Using Life Interest Trusts to Safeguard Your Legacy

Ensuring your wishes are carried out after you’re gone can be tricky, especially for blended families. But using life interest trusts can safeguard your legacy. So, consider them alongside other potential strategies, such as lifetime gifts, but seek professional advice to ensure the trust functions as intended.

Creating Life Interest Trusts

A life interest trust is a legal arrangement that can be set up in a Will to manage the distribution of assets after death. It allows a person to provide for someone (like a spouse or partner) during their lifetime while ensuring their assets eventually go to other beneficiaries they choose. One or more trusted individuals are appointed to manage the trust and ensure the terms are followed.

Benefits for Blended Families

The concept of ‘certainty of destination ‘ is particularly important in blended families, where children from a previous relationship may be involved. A life interest trust with ‘certainty of destination’ ensures that on the death of a spouse, a pre-determined share of the asset (typically half the house) goes directly to named beneficiaries (usually children), bypassing any new partners the spouse might have in the future.

Safeguarding Capital

Life can be unpredictable. A well-drafted trust can include a clause safeguarding the asset’s value. If your spouse needs long-term care, only the income generated (rent from the house) can be used for these costs. The remaining capital (the house value) stays untouched, ensuring your children’s inheritance remains secure.

Example: John’s Plan

John has children from a previous marriage and is married to Sarah. He wants Sarah to live in their house after he’s gone, but his children will eventually inherit half of it. Here’s how a life interest in his Will, trust helps:

Sarah (life tenant) has the right to live in the house for life.
John’s children (remaindermen) inherit half the house after Sarah passes.
“Certainty of destination” ensures this half goes to John’s children, regardless of Sarah’s future marital status.
“Capital protection” guarantees the house value. If Sarah needs care, only rent income can be used, preserving the inheritance for John’s children.

Deprivation of Assets

Local authorities in England and Wales assess an individual’s ability to pay for care. When someone chooses to reduce their assets (money, property, etc.) to avoid having them included in a financial assessment, this is known as ‘deprivation of assets’.

If a local authority concludes someone deliberately reduced their assets to avoid fees, they may still calculate the fees as if the person still owned the assets. However, Local authority interpretations and rules often vary. They will consider the timing and motivation behind the actions, and with a clear beneficiary identified under a ‘certainty of destination clause’, they may be less likely to view the trust assets as readily available to fund care costs.

Our Advice

Life interest trusts can be valuable in estate planning, especially for blended families. However, proper legal guidance is crucial. Specialist lawyers will ensure the documents are drafted correctly, the full implications (such as inheritance tax) are explained, and the trust is tailored to you.

Our specialist team has extensive experience advising clients about making Wills and setting up trusts. For further information, advice, or an instant quotation, please contact us on 0115 964 7740.

Please note that all views, comments or opinions expressed are for information only and do not constitute and should not be interpreted as being comprehensive or as giving legal advice. No one should seek to rely or act upon, or refrain from acting upon, the views, comments or opinions expressed herein without first obtaining specialist, professional or independent advice. While every effort has been made to ensure accuracy, Curtis Parkinson cannot be held liable for any errors, omissions or inaccuracies.