What is a “Life Interest Trust” Will?
A “Life Interest Trust” Will is a Will designed to help protect
your property from being lost on the remarriage of the surviving partner or to
an assessment to long term care fees and aims to prevent a share of the
property passing to other beneficiaries other than those you would want to
benefit.
The half share of the family home belonging to the first person to die,
passes into the trust on their death. This type of Trust provides the surviving
partner with a life interest in the
property, which means that they can live in the share of the house in the trust
during his/her lifetime, and on their death, the trust fund passes to the
beneficiaries specified in the first deceased’s partner’s Will.
Frequently Asked Questions
How does a Life Interest Trust will work?
Both parties would need to include a Life Interest Trust in their Wills leaving their share of the
property to the Trust .
By leaving a life interest in the property to the surviving partner, the surviving partner is able to remain in occupation of the property for the rest of their life, however they will not own the entire property.
They will still
own their 50% share, but the deceased’s 50% share, will be held by the Trustees upon the terms
of the Trust. Should the surviving partner wish to move, the Trustees can agree to the sale of the property, and the new property would then be purchased jointly in the names of the deceased partners Trustees and the surviving partner.
There are several advantages to leaving a Life
interest Trust in your Wills and these include:
- If the surviving partner got married or were to re-marry, and either failed to make a new Will, or did make a new Will but did not make adequate provision for the children or the deceased’s partner’s nominated beneficiaries, then as the deceased’s 50% share of the property is held in the Trust, this is safeguarded and would then be able to be passed on to the deceased’s beneficiaries.
- In the event the surviving partner needed to go into a nursing home, then only their 50% of the property will be taken into
account in any means assessment. This is because they will not own the property
in its entirety. They will own their 50% share,
but as the deceased partner’s 50% share
would be held in the life interest Trust, then this 50% share, would be
owned by the Trustees of the deceased’s estate. As the surviving partner will have a life interest, they will be entitled to any income generated in the Trust i.e if the property was sold and the money invested, any interest generated would be paid to the surviving partner which could then be used to help fund their nursing home care.
Example Mr. and Mrs. White own their
house in joint names and have other joint savings. Mr. and Mrs. White want to ensure that their
respective half shares of the house ultimately pass to their children whilst
ensuring the survivor has the protection of living in the property for the
remainder of their lifetime. They also want to ensure that if the
survivor of them requires long term care or remarried, at least half the
property is preserved for the benefit of their children.
If Mr. White dies first, he leaves his half share of the property in a
life interest trust, with the remainder of his estate left to Mrs. White.
Mrs. White will be given a right to live in Mr. White’s half share of the property in his
Will, which also gives her the provision to
move house. His Will then says that when Mrs White dies, his
share of the property ( or value of his
share of the property) is to pass to
their children. Even in the event either Mr. and Mrs. White’s children
are made bankrupt, become divorced or predecease Mrs. White, her occupation is
secured.
If Mrs. White remarries or requires long term care, Mr. White’s half share of the property is
ringfenced and protected as it is held in the life interest trust. On
Mrs. White’s death, the life interest trust comes to an end and anything held
in the Trust ( which would be Mr. White’s half share of the house or proceeds
of sale of this), would be transferred to the children free from any Capital
Gains Tax.
What happens to the title deeds?
In order to
undertake Life interest Trust Wills, the property will need to be owned as Tenants
in Common and not as Joint Tenants. This is because, if the property
is owned as Joint Tenants, the deceased’s partner’s share of the property will
pass automatically to the surviving partner and the Will clause relating to the
Life Interest Trust will therefore not
be able to take effect.
Should the property be owned as Joint tenants, then
a Notice of Severance will be needed in order to sever the tenancy and then an
application will need to be made to the Land Registry to amend the title deeds.
On the death of the first partner, the legal title should be transferred
into the joint names of the surviving partner and the deceased partner’s
Trustees (these are usually the same people as their Executor/s). The surviving
partner can be one of the Trustees. We at Harvey Baker can sever the tenancy on
the property at the same time as preparing your Wills.
Who controls the Trust?
The Trustees control the Trust. The Trustees will usually be the
surviving partner and at least one other person. This additional Trustee can be
anyone of your choosing as long as they are over 18.
Could the Trustees evict the surviving partner?
No. The Trust gives the surviving partner a right of occupation in the
property for the rest of their lives. The surviving partner also has a right of
occupation by virtue of the half share of the home that they own.
What are the Inheritance Tax implications?
There are no adverse inheritance tax implications.
What happens if the surviving partner needs to
move into residential care?
The value of the half share of the property in the Trust is usually
disregarded for the purpose of financial assessment by a Local Authority. The
half share belonging to the surviving partner is a capital asset of the
surviving partner and so may be subject to assessment.
Is it not easier if we simply give half of the
property to our children when one of us dies?
It might seem more straightforward, however, if you do this, you will be
placed in a vulnerable position should any of your children become bankrupt,
get divorced or die during your lifetime as a sale of the property could be
forced to make the child’s share of the property available to his/her
creditors, the Court or his/her Executors. Or, you might simply fall out with
your children and they could request that the property be sold, so that they
can receive their share of the cash proceeds of sale.
If a half share of the property is owned outright by the children, and
the property is sold when the surviving partner dies, and the children’s share of the property has increased in value
from the date of the gift and the property is not their primary residence, then the children may be
exposed to Capital Gains Tax.
There will not be any Capital Gains Tax liability on the share of the
property held by the Trust since the Trustees can claim principal private
residence relief as a result of the surviving partner’s right to occupy.
What if the surviving partner wants to move
house?
This is not a problem. The family home can be sold and an alternative
property purchased. If the property which is purchased costs less than the
original property, any profit would be shared equally between the surviving
partner and the Trust.
What if I change my mind?
Since the Trust does not come into existence until the first partner passes away, you can simply change
your Will(s) before this time.
Should you require any further information on preparing a Life interest
Trust Will or you wish to make an appointment to prepare a Life Interest Trust
Will, please call our team on 01443 565693.