As part of Estate planning, it is worth considering using trusts to protect family property. This may be appropriate on a second marriage when you already have children from a previous relationship, or to protect your share of your property from potential care fees for your spouse.
It is quite common for people to re-marry but each have children from a previous relationship. The couple’s money is put together to buy a new home with the intention that they will live in the property together. However, they face the dilemma of ensuring that when they die their spouse can remain securely in the matrimonial home whilst also ensuring that their children from their previous relationship will ultimately benefit from their capital share of the property when their spouse also passes away.
Other couples are concerned that were they to die leaving their Estate solely to their spouse that they may remarry and on their death their new spouse would benefit from all the capital and there would be no provision for their children. This is often referred to as' sideways inheritance'.
So, is there a way to provide for your spouse during their lifetime and ensure your children will benefit ultimately from the capital on their death?
The answer is 'Yes' - a protective 'Life Interest Trust' in your Will can achieve this.
How does it work?
Provision is made in your Will to leave your share of your home to your Executors to hold it 'on trust' for your spouse who can live in the property until he or she dies. They cannot be forced by the trustees to leave the property or sell it without their permission but usually your spouse will have the responsibility for maintaining and insuring the property.
You can also include provision to allow your trustees to sell your half of the existing property together with your spouse and to invest the proceeds in another property. This means your spouse can choose to sell the property and move to other accommodation of their preference if they wish. This may be important if your spouse needs to downsize or find accommodation for their needs in advancing years. If this is a smaller property this may result in the release of extra cash from the survivor’s share.
The Trust can be constructed so that any surplus funds from your own share of the property can be invested to provide an extra income for your spouse or a capital amount advanced to them at the discretion of the Trustees. Otherwise the net proceeds will be paid to the ultimate beneficiaries - the children. The terms of the Trust can be constructed to suit your preferences.
It is extremely important that the ownership of your property is compatible with the terms of your Will and if including a life interest trust in your Will you will need to hold your property together as 'tenants in common'. This means that you each own a separate share of the property which you can leave under your will.
If you opt to include a life interest trust, we will make very simple enquiries about the nature of your ownership of the property and advise you whether you hold your property as 'tenants in common' or 'joint tenants'. If you are joint tenants, this means that the property would pass to your spouse by way of survivorship (regardless of your Will) and would not be compatible with the life interest trust. This is not problematic, we can take very simple steps, if required, to ensure that your ownership and your Will are compatible - there is just a little more work involved for us to do to ensure you Will works as it should.
There is another advantage to the life interest trust. If, following your death, your spouse has to go into care, they may need to fund their care from their own assets. However, your share of the property will remain in the trust and should not be taken into account when assessing care home fees. Effectively, it is ring fenced for the benefit of the ultimate beneficiary. Any income from your share might go to support your spouse, but the capital representing your share of the property will be protected and will ultimately go to your children when he or she dies.
If you would like more information about life interest trusts, please let us know.