Some useful guidance on Life Interest Trusts

What is a Life Interest Trust?

A life interest trust is a trust which provides that the capital and income of a fund are to be used by trustees for the benefit of one beneficiary until a triggering event (usually death) after which the assets are distributed to another set of beneficiaries. These trusts are usually set up in your will but can also be put in place during your lifetime. For most of us the only reason we would contemplate a complex will would be if it gave us a tax advantage but there are other considerations.

Succession

For many of us marrying more than once is not unusual. Often this is because your first spouse has died and in these circumstances you might want to be sure that you provide for your current spouse but also for your family. This can be achieved with a life interest trust which allows the second spouse, for example, to live in your house until they die and thereafter for the house to be sold and the proceeds divided amongst your children. A more common husband and wife will may not be appropriate as your children may not inherit from your second spouse if he or she left everything to his or her own children. Similarly it would not be fair to leave everything to your children in your will as your second spouse would have to leave their home and face the possibility of having nowhere to live. Life interest trusts are flexible so you can provide that the right to live in a house (or enjoy income from capital) terminates should your second spouse remarry.

Nursing home fees

In the case of nursing home fees if you were to leave your half of all joint assets to a trust rather than directly to your spouse then this would ensure that at least this half was protected and could be inherited by your ultimate beneficiaries. If after you died your spouse went into a nursing home and the property had to be sold only half the proceeds would belong to your spouse (assuming it is in joint names) and the other half would belong to the trust. The trust could ensure that this half would not be used to pay the fees and only the income would be paid out. Even if you are on your own it may be possible to gain this kind of advantage with a trust providing it is done early enough. In some cases it is possible to argue that where the house is owned half by the trust and half by the spouse who is now in a nursing home, the value of the spouse’s half share is effectively nil because you cannot sell half a house. When this is successful the whole value of the house is disregarded and therefore protected for your beneficiaries.

If you have an enquiry about Trusts or Wills, please do not hesitate to contact us on 020 8514 9000 or allinfo@edwardsduthieshamash.co.uk