Protecting your assets with a Life Interest Trust

Insights / / Bristol

Many couples are concerned about funding long-time care and having to sell their property to meet care home fees when the need for care arises. Individuals with a capital of more than £23,250 are expected to fund their own care with no contribution from the Local Authorities. Setting up a Life Interest Trust can safeguard your most valuable asset: your family home.  

What is a Life Interest Trust and how do they work?

A Life Interest Trust is a type of trust commonly used for care fees planning and in cases where there are children from multiple marriages and it is commonly used by couples to protect assets held in trust, such as a share in the family home. This trust is often incorporated in Wills and enables a married couple to place half of the deceased first spouse’ s share in their family home in trust for the benefit of the surviving spouse, provided their main residence is owned as tenants in common.

By having a Life Interest Trust in the Will, and upon the first death, the assets of the first spouse will be protected and will not be taken into account by the local authorities when assessing the survivor’s capital for care fee funding. If the survivor later had to go into care, the survivor’s own half share will be used to fund their care while the other half will be protected in trust.

In addition, it is possible to draft the Life Interest Trust in a flexible way so that, upon the death of the first spouse, the surviving spouse has the right to remain in the property for their lifetime. At the end of the Trust period, the property could pass to the chosen beneficiaries under the will, which could be the children.

The Life Interest Trust can also apply to other properties if the survivor decides to move to a smaller property, known as downsizing.

Trustees will need to be appointed to administer and deal with the Trust. Choosing your trustees carefully is very important, since trustees must act unanimously.

There are many benefits to having a Life Interest Trust and it is possible to draft the Trust to meet your specific needs and circumstances. For example, additional clauses can be included to provide more flexibility and protection, such as a power to authorise the trustees to purchase another property, to invest the surplus of the deceased’s share for the surviving spouse´s benefit, to advance or lend capital to the surviving spouse, and for the deceased’s share of the proceeds of sale to be invested to produce an income for the survivor if they are unable to live in the property.

How we can help

Our Private Client department offers Wills, Probate, Tax & Trusts services, including making a will, creation of trusts to protect assets such as Life Interest Trust, Lasting Powers of Attorneys and Inheritance and Tax planning.

We specialise in preparing Life Interest Trusts for our clients to meet their particular needs. We can review the way your property is owned and sever your joint tenancy if necessary.

If you would like to know more, please do not hesitate to contact us. We offer a 30 minute free consultation and we will be pleased to discuss your personal and financial circumstances with you so that we can provide you with the best advice.

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