The number of people with asset protection needs (for example those with step-families, second marriages, tax or other financial reasons) continues to rise. A common concern is ensuring that their spouse has the financial support to maintain their standard of living, whilst also ensuring funds are protected for the benefit of their own children. Implementing the correct provisions in the will and keeping estate planning matters in order is therefore extremely important and could provide many families with much needed peace of mind.
Broadly, life interest trusts are used when the testator (the person making the will) specifies that they want their spouse to be able to use and benefit from the assets within the trust, for the remainder of their life. The assets within the trust may include a property or a share of a property, bank account funds or investments. After the death of the surviving spouse or because the trust comes to an end for a specified reason, the assets will then pass to the beneficiaries specified in the will i.e. children or grandchildren.
If a share of a property, such as the family home, falls within the life interest trust then the surviving spouse will still be able to reside in the property. They will also be able to move into a new home, as the trust ownership will simply apply to any new property. The surviving spouse may also be able to benefit from regular income that is generated from assets in the trust such as investment products or rental income.
This can provide a testator with the comfort that assets will not be immediately redirected away from their children as they have taken steps to protect their financial interest whilst also making provision and providing financial support to their spouse. Life interest trusts can also benefit those considering future care fee planning.
An important consideration will be the appointment of trustees. The trustees are the people who will manage the trust and deal with its ongoing maintenance and administrative requirements. Whilst the surviving spouse is often appointed as a trustee, it will be necessary to consider who else should be appointed. Some testators choose to appoint the children as the other trustees (if of an appropriate age) but others prefer to appoint a neutral party such as a friend or a professional trustee i.e. solicitor or accountant.
If you would like to discuss life interest trusts in further detail and how they could apply to your circumstances, please do not hesitate to contact us.