What Is A Life Interest Trust?
A Life Interest Trust is a trust in your Will designed to protect your share of the family home against re-marriage or the long-term effects of care fees. Life Interest Trusts are designed to help where a property is jointly owned and are particularly useful where there are children from previous relationships.
What Does A Life Interest Trust Do?
The Life Interest Trust protects your share of the family home for your chosen beneficiaries (i.e. your children), whilst allowing your surviving partner to remain living in the family home for the rest of their life, or for as long as they wish to. If the survivor doesn’t want to stay in the family home, then it can be sold, and the money will be invested with the income being paid to them. Alternatively, they might decide to rent the property and they will be entitled to the rental income. The capital from your share of the family home will still be protected for your chosen beneficiaries.
Won't This Happen Anyway?
No. Most couples who own the family home jointly will own it as joint tenants. This means that when one of the co-owners dies, the property will pass automatically to the surviving co-owner, regardless of what your Will says.
If this happens then the family home will become 100% theirs and they can dispose of it as they wish.
This could be problematic if they need long-term care, or if they remarry. This is because your share of the family home could be used to pay for that care or become an asset of the new marriage, and therefore not be available to your chosen beneficiaries.
To protect your share of the family home, you will need to own it as tenants in common and include a Life Interest Trust in your Will. Holding the family home as tenants in common means that you and your partner own distinct shares of the family home which pass under the terms of your respective Wills.
What Happens When I Die?
When you prepare your Will, you will be asked to identify Trustees. Trustees are people who you trust implicitly to look after your assets for the benefit of others.
When you die, your Trustees will be responsible for managing your share of the family home and they will need to allow your surviving partner to remain in the family home undisturbed and in compliance with the terms of the trust.
What If I Sell The Family Home During My Lifetime And After I've Made My Life Interest Trust Will?
This is fine. If you sell your current home and buy a new family home (owned as tenants in common) then the terms of the Life Interest can apply to this new home.
Obviously, if you sell the home and then don’t buy a new one then the Life Interest Trust will not apply.
Can The Survivor Sell The Family Home After My Death?
Yes, the Life Interest Trust can be drafted in such a way as to enable the survivor to sell the family home and buy a new property, which will be held on the same terms.
If the property is cheaper, then any surplus cash will be invested to provide an income for the survivor, whilst the capital is still protected for your chosen beneficiaries.
Who Is Responsible For The Bills And Repairs?
Whilst the survivor is living in the family home they will be responsible for the outgoings i.e. the bills, and for any repairs as they are getting the enjoyment and benefit of it.
Can I Give My House To My Children During My Lifetime?
Whilst you can do this, it is not advisable due to the potential Inheritance Tax consequences for you and the Deprivation of Capital Rules (rules about giving away your assets that ought to be used to pay for care).
Additionally, if you put the family home in your children’s names and they then divorce, die, or become bankrupt, this will put your security to live in the family home at risk; as the house would be part of their estate.
What Else Do I Need To Know?
A Grant of Probate will need to be obtained on your death to deal with the property, but we can talk your Executors and Trustees through this process, and assist them, if they wish.
HMRC require Life Interest Trusts to be registered on their Trust Registration Service, and again, this is something that we can advise your Executors and Trustees about.
Who Can I Speak To About Preparing A Life Interest Trust?
If you have any further questions, or if you would like more information, please don't hesitate to contact me on 01283 561 531 or at c.day@timms-law.com. Alternatively, you can visit the Wills and Probate section of our website here.