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Life Interest Trusts – why you should consider setting one up when making a Will

When making a Will, people typically think about how they can ensure their hard earned assets are passed on to loved ones to provide them with financial security.

However, you may be unaware that there is a way of setting up a Will which protects your assets for the ultimate benefit of your children, whilst taking care of the immediate needs of your surviving spouse.

Here, David Webb, a Director with Mander Hadley and Head of our Wills, Probate and Older Client Services department, explains how including a Life Interest Trust in your Will can be beneficial:

What is a Life Interest Trust?                       

This type of trust allows the person making the Will – known as the ‘testator’ – to grant someone a right to benefit from a certain asset, or their whole estate, for life. The benefit might take the form of rent free occupation of a property or income from invested capital. When the individual named in the Life Interest Trust dies, the assets ultimately pass to another person or people named in the original testator’s Will.

Here is an example which demonstrates how this type of trust works:

John has children from a previous relationship and is keen to ensure that they are financially provided for in the future. He marries Mary. John sets up a Life Interest Trust within his Will.

This makes provision, after John dies, for Mary to live in their house rent-free for the rest of her life. She will carry on paying the bills and outgoings.  She can move if she wants to and obtain the rental income if it is rented out. 

If Mary becomes frail and needs to go into residential care, the estate’s assets are ring-fenced. Ultimately, when Mary dies the house will pass to John’s children.

There are a number of benefits to setting up a Life Interest Trust, including:

  • To protect against a spouse remarrying and disinheriting the Testator’s children
  • To protect the inheritance intended for children from previous relationships
  • To protect against the first spouse to die’s share of the assets being used for the survivor’s care fees
  • To protect against the possible bankruptcy of the survivor

However, a Life Interest Trust isn’t an option for everyone. There can be a number of potential complications including where there is a mortgage over the property and insufficient funds in the estate to pay off the mortgage

In summary, Life Interest Trusts can be an extremely useful way of safeguarding assets for your children. They can also provide protection against bankruptcy, and protect against the surviving spouse’s potential care fees.

However, careful consideration needs to be given to your individual circumstances to ensure that a Life Interest Trust is right for you.

To find out more about Life Interest Trusts or to discuss making a Will, please get in touch with us.

Mander Hadley

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