Life Interest Trusts.
6th October 2016 by Kate Mansfield
It is often the case for married couples, or couples in a registered civil partnership, to want to do a straight forward Will leaving everything to the survivor of them. By doing so the couple would have to accept that the survivor is then free to change their Will after the first death. There is no guarantee that if you have previously agreed who the ultimate beneficiaries will be, that those beneficiaries will actually receive what you intended.
There may be concern, for several reasons, that a straight forward Will might not fulfil all requirements. There might be concerns for a younger couple with children who appreciate that if one of them dies then the survivor may well remarry. Understandably they might wish to protect the first to die’s assets to ensure that they pass to the children.
A couple may well divorce and re-marry and be concerned to protect their children from previous relationships.
Of course, each party will wish to still ensure the security of the survivor and it is for this reason that a Life Interest Trust can often provide the answer. Rather than assets passing out right to the survivor, with the survivor then being free to dispose of them during their lifetime or by Will, the first to die’s assets could instead pass into a Life Interest Trust.
The survivor would be given a right to live in a property owned by the Trust, or to receive an income from any capital assets within the Trust. In addition, it is possible to give the Trustees overriding powers to appoint out capital to the survivor in which case it would be sensible to have an Expression of Wishes guiding the Trustees in relation to the circumstances under which you would be happy with the survivor receiving capital.
The survivor may well wish to move and there would be no problem with this. The Trustees could sell the trust property and all or part of the proceeds could be used to purchase a substitute property for the survivor to live in. Any capital released could then be invested to produce an income for the survivor.
You can therefore maintain the security of the survivor and provide flexibility should the survivor wish to move.
Ultimately, however, on the survivor’s death the survivor does not control those assets and instead those assets will revert to the first to die’s chosen beneficiaries.
Another reason for considering including a Life Interest Trust in your Wills is to try and protect assets should the survivor need care. If all of the assets are left to the survivor absolutely on the first death then all of those assets would be available to fund care. It may be that you wish to try and preserve some of the assets for the ultimate beneficiaries.