Life interest trust
A life interest trust, as is the case with other trusts, 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 both fulfil their wishes and to protect assets and mitigate tax for both themselves and possibly future generations.
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Life interest trust explained
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 as provision will need to be made within the Trust Deed for at what point in the future the Life Interest comes to an end. Common examples of when a Life Interest ends, 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.
Advantages of a life interest trust
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.
Why should I consider legal assistance when setting up a trust?
Trusts are a complex subject and timing, wording and other circumstances can be very important when setting up a lifetime 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 Trust Corporation Limited can be appointed either in conjunction with, or instead of, a lay trustee.
If my wife is the life tenant and my children the beneficiaries, can she sell the house?
Provision can be made within the Trust Deed to state that property can be sold by the Trustees, if the spouse wishes to sell, and the monies would be used either to purchase another property, which would also be within the Trust, or the monies would be held within a Trust bank account (i.e if going into sheltered housing/a care home)
Where income is generated, this can be used by the life tenant for whatever they wish, including living expenses or as a contribution/top up to care home fees.
What if a trust and a will conflict?
Contradictory instructions will cause confusion. If you have a trust and a will, we advise you to have both documents checked by a solicitor to ensure they are not contradictory.
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