Protecting your assets with a Life Interest Trust



Leaving someone a life interest in your Will means they will have the benefit of the asset, for example a property, for the rest of their life following which it will pass to a beneficiary chosen by you.

There may be times when it is better to leave someone a life interest, rather than give them an asset outright. By setting up a trust in your Will, you can arrange for a loved one to have use of the asset for as long as they want or need, then give it to a third person. There are two main reasons why someone might wish to proceed in this way.

To prevent the ‘sideways disinheritance trap’

The so-called sideways disinheritance trap occurs when someone with children from a previous relationship remarries. If their estate passes to their new spouse when they die, then their children may receive nothing. This can happen either because their new spouse makes a Will leaving the estate elsewhere, the new spouse fails to make a Will meaning that the estate passes to their relatives (this does not include step-children) or because the new spouse uses all of the funds, for example for care home fees.

To protect assets from care home fees

If a couple leaves all of their assets to each other, then there is a risk that the last to die will use up all of the funds in paying for care home fees. The local authority will not provide financial support until the value of a person’s assets, to include any home, falls below a set threshold, currently £23,250. This means that very little from the joint estate may be left to pass on to any children.

Using a life interest trust to protect assets

By including a life interest trust in a Will, rather than simply leaving the whole estate to a spouse, the sideways disinheritance trap can be avoided.

You can leave your new spouse the right to live in a jointly owned property for the rest of life. They would still be able to move house if they wanted, and retain a life interest in the new home. But on their death, your interest in the property or other assets would pass to your chosen beneficiaries as detailed in your Will. To pass only a life interest in a property, it must be owned as tenants in common and not as joint tenants, otherwise the property automatically becomes solely owned by the other joint owner on the death of the first to die.

Similarly, by leaving a spouse the right to live in a property for the rest of their life, but not passing them your share outright, you can prevent your half of the property being included in local authority calculations for any care home fees they may incur.

It is advisable to seek professional advice to ensure that your assets are adequately protected and that they will ultimately pass to your choice of beneficiary.

If you would like to speak to one of our wills and probate experts, ring us on 01276 415835/6/7.