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What is a life interest trust and how does it fit into will planning?

Sponsored feature | Lucy Williams, solicitor, HCR Hewitsons

Lucy Williams, solicitor, HCR Hewitsons
Lucy Williams, solicitor, HCR Hewitsons

A life interest trust is a type of trust where the trustees hold assets for the benefit of a beneficiary known as a ‘life tenant’ during their lifetime. Unlike an outright gift, the life tenant would only have the interest in the asset or assets for their lifetime; when they die, the asset or assets pass to your ultimate beneficiaries under your will.

A life interest trust can hold either property or liquid assets. If it were to contain a property, the life tenant would have the right to live in the property rent-free for their lifetime – although this is often subject to various conditions. Alternatively, if the life interest trust was to include liquid assets, then the life tenant would benefit from the income produced by the assets for the duration of their lifetime.

Flexibility can be built into the trust structure – for example, to allow the life tenant to request the trustees purchase a replacement property of the same or lesser value if the current property is no longer suitable.

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Powers could also be given to the trustees to allow them to transfer capital to the life tenant if they were in financial need, or to the ultimate beneficiaries during the life tenant’s lifetime if no longer required, ensuring the trust can adapt to changing circumstances.

Advantages of a life interest trust

There are many advantages of including a life interest in your will, the main one being that a person, via their will, can have control over the ultimate destination of the asset, while providing for the life tenant.

A life interest trust provides often desired asset protection. The life tenant is not the legal owner and is not entitled to the assets absolutely. Accordingly, the assets do not form part of the life tenant’s estate and they cannot change who will ultimately benefit from it. This may be suitable for many reasons such as second marriages, blended families, bankruptcy and consideration of residential and nursing care fees.

Disadvantages of a life interest trust

With a trust comes administration. The level of administration required will depend on the nature of the assets held in the trust, whether they are income-producing, and decisions taken by the trustees.

Further, while obvious, the life tenant is not in full control of the assets. They would have to work together with the trustees on any future dealings with the assets.

For more information, contact Lucy Williams, solicitor, private client team, on 01223 532766, 07385 378985 or at lkwilliams@hcrlaw.com.

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