Life Interest Trust Wills
Protecting the inheritance interests of your family and loved ones is vital, so the people you name in your will, your beneficiaries, can inherit your estate after you die. But there may be circumstances where you’d prefer your estate didn’t go directly to the beneficiaries, instead deciding that it be held on their behalf in a certain way, making them Trustees.
Life Interest Trust wills have a number of advantages. By putting one in place, you can specify who assumes responsibility of your estate so your home and property is in safe hands and taken care of as you intended, after your death.
At MJR Solicitors, our will specialists can advise you and help you consider all the options for this type of will, as well as including a Life Interest Trust into either a new or existing will. To find out more about a Life Interest Trust and arrange your consultation to discuss in detail, contact MJR Solicitors today.
How does a Life Interest Trust work?
It’s worth considering whether a Life Interest Trust can offer what you need in order to control what happens to your property after your death. While it can provide a way to ensure your beneficiaries or surviving spouse are adequately provided for, and that their inheritance is safe, it also enables provisions for a ‘life tenant’ of your own choosing.
Unless you’ve specified a definite length of time for the Trust to remain in place, the life tenant can then live in your property until they either die, remarry, or choose to cohabit. In any of these events, the Life Interest Trust will end and the ownership of the property transfers to your estate to be dealt with as expressed in your will.
When arranging a Life Interest Trust, firstly you should choose an individual to become the life tenant who will have the right to occupy your property, or to receive income from it such as by renting it out. However, they’ll have no automatic right to any capital invested in the property.
The difference between joint ownership and tenants in common
In the situation where your property is jointly owned with another person, i.e. if you are a married couple, then when you die your share in that property will pass automatically to the co-owner, regardless of whether or not this is stipulated in your will.
Therefore, before you set up a Life Interest Trust, you’ll need to end the joint ownership so that you can choose which individual to gift your share of the property to, rather than it defaulting to the co-owner.
In order to ensure your share of the property goes to the individual you choose and the conditions of their tenancy, you need to make sure the property is owned as tenants in common. You can then use a Life Interest Trust to specify both the beneficiary of your share and the terms of the Trust.
Naturally, if the Life Interest Trust is to stay in place until the death of the life tenant, it is possible that the property becomes unsuitable for that person over an extended period of time. They may, for example, wish to downsize or change location. In this instance, the Trust fund will allow the life tenant to sell the property and purchase a substitute property from the funds raised.
However, any surplus funds for the sale of the original property will be held in trust by your appointed trustees for subsequent distribution to your beneficiaries.
In the case where the Life Interest Trust stipulates that the life tenant has the right to any income generated by the property, as well as the right to occupy it, then they’ll be entitled to any income generated by the sale of the property.
When setting up a Life Interest Trust, it’s important that you appoint between two and four Trustees to manage it on your behalf, although if a professional Trustee is appointed such as a solicitor, then they can act alone.
Whoever you appoint, you should remember that they’ll have total control over your property until it passes to your beneficiaries at the end of the life of the Trust. They’ll be required to act in the best interests of the life tenant, and will be unable to sell the property without the life tenant’s consent.
Why a Life Interest Trust is important for your family
A Life Interest Trust can help you to protect your share of a property such as a family home, in the case of a number of eventualities. For instance, your children’s inheritance can be protected if your spouse remarries following your death, or if there are children involved from an earlier relationship.
In these cases, the Trust enables your spouse or partner to continue living in the property until their own death. During that time, although they’ll be responsible for the upkeep and insurance of the property, on their death, or at the end of the Trust period, the capital raised by the property will be distributed amongst the beneficiaries named in your will.
Assuming the life tenant is your spouse, there’ll be no inheritance tax due on the initial gift since spousal exemption will apply. On their death, the transferable nil rate band allowance can be offset against the inheritance tax allowance already in place at that particular time, which may mean, depending on the value of the estate, that no further inheritance tax is payable.
If the life tenant is your unmarried or civil partner rather than your spouse, there may be additional tax implications. Since spousal exemption will not be available, the value of the property will form part of their estate for the calculation of inheritance tax, even though they’re not the actual property owner.