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Life Interest Trusts – The definitive guide!

Life interest trusts offer a method of protection for your property and other financial assets. In this article we will explain:

–       What is a life interest trust?

–       Who are they suited to?

–       How you can set one a life interest trust will up?

–       Tips for choosing trust providers

A 60 second summary

A life interest trust enables you to allocate a beneficiary (usually yourself and/or a spouse or family member) who then has the legal right to receive income from or use a property named in the trust. Lifetime trusts are also known as ‘interest in possession’ trusts.

This can sometimes help to guard against the impact of Inheritance Tax, which you can manage through estate management and planning.

In this article we will cover the intricacies of life interest trust wills and explain how they can be beneficial, who they are best suited to and why professional assistance matters when you decide to set one up.

What is a life interest trust?

A life interest trust is a type of trust that can be included in your will. It allows you to specify who owns the rights to your property – which can protect you and family members should you need care in the future. It’s also a good way to preserve your assets and protect against Inheritance Tax.

Lifetime trusts are particularly popular because they are very flexible compared with alternative options. In a situation where a couple is married, other similar trusts specify that all assets are passed to the survivor automatically.

A lifetime trust allows for additional assets to be passed to other family members and beneficiaries, too.

The trust can be set up in advance but is in fact created upon the death of the first spouse. It will then pay an income to the survivor for the duration of their lifetime. When they eventually pass away the trust is then transferred to their beneficiaries – usually children – with no Inheritance Tax to pay.

Funds contained within the trust cannot usually be considered during a financial assessment should the survivor require care in the future.  However, you should always check this point when you set one up.

Who are life interest trust wills best suited to?

Life interest trust wills are best suited to couples – married or in civil partnership – who:

–       Would like to preserve assets as much as possible for their beneficiaries (children and family members)

–       Want to protect themselves and loved ones against the impact of Inheritance Tax

–       Want to ensure that no part of their property can be used towards a financial assessment for care provision

What are the pros and cons of lifetime trust wills?

As with all financial products and trusts, there are pros and cons attached to life interest trust wills.

Benefits include:life interest trust

– Protection for your property against financial assessment. This reduces the impact residential care home fees will have on your estate

– Powers which ensure that capital can be paid to nominated beneficiaries (normally children) prior to the death of the survivor

– Most lifetime interest trust wills can be converted into different types of trusts if required. This offers peace of mind in case your circumstances change

– You can be completely sure who will receive the value of your assets/property upon your death

– You can ensure that your spouse is provided for upon your death whilst protecting capital for other family members in the future

There are also potential drawbacks – depending on your personal situation. These include:life interest trust wills

–       Full understanding and careful consideration of trustees is important. Your property will be legally owned by them

–       A thorough review of the tax implications of setting up the trust. Some trusts will not provide significant tax relief until the death of the trustees and there may be several different types of tax liabilities applicable, including income tax and Capital Gains Tax

–       If you remarry or your circumstances change the terms of the trust may be affected.

Here is a short video that explains more about life interest in property trusts.

Tips for choosing providers of flexible life interest trusts

Flexible life interest trusts are offered through certain financial trust providers and must be set up by a solicitor.

When choosing to opt for a trust fund it’s important to first obtain all the facts and some sound legal and financial advice. This ensures that you are choosing the best product for you – a trust that fits your circumstances. First you’ll need to appoint a solicitor to talk you through the options available and set up a watertight trust structure on your behalf. If you don’t have a solicitor that you know that specialises in this, we can help you.

You may like to do some research online first and ask for impartial testimonials from family and friends who have been in a similar situation. Most legal professionals offer a trust fund set up at the same time as will creation or review for a fixed fee.

How to set up a lifetime interest trust

Setting up a life interest trust can be a very complex process. The details will depend on your specific situation and wishes.

For this reason it’s very important to enlist professional advice from a reputable solicitor and/or later life financial advisor who specialises in trust funds. You may also like to consult family members if you wish to help you to make your decision.

If you would like our help in putting you in touch with a solicitor that has the legal skills to set up a trust will for you, please leave your details below.  We will then arrange for a legal specialist to give you a call.


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