Protect your assets for your children's future
Life Interest Trusts, protect your assets for your children
Trusts are often included in Wills to protect an asset for future generations.
A Life Interest Trust is a common example of this and is used to ensure children benefit from an estate in the future, if they can’t benefit immediately.
The person you give the Life Interest to is called the Life Tenant and they are entitled to the income from the assets in the Life Interest Trust.
Once the Life Interest Trust comes to an end, the Trust assets pass to the ultimate beneficiaries.
A typical example of this is a Life Interest Trust would allow a surviving spouse to remain living in the family home during their lifetime but, on their death, it would pass to the children.
To create such a Trust, it would be necessary for both spouses to hold the property as Tenants in Common, meaning they own 50% each.
Each spouse gives the other a Life Interest in the property in their Will.
When one dies, the survivor inherits a Life Interest in the other’s 50% and can live in the house for the rest of their life, but they do not gain ownership of the other 50%.
If they choose to sell the property, 50% of the capital remains allocated to the ultimate beneficiaries.
Why would you do this rather than just leave all your assets to your spouse in a simple Will?
Well it is usually to ensure the first person to die retains some control over what happens to their asset after their death, and can ensure some of its value goes to their children.
Consider, for example, the surviving spouse marries again. The new marriage certificate nullifies the old Will, and the new spouse becomes the beneficiary of that estate, sometimes at the expense of any children from the original relationship.
Creating a Life Interest means you control the ultimate destination of your property.
You can ensure your surviving spouse can remain living in the property for the rest of their life, but your 50% will eventually go to your chosen beneficiaries, regardless of what the survivor chooses to do next.
It also protects half of the asset from being used to pay care home fees.
Furthermore, if the Life Interest is left to the surviving spouse, the spousal exemption applies to the gift and there is no Inheritance Tax to pay on the assets left in that Trust. However, the assets are taken into account when the Life Tenant dies and is treated as part of their estate.
If you wish to protect your beneficiaries’ inheritance as well as your spouse’s right to occupy the property after you die, contact Patricia Prescott on 01772 348922 for all of your estate planning advice.