Life Interest Trust

You want your children from your first marriage to inherit your house but you want to make sure that your new spouse has somewhere to live after you die. What can you do?

It can be difficult to decide who is to benefit from your estate after you have died. This may particularly be the case if the relationship between your family members is not as good as you would like it to be, which unfortunately is not uncommon where step-children are involved

If you want to make sure that your new spouse will still have a roof over their head after you die, one solution might be to give your property to Trustees (these can either be family members or professionals or a combination of the two) on terms that they will allow your spouse to live in the house for the remainder of their life. On the death of your spouse, your children and/or grandchildren (or, indeed, any other nominated person) can then inherit the house This is known as a ‘Life Interest ‘ or ‘Interest-in-Possession (IIP)’ Trust.
The key point to note here is that, while your spouse has the right to live in the house rent free during their life time (and this usually includes the flexibility to downsize if they so wish), they cannot alter the ultimate destination of the property after their death ie the terms of the trust will ensure that it eventually passes down to your children/grandchildren.  
The transfer of the property into the trust will be treated for Inheritance Tax (IHT) as a gift from you to your spouse and will therefore qualify for spouse exemption. However, it is important to remember that the value of the property at the date of your spouse’s death will be included in the value of their estate for IHT purposes but importantly, if your children/grandchildren are the ultimate inheritors of the house,  the Residence Nil Rate Band (‘RNRB’) can potentially be claimed by your Trustees to reduce the IHT bill – (see detailed RNRB article on website).
If you would like to talk to us about Life Interest or IIP Ttrusts please do not hesitate to contact Steve Meredith  of our Private Client team on 01635 580858 or at