends at this time, the property then goes to the main beneficiaries, but not before. A life interest allows you to split the benefit of an asset between different parties.

Different parties of a Life Interest Trust

When a Life Interest Trust is added to a Will, it automatically creates a third party, added between the Donor (the creator of the Trust and Will) and the final, named beneficiary. This third party is the ‘Trustee’ who becomes the legal owner of the property and has the right to continue living there until they die themselves and the trust ends.

Who needs a Life Interest Trust?

Life Interest Trusts are best suited for couples who are married or in a civil partnership. Creating one is a sensible option if you own your home and want to protect both your beneficiary’s inheritance, as well as your spouse’s right to live there, after you die. 

Having the trust in place prevents the risk of your property being transferred directly to your beneficiary, which might leave your spouse or partner unable to continue living in the property. Here’s an example:

In a typical Life Interest Trust Will, Mrs B would leave her share of the family home to her children and grant Mr B the right to live in the home and use it as his own for the rest of his life, as a Life Tenant.  So, when Mrs B died, the Life Interest Trust would be set up and the Title Deed of the house would be changed so that it’s owned by Mr B and the children. Therefore, Mr B is not the sole owner of the home and Mrs B’s share can’t be taken into consideration for care home fees.

Retaining a life interest in the property, providing that it passes to your children on your death, is not currently regarded as a deprivation of capital for purposes of local authority assessment for care fees. But developing case law may lead local authorities to enquire more carefully into these arrangements in future. 

The advantages of a Life Interest Trust

The key advantage of a Life Interest Trust is that, even after death, you can control who owns your property after you die. You can be sure your surviving spouse or partner has the protection of being able to continue living in the home, while half the property will be passed to your main beneficiaries.

There’s also the guarantee that the remaining spouse’s half of the property can’t be used to pay for any long-term care fees. This is a practical way to avoid your asset’s value disappearing into paying for care. It also helps to avoid potential difficulties that may come about with a future re-marriage. 

While any new spouse can live in the house, following the death of the original surviving spouse, their half of the property will then pass onto the main beneficiaries.

The disadvantages of a Life Interest Trust

While a Life Interest Trust is advantageous, it also has some drawbacks. When you die, your spouse or partner doesn’t automatically gain full control of the whole property outright – they only have the right to live there. This may not be an issue if you and/or your spouse are older, but it can present problems if you’re both relatively young. 

When you’re young, your home is likely to be your biggest asset. Only being able to access half of its capital could bring financial problems you might not encounter if you just had a standard Will. In this situation, a Life Interest Trust may not be the best option. There may also be further complications if you and your partner divorce and/or remarry.

How to choose trustees for your Life Interest Trust

Who you choose to be the trustee of your Life Interest Trust is entirely up to you. But, as with any personal affairs, it should be someone you know well and trust. In most Life Interest Trust cases, the trustee is usually a spouse or partner.

You could also add one or two close friends or family members as well to share the responsibility. This might make it easier to make any final decisions that should be made in the best interests of the main beneficiary.

How do I set up a Life Interest Trust?

Though fairly easy to understand in theory, setting up a Life Interest Trust as part of your Will can have plenty of complications to navigate along the way. There can be several layers of legal issues, including changing title deeds, to get through before a Life Interest Trust can be set up properly – all of which need to tie in with your circumstances and wishes.

But if it’s the best option for you and your spouse and family, contact our team of Will specialists at MJR Solicitors today. We can get the ball rolling for you, together with helping you with any other Will or Estate Planning you need.

Can a Life Interest Trust be terminated?

Yes – termination can happen for several different reasons, including if your spouse or partner dies or remarries, or the life tenant simply decides they no longer want to live in the property. The trustees and beneficiaries must all agree they want to terminate the Life Interest Trust early, but early termination can bring certain Inheritance, Capital Gains, or Income Tax complications.

Trusts are not ‘one-size fits all’ as your circumstances and wishes will be different to everyone else’s. This is why there are plenty of different Trust options around that will suit your needs and those of your nearest and dearest. Set up during your lifetime, many popular trusts can overlap with others, including a Life Interest Trust.

Choose MJR Solicitors to be your Life Interest Trust provider

Any legally-binding Trust can be a complicated process with many factors to take into account, including knowing exactly what the right Trust is for you and your circumstances.

MJR Solicitors are experienced specialists in setting up Life Interest Trusts, making it a much easier and hassle-free process for you. Our expert team can give you advice and guidance while explaining your options in plain English, so you have all the facts and information you need. 

So book your free 30-minute consultation with us today by calling our team on 01243 945 054, emailing us at info@mjrsolicitors.co.uk or by sending us a message on our contact form.

Mark Riley

Mark Riley is a specialist lawyer offering services including Wills, Estates Administration and Tax planning. Mark has studied around the world, including a few years in Australia. Whilst there he met many amazing and inspirational lawyers. He worked with a small boutique family firm, who’s approach was so laid back and friendly it “felt right”. He decided to bring that approach home where he hopes to continue with this ethos.

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