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If you have been considering protecting your loved ones for the future, you may have heard the phrase Life Interest Trust. But what is a Life Interest Trust exactly, and why is it increasingly a crucial part of families’ estate planning today?
At Will 4 Less we recognise that estate planning is not just a case of distributing assets, it is about making sure the right people, at the right time, inherit your property, and at the same time protecting the family home and leaving loved ones with peace of mind. This is why many clients turn to Life Interest Trust Wills 4 Less for professional guidance and reassurance when planning their estate.
What is Life Interest Trusts? -The Basics
A Life Interest Trust (also known as an Interest in Possession Trust) can be used to ensure your assets go the way you intended them to yet your chosen beneficiary has the financial security of benefitting from your assets during their lifetime.
For instance, a Life Interest Trust is frequently created to allow a surviving spouse to retain occupation of their house for the remainder of their life, and for any children of the marriage to inherit the property in the future.
And it’s one of the leading reasons so many people look up Interest in Possession Trust information – because they want to provide a sense of security for their partner WHILE still ensuring their children inherit.
Here, some of the questions our clients ask:
These inherent concerns are dealt with within a Life Interest Trust by:
A Life Interest Trust can provide several benefits, especially in situations where you may be looking to protect current and future generations.
Security for your partner
Your partner will not have to move out of your home when you die. They have a legal right to live there for as long as they want (or as long as they live).
Guarantee for your children
Your children/named beneficiaries are legally secured to inherit upon the demise of your spouse. It eliminates all uncertainty and secures their future.
Potential care home fee protection
If your partner eventually requires residential care, the value of the property (or proportion of it) owned by the trust might not be included as part of your partner’s estate – which can help to conserve family wealth.
Protection from remarriage risks
Absent a Life/Possession Interest Trust, however, your surviving partner remarries and writes a new will that potentially cuts your kids out. This trust prevents that scenario.
The most common type of people who elect to have a Life Interest Trust include:
In planning a Will, and considering ways to safeguard your loved ones, two types of Trust you may encounter that sound alike are:
Life/Possession Interest Trust (l/POT), and Flexible Life Interest Trust. On the surface they might appear to be the same, but the two can end up serving very different needs, and providing very different levels of flexibility for your family’s future.
What is a Life Interest Trust?
A Life/Possession Interest Trust is relatively simple. It is where you give someone (often your spouse or partner) the right to benefit from an asset (usually your share of the family home or your investments) for the rest of their life.
For example:
Flexible Life Interest Trust
A Choice for the Future A new way of thinking Sometimes Life Interest Trusts are inflexible, not allowing trustees enough discretion to manage finances.
A Flexible Life Interest Trust begins just the same as a Life/Possession Interest Trust. Your selected person continues to earn income or use the asset for life. But it’s considered “flexible” because the trustees have more discretion to change who gets what when, and that gives the grantor obvious flexibility in designing a tax-avoidance strategy with it.
For example: