A life interest trust can provide future security for family and future generations. It can be used with a combination of financial planning, lifetime giving and gifts on death to mitigate tax and structure an individual's assets to fulfil their wishes, protect assets and mitigate tax.
A life interest trust is a trust set up as part of your will, giving a named individual (life tenant) the right to receive an income from the trust in their lifetime, though assets are held for the benefit for beneficiaries.
Often, the life tenant will be a surviving partner or spouse, and the ultimate beneficiaries of the trust are children or grandchildren, though both can be whoever you name.
Why would I need a life interest trust?
A life interest trust can be created for a variety of reasons. The more common reasons are in respect of protecting the family home in relation to care home fees, or where the settlor (the person who sets up the trust) wishes for a beneficiary or beneficiaries to receive a regular income.
As well as considering who you wish to receive the life interest or income (if income is to be generated) you need to consider who will receive the capital. This is because provision will need to be made within the trust deed for point at which the life interest comes to an end. Common examples, especially in relation to property, is where someone cohabits, remarries or dies.
If you want to set up a trust or want more information on this topic, our expert solicitors are here to assist you with your questions about trusts.
Reasons and advantages for setting up a life interest trust are varied and these are as follows:
It can pay a regular income to one or more beneficiaries. The individual who receives the income is often referred to as the Life Tenant. Should the beneficiary become bankrupt at a later date, all that can be 'attached' by the Trustee In Bankruptcym or recovered by them is the income in the Trust and thereby protecting the capital in the Trust.
An individual's share of a property can be placed into a life interest trust so that the value of that share is usually not taken into account when the financial situation of a settlor is assessed, e.g. when they require care.
Capital can in theory be advanced at any time, if the trustees determine this is suitable and if the life tenant agrees that such capital can be advanced to the remainder
It protects the beneficiaries, e.g. your children if your spouse re-marries.
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If you wish to set up a life interest trust as part of your will, there are a few things you need to consider. Our experienced life interest trust solicitors can help talk through your options and help you decide whether this type of trust is right for you and your family.
Considerations you will need to make include:
Which assets should be assigned to the trust
Who should act as trustees
What powers the trustees should be given and what instruction should be left for them
The tax implications of creating your life interest trust
It is always best to seek legal advice when setting up a life interest trust as trust law can be complex, and it is crucial to ensure the document reflects your intentions. Our experienced trust lawyers can advise you on the decisions you need to make and how to ensure this best reflect your wishes now and in the future.
How can Slater and Gordon help when setting up a life interest trust?
Trusts are a complex subject and timing, wording and other circumstances can be very important when setting up a life interest trust. We strongly advise working with an expert solicitor when setting up a trust as they can help you with the following:
Which type of trust is best for you
Which conditions you should include
If you can you save taxes with your trust
Ensuring your trust does not conflict with your will
Advising factors to consider when selecting trustees, and upon the administration of a trust.
A professional trustee, such as Slater and Gordon, can be appointed either in conjunction with, or instead of, a lay trustee, ensuring your wishes are still backed up by experienced legal expertise.
We are an award winning law firm and have a dedicated team of solicitors to advise and guide you – no matter how complex your situation may be.
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Frequently asked questions about life interest trusts
Can you sell property in a life interest trust?
It is possible, though provision for this would need to be made within the trust deed. For example, the trust deed may allow the life tenant to sell a property contained within the trust for certain reasons, such as purchasing a new property. This property would then be held in the trust in place of the previous one. Alternatively, the monies received in the sale of the home would need to be held in a trust bank account for the beneficiaries.
Do I need a solicitor to set up a life interest trust?
It is not a legal requirement to instruct a trust lawyer when setting up a trust, but it is strongly recommended. This is because trust law can be complicated and, where documentation is not worded correctly, it can lead to disputes or the mismanagement of assets.
An experienced trust lawyer can provide the legal expertise needed to ensure all that your trust is set up and managed inline with your wishes and any disputes are handled quickly and effectively. Speak to our solicitors to find out more today.
Very pleased with the service I received from Slater and Gordon. All actions required were carried out in a sympathetic and efficient manner. Clarification of requirements were indicated in a clear and precise detail with good communication. Mr S, Lancashire (wills, trusts & probate case)
I am thrilled with how fast my Grant of Probate was dealt with and how lovely everyone was. I would highly recommend their services. Mrs E, Manchester (wills, trusts & probate case)
My lawyer was very helpful at all stages of the process. She explained things clearly and was very flexible and helpful in dealing with my challenging personal circumstances. I would highly recommend. Ms G, Lancashire (wills, trusts & probate case)