A Life Interest Trust is a type of trust that lets you leave your money or property to someone for their lifetime (‘a life interest’) but ultimately to others when that person (the ‘life tenant’) dies.
Typically you might leave a life interest to your partner. They then have the automatic right to the income generated by your assets during their lifetime, but no automatic right to the capital.
If you leave a property or your share of a property in this way, your partner would be entitled to live in the property for life, but your share would then pass to your ultimate beneficiary when he or she dies. This could, for example, be a child from a former marriage.
Life Interest Trusts can provide an elegant solution to other situations, which we explain later on in this article.
How Life Interest Trusts work
In effect what you are doing is leaving your share of the property to a third party (the Trust) and instructing them what to do with it. This could be useful if:
Care fees and your home
If you and your partner own a home and one of you needs to go into residential care, the house will be disregarded by the local authority as an asset all the time one of you is living in the property, because it is needed as a home.
If however, you die and your partner (who now owns the house solely) needs care, the local authority would take the property into account when deciding whether your partner should fund their care.
Currently if your assets are valued at more than £23,250, you may have to fund your own care.
There are some exceptions to this if they need care on health grounds, but the rules are complex and you would need to consult the local authority or take specialist advice.
With some care homes charging over £800 per week, one option for many people is to sell up and use the proceeds from the sale to fund their care.
Protecting your home with a Life Interest Trust
Life Interest Trusts can help to ring fence your share of your home, so that should you die and your partner requires a care home, your share of the property will not be taken into account by the Local Authority.
Here, in summary, are the steps you and your Solicitor need to take:
Please note that this is a complex area and this is not necessarily a good course of action for everyone. It is very important that you take specific advice based on your individual circumstances.
Life Interest Trusts: things to consider
Life Interest Trusts are not for everyone, they have lots of uses and care fees are not the only issue.
It is important to think about the financial needs of your surviving partner or other beneficiary should you die, as these Trusts limit the ways in which he or she can use your assets.
There are also other types of trust and other ways of structuring your Will that may suit the situation better, so we would strongly recommend you take advice from a specialist Solicitor. For further information, please contact our Wills, Trusts & Probate team on 023 9298 1000.
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