What is a Life Interest Trust

A Life Interest Trust is created by a Will and is commonly used by married couples as a way of protecting each other’s respective share of the property on first death. Situations where this may be appropriate are where there are children from previous marriage, protecting your respective share against remarriage or to try and prevent the entire value of your property from being taken into consideration for the payment of carehome fees.

On first death, the surviving spouse or ‘life tenant’ is entitled to;

• Live in the property
• Sell the house and downsize- the life tenant can enjoy the interest on capital invested in the event of the sale
• Enjoy any income, including from rental of the property.

On second death the property will pass in accordance with your Will.

A life interest trust can be an effective method of protecting your share of the value of the property for your other beneficiaries whilst ensuring your partner can remain in the house and benefit from the income.

It is important to remember that though this may be an effective method of protecting some of your capital for future beneficiaries it does mean a large proportion of your capital would be tied up and unavailable to your partner, unless a clause allowing for advancing capital were included. There are also potential IHT implications.

At Johnson Astills, our Solicitors can discuss thoroughly how a life interest trust would work in your circumstances and advantages/disadvantages of the trust.

From March 2022 any Life Interest Trusts will have to be registered with HMRC, this is a formal registration and details will need to be provided to HMRC. Should you currently have a life interest trust in place and would like some advice about the registration process our Solicitors at Johnson Astills will be able to help.