Your Will Creates the Trust
On your death, the asset or share of property covered by the Will trust is held by the trustees according to the terms you have chosen.
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Making sure your property passes as you choose, with a life interest trust
Making sure your property passes as you choose, with a life interest trust
A life interest trust in a Will can allow one person to benefit from your property or other assets during their lifetime while preserving the underlying capital for the people you ultimately want to inherit.
This can be particularly useful for blended families, second or later relationships, couples who have built up assets independently, or anyone who wants to balance providing for one loved one now with protecting an inheritance for others later.
What Exactly Is a Life Interest Trust?
A life interest trust is a trust arrangement that gives one beneficiary a present right to benefit from trust property while preserving the underlying asset for another beneficiary or group of beneficiaries later.
For example, your Will could place your share of the family home into trust and give your spouse or partner the right to live there for the rest of their life. When that life interest ends, your share of the property can pass to your children or other people you have chosen.
A life interest trust can apply to a specific asset such as a property, or to a wider part of an estate. The exact rights of the life tenant and the powers of the trustees depend on the wording of the Will.
How Does a Property Life Interest Trust Work?
The Life Tenant Benefits
The life tenant may have a right to occupy the home, receive income or benefit in another way specified by the Will, without owning the underlying capital outright.
The Asset Passes On
When the life interest ends, the trust property passes to the ultimate beneficiaries named in your Will, subject to the trust terms and administration.
The wording matters. A Will can give the trustees powers to deal with practical changes, such as selling one property and buying another for the life tenant, but those powers need to be drafted clearly.
Who Might Consider a Life Interest Trust?
Blended Families
You may want a spouse or partner to remain secure in the family home while ensuring that your share ultimately passes to children from a previous relationship.
Second or Later Relationships
A trust can balance the needs of a current partner with the inheritance you want to preserve for children or other family members.
Later-Life Relationships
If both partners already have their own assets or families, a life interest trust can help keep long-term inheritance arrangements clear.
Families With More Complex Needs
Where a beneficiary is vulnerable, financially inexperienced or has other particular needs, trust planning may be helpful. The most suitable type of trust will depend on the circumstances.
Benefits of a Life Interest Trust
The main advantage is that a life interest trust can give you greater control over what happens to an asset after your death without necessarily denying another loved one the benefit of it in the meantime.
Protect the Ultimate Inheritance
The life tenant does not normally own the trust capital outright, so they cannot simply redirect the trust asset under their own Will. The ultimate destination is governed by your trust terms.
Provide a Home or Income
A spouse, partner or other beneficiary can be given a right to occupy a home or receive trust income for the period specified in the Will.
Plan for Blended Families
The trust can help balance the needs of a surviving spouse or partner with the interests of children or other beneficiaries who inherit later.
Keep Control With Trustees
Trustees manage the trust property and must follow the Will. This can provide structure where outright ownership would not reflect your wishes.
Protection is not absolute. Trust interests can still be relevant in areas such as divorce, insolvency, tax and means-tested benefits. The outcome depends on the trust wording and the individual circumstances, so a life interest trust should not be presented as guaranteeing that assets are untouchable.
Property Ownership: Joint Tenants or Tenants in Common?
If your main aim is to place your share of a jointly owned home into a life interest trust, the way you own that property is crucial.
Your share does not normally pass under your Will
When one joint tenant dies, their interest normally passes automatically to the surviving owner or owners. You cannot usually direct that share into a Will trust.
Your share can pass under your Will
Each owner has a distinct beneficial share. That share can pass under the terms of their Will, including into a properly drafted life interest trust.
If you currently own your home as joint tenants and want your share to pass into a Will trust, your solicitor can advise whether the joint tenancy needs to be severed so the property is held as tenants in common.
What Are the Disadvantages and Responsibilities?
A life interest trust can be useful, but it creates an ongoing legal structure rather than an outright gift. That means there are responsibilities and costs to consider.
Trustee Responsibilities
Trustees must manage the trust in accordance with the Will, keep appropriate records and deal with the practical administration of the trust property.
Tax Can Be Complex
Life interest trusts can have specific Inheritance Tax, Income Tax and Capital Gains Tax consequences. The treatment depends on the trust terms, assets and beneficiaries.
Property Costs Need to Be Clear
Where a life tenant lives in a property, the Will should deal clearly with responsibilities such as insurance, repairs, outgoings and what happens if the property needs to be sold.
The Right Trust Structure Matters
A life interest trust is not always the best option. If vulnerability, means-tested benefits, divorce, bankruptcy or other risks are a concern, another trust structure may be more appropriate.
Trust registration and reporting may also apply. A Will trust can benefit from specific registration exclusions for a limited period after death, but an ongoing trust may later need to be registered and may have tax reporting obligations.
What Happens When the Life Interest Ends?
The Will sets out when the life interest ends. Often this is when the life tenant dies, but the Will can specify another event or a fixed period.
Once the interest ends, the trustees deal with the trust property in accordance with the Will. The capital can then pass to the remainder beneficiaries, subject to any tax, administration or other requirements that apply.
Common Questions About Life Interest Trusts
Does the life tenant own the property?
Not usually. The trustees hold the trust property and the life tenant has the rights given to them by the Will, such as a right to occupy the property or receive income. They do not normally own the trust capital outright.
Can the property be sold while the life tenant is alive?
Potentially. The Will may give the trustees power to sell the property and reinvest the proceeds, for example in another property for the life tenant. The precise position depends on the trust wording.
Do we need to own the property as tenants in common?
If you want your share of a jointly owned property to pass under your Will into a life interest trust, it will generally need to be capable of passing under the Will. A beneficial joint tenant’s interest normally passes automatically to the survivor, whereas a tenant in common can leave their share by Will.
Can a life interest trust protect an inheritance from divorce or bankruptcy?
Holding capital in trust rather than giving it outright can provide a degree of protection, but it is not an absolute shield. Courts, creditors and insolvency rules may still take trust interests or resources into account depending on the circumstances.
Will a life interest trust protect means-tested benefits?
Not automatically. A beneficiary’s rights to trust income or property may be relevant to benefit entitlement. If protecting a vulnerable beneficiary or means-tested benefits is a priority, specialist advice is important because a different trust structure may be more suitable.
Why Use Watkins Solicitors for a Life Interest Trust Will?
Life interest trusts need careful drafting because the Will must balance the rights of the person benefiting now with the interests of the people who inherit later. Our Wills and Probate team can discuss your family circumstances, property ownership and long-term wishes before advising on the most appropriate structure.
Specialist Will Drafting
Clear drafting tailored to the people, property and assets you want the trust to cover.
Property and Family Planning
Advice on how property ownership, blended families and later-life relationships interact with your Will.
Trustee Guidance
We can explain the responsibilities created by the trust and advise trustees on administration after death.
Experienced Wills and Probate Team
Watkins Solicitors is a multi-award-winning law firm founded in 1998, advising clients across England and Wales.
Led by experienced Wills and Probate lawyers. Tony Calwell is a Partner in the Wills and Probate team and advises clients on Wills, trusts and estate planning. View Tony Calwell’s profile.
Considering a Life Interest Trust in Your Will?
If you want to provide for a spouse, partner or other loved one while preserving property or other assets for the people you ultimately want to inherit, our Wills and Probate team can explain the options and help you decide whether a life interest trust is appropriate.
Tony Calwell