The family dynamic is becoming increasingly more complicated and therefore the need to protect succession interests in these family structures is becoming extremely important. Most commonly, the issues arise in the context of second marriages where children from those previous marriages are concerned and where spouses are concerned about care home fees in the future.
The life interest trust Will is an extremely useful vehicle for ensuring that you can protect an element of your estate so that it always reaches its intended beneficiary. Most clients will create the trust with the intention of benefitting the surviving spouse (including civil partners and even perhaps cohabitants) for the rest of their lives with the trust asset then going to their intended beneficiary, such as the children or charity. The surviving spouse will be entitled to remain in the property or replacement property (such as if they downsize) for the remainder of their lives or until such triggering event occurs which terminates the trust arises, thus providing protection to them.
The benefit that many clients relish is that the portion of the estate that is placed into the life interest trust is effectively ringfenced and the life tenant does not own the property, they are merely benefitting from it which means that it will not be included in care home fee assessments. There are not many restrictions as to what assets can comprise the trust, but you would want income producing assets – we find that many clients place their half share of the property into the trust but you may also place cash assets in as well. The income that the trust produces, such as dividends from investments or rental income is paid to the life tenant. This type of trust is recommended where there are children from previous marriages on the scene because it allows for you to guarantee that your children will ultimately benefit without risk of being omitted from the surviving spouse’s Will if they were to remarry, for instance. Essentially, the trust assets do not belong to the survivor, but the Trust, and so they cannot be redirected by the survivor’s Will.
Another benefit is that the trust is inheritance tax neutral. Placing the assets into the trust upon death for the benefit of your spouse (or civil partner) will be treated as though it was an absolute gift and therefore exempt from inheritance tax in the same way as a direct gift in your will. It is important to remember, however, that it is not a direct gift and the survivor does not physically own the assets.
If you would like some guidance on navigating the labyrinth of Wills please do not hesitate to contact Alex Strickland on alexs@kjcoxsolicitors.co.uk
