A Trust is a legal arrangement used to protect assets such as land, buildings or money for the benefit of the Trusts’ “beneficiaries”. Such assets are known as “Trust Property”. When a Trust is created “Trustees” are appointed who are legally responsible for managing the Trust assets and to carry out the wishes of the person who set up the trust.
A Life Interest Trust is a good way of protecting assets between spouses but is especially important on a second marriage or if you are co-habiting, as the Trust ensures that the survivor of you is looked after but that ultimately your share of the asset passes to your chosen beneficiaries.
A Life Interest Trust can also protect some of your estate from nursing home fees as the monies held in trust do not belong to the surviving spouse/partner and can therefore not be used for payment of care fees. If the capital is producing an income then the income can be used towards the payment of care fees.
How Does it Work?
The life interest attaches to the survivor of you (the life tenant) for life or, if you so desire, it can terminate if the surviving spouse/partner leaves the property on a permanent basis.
The life tenant is responsible for paying all the outgoings in respect of the property, to keep the property in good repair and to insure the property for its full reinstatement value. As long as the life tenant does so then the Trustees will have no reason to end the Tenancy Agreement.
The life tenant can request that the property be sold and a different property be purchased.
If the Trust is set up so that it ends when the life tenant leaves the property on a permanent basis then the asset passes to your chosen beneficiaries.
Trustees
- Trustees always have a fundamental duty to act in the best interests of present and future beneficiaries, and to avoid any conflict between their duties as Trustees and their personal interests.
- They are required to exercise reasonable care and skill in all dealing with the Trust Assets and can invest as though they own the trust assets personally.
- Trustees must from time to time review the investments of the Trust and consider whether they should be varied. Trustees are obliged to consider obtaining independent financial advice about making and changing investments.
Tax Implications
Income generated by the Trust is subject to Income Tax at the life tenant’s personal tax rate.
Capital Gains Tax may be an issue if assets of the trust are sold and you should seek the advice of a Tax Specialist at the time the asset(s) are sold
Under current law if the life tenant is the spouse of the deceased then there will be no Inheritance Tax to pay on the first death; the property will be taken into account on the second death and may be subject to Inheritance Tax. If the deceased and the life tenant are not married then the asset will be taxed on the first and second death. Scott Rowe would be happy to advise you on this.
What your Trustees Need to do on the Death of the Life Tenant
- There are reporting requirements to HM Revenue & Customs – Scott Rowe would be happy to advise your Trustees regarding this.
- The assets of the Trust would need to be distributed to the beneficiaries of the person who set up the Trust
If you are the Life Tenant what will your Executors need to do on your Death
- Contact the Trustees.
- Have the Trust assets valued for probate purposes.
- If the Trust Asset is a property your Executors will need to arrange for the contents to be cleared of any personal items belonging to the deceased.
Make an enquiry
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