The family home is often at the heart of the family unit and most people would like to make sure that their spouse or civil partner will be secure and able to remain living in the family home after their death. Given the difficulties that many younger people have getting on the property ladder, some parents also would prefer for their children to inherit the property, keeping it in the family for the next generation. Unfortunately, however, things do not always work out this way.
It is difficult to foresee what will happen in the future, but most people would be reassured to know that their death would not result in their loved ones having to leave the family home. Protecting the property from the cost of later life care is another consideration. Care fees can have a huge impact on the value of an estate, and it is increasingly necessary for many people to sell the family home to cover the cost of care.
A Life Interest Trust allows you to specify who will have a beneficial interest in your property after you have died and to make provisions for your spouse or civil partner in order to protect their interests.
A Life Interest Trust can protect the property in case your spouse or civil partner falls into financial difficulty and is not able to cope. It will also ensure that the property goes to your children (or someone else you choose) if your partner remarries and expresses a wish to leave the family home to someone else altogether.
This is a common means of providing for a surviving spouse or partner, who as the Life Tenant would be entitled to occupy the property for their lifetime. They would also be entitled to all income produced by the property, such as rental income, but they are not entitled to the capital, as the property itself is protected in the Life Interest Trust.
On the death of the Life Tenant, the property passes to a specified third party, usually the children. To cover a range of potential outcomes, an option to sell the home and downsize to another property can be incorporated into the Trust. This allows for some flexibility in case the property becomes too much for the Life Tenant to maintain as they age, or if they want to relocate to be closer to family members.
There are several advantages to a Life Interest Trust of property:
The Trust provides an interest for both the Life Tenant (who has the benefit of residing in and/or drawing an income from the property) and the Remainderman (who will inherit the property).
Trusts are managed by Trustees who must balance the interest of both the Life Tenant and the Remainderman. The Trustees should be people in whom you have confidence but also should be someone who gets along with the interested parties as the Trustees will need to be relied upon to ensure that the Trust operates efficiently.
The Life Tenant is responsible for maintaining the property to a ‘reasonable standard’ and is answerable to the Trustees. Some spouses or civil partners may resent this, which is why it is important that it is managed appropriately and that the spouse or civil partner is a willing participant in the Trust.
When appointing Trustees, you may wish to consider appointing the surviving spouse as one of the Trustees and, depending upon the circumstances, it may also be wise to appoint at least one professional Trustee such as a solicitor.
Anyone who owns a property and is over 18 can set up a Life Interest Trust. To create the Trust, it is necessary to prepare a Will. If you and your partner own the title to your home as Joint Tenants (as most married couples do), the title to your property is severed and re-registered with you owning the property as Tenants in Common, so that you each own a share of it rather than jointly owning all of it.
In your Will you make a gift of your half share to your spouse or partner in a Life Interest Trust and on your death the survivor will succeed to your share in the property by way of the Trust, on the basis that the property will eventually be passed on to the Remainderman.
If this seems complicated, a solicitor specialising in Wills and Estates will be able to help you to set up a Life Interest Trust which will provide peace of mind that your surviving spouse or civil partner will be provided for and protected after your death and that your children will still receive their share of their inheritance.
This article aims to supply general information, but it is not intended to constitute advice. Every effort is made to ensure that the law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek advice specific to your own circumstances.
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