Life Interest Trusts
A life interest trust has two sets of beneficiaries:
- a life tenant (or income beneficiary): this beneficiary has the right to the income of the trust assets. This could be: interest on invested trust monies; the right to receive rental income; or the right to enjoy the benefit of using the asset for their lifetime
- remaindermen (or capital beneficiaries): these beneficiaries are entitled to the capital of the trust funds when the interest of the life tenant comes to an end
Special rules apply to life interest trusts for income, capital gains and Inheritance Tax according to when the trust was set up and whether it was created during a person’s lifetime or upon a death. Seeking advice is important to ensure the tax compliance is correct from the very first day.
Life Interest Trusts are useful in a number of situations but here are just a few:
- Second marriage: providing for your spouse whilst protecting the underlying capital assets for your children.
- Spenthrifts: if you are worried about your chosen beneficiary’s ability to handle a large inheritance this trust will protect the underlying assets.
- Property: you can use this trust to pass your interest in a property to your children whilst giving another a right to live there.
This is not an exhaustive list and the examples given may not be appropriate for your circumstances. Individual advice is essential so contact us for more guidance and support before proceeding.