Protecting your assets with a Life Interest Trust

If you do not plan what will happen to your estate after your death, there is a very real risk that your assets, to include your home, will not be passed on to your family as you would wish. A Life Interest Trust could solve this problem for you.

Even if you have made a Will, if you have not considered all eventualities your loved ones may miss out on inheriting your estate.

There are a number of ways in which this could happen, but the main two problems are the so-called ‘sideways disinheritance trap’ and the need to pay care home fees in later life.

Creating a life interest trust for your assets can resolve these issues and protect your assets if planned carefully.

Preventing the ‘sideways disinheritance trap’

Life Interest Trust: What Is A Life Interest Trust?If someone with children from a previous relationship enters into a new marriage, there is a risk that their children could miss out on their inheritance.

When someone marries, their earlier Will automatically becomes invalid. By way of example, if Mr and Mrs Smith have left everything to each other, and Mrs Smith dies, then Mr Smith is the sole owner of all of their assets.

If Mr Smith remarries, his Will is no longer valid. If he and his new wife make Wills leaving everything to each other, then on his death, everything passes to her.

She is then free to make a new Will, leaving everything to her children. This means that nothing will be passed down to any children that the first Mrs Smith had with her husband.

Even if the second wife does not make a new Will, there is a risk that the money could be lost, for instance in a bad investment or in care home fees.

However, there is a way to protect the estate and ensure that it ultimately passes to the next generation while still allowing the new Mrs Smith to live in any property. This is by creating a life interest trust.

Using a life interest trust to protect assets for the next generation

If Mr and Mrs Smith had originally included a life interest trust in their Wills, then when Mrs Smith died, Mr Smith would still be able to live in their shared home for the rest of his life. Mrs Smith’s share of the property would not be his to sell or give away or leave under the terms of his Will, but he would have use of it for as long as he needed. He could also move house if he wanted.

Even if he remarried, anything within the life interest trust would be protected for his children from his first marriage. On his death, the trust assets would pass to those named in the Will of the first Mrs Smith.

How to protect assets from care home fees

A similar situation can arise in respect of care home fees. The local authority will conduct a means test to ascertain whether an individual can afford to pay for their care. This will include the value of their home and, where insufficient cash is available, the home may need to be sold to fund care.

By way of example, where Mr and Mrs Smith are married with two children and Mrs Smith dies, if she has left a Will leaving everything to Mr Smith, then all of those assets will be classed as his in the standard means test.

If he needs to move into a care home, most of those assets could be swallowed up in fees.

However, if Mr and Mrs Smith had left each other a life interest in their property, with the intention that it passes on to their children when the survivor dies or no longer needs to live there, then when Mr Smith goes into a care home and property is sold, half of the sale proceeds will go to their children and will therefore be protected from care home costs.

Professional legal advice on life interest trusts

It is important that a Will containing a life interest trust is carefully drafted and that you fully understand the implications. Taking independent legal advice will ensure that your options are properly explained to you and that your Will adequately protects your estate for your loved ones.

Contact us

At Elm Legal Services our Wills and Trusts experts can discuss your situation with you and put the right documentation in place for your unique circumstances, to include a life interest trust where appropriate.

If you would like to speak to one of our specialist Wills and Probate lawyers, call us now on 0117 952 0698 or Contact Us and we will be happy to explain the options available to you without obligation.

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