A Life Interest Trust Will is a powerful estate planning tool that offers a balanced approach to asset protection, inheritance planning, and family provision. Commonly used by couples, blended families, and those with significant assets, this type of will allows you to support your spouse or partner after your death—while ensuring your estate ultimately passes to your chosen heirs.
Whether your goals include protecting your spouse, securing your children’s inheritance, or reducing your family’s inheritance tax (IHT) burden, a Life Interest Trust Will (also known as an Immediate Post-Death Interest (IPDI) Will) provides a legally robust and flexible solution.
How Does a Life Interest Trust Will Work?
A Life Interest Trust Will allows you to leave specific assets—most often your share of the family home or investments—in trust for a life tenant (usually your spouse or civil partner). This person has the right to benefit from the assets during their lifetime, but does not own them outright. After the life tenant passes away, the assets are transferred to your ultimate beneficiaries, such as children from a previous relationship.
Key Features:
- The life tenant (e.g. your surviving spouse) can:
- Continue living in the property rent-free.
- Receive income generated from the trust (such as dividends, rent, or interest).
- They do not have access to the capital—meaning they cannot sell or give away the underlying assets.
- Upon their death, the capital is preserved for the final beneficiaries, usually children or grandchildren.
Example Scenario:
John, who owns a £750,000 family home, writes a Life Interest Trust Will. Upon his death, his wife Sarah is entitled to live in the property for the rest of her life. However, the home legally remains in trust. When Sarah passes away, the property is inherited by John’s children from his first marriage. This structure ensures Sarah is protected during her lifetime, while preserving the value of the estate for John’s children.
Why Choose a Life Interest Trust Will?
1. Protects Your Spouse Without Risking Your Children’s Inheritance
- A Life Interest Trust ensures your surviving spouse or partner is provided for, without giving them full control over your assets.
- If they remarry, their new spouse cannot make claims on your estate.
- It guarantees that your chosen beneficiaries—such as your children—will inherit, even if family circumstances change.
2. Shielding Assets from Care Home Fees
- Assets held in trust are not considered part of the life tenant’s estate for care fee assessments.
- This means the local authority cannot force the sale of the family home to fund care, as the surviving spouse does not legally own it.
- Only the life tenant’s personal income (e.g., state pension, private pension) is considered when assessing care contributions.
3. Maximises Inheritance Tax (IHT) Savings
- On first death, there is typically no inheritance tax due if assets are left to a spouse or civil partner—this is known as the spouse exemption.
- On second death, the Residence Nil-Rate Band (RNRB) may be available if the property is passed to direct descendants (children or grandchildren), potentially saving up to £350,000 in IHT (for the 2024/25 tax year).
- A Life Interest Trust Will helps ensure these valuable tax allowances are preserved and utilised efficiently.
Is a Life Interest Trust Will Right for You?
This type of will is especially beneficial if:
- You are in a second marriage or blended family and want to balance support for your spouse with inheritance for your children.
- You own significant assets and want to plan for inheritance tax efficiency.
- You want to protect your estate from being used up by care fees in later life.
Final Thoughts
A Life Interest Trust Will provides a strong blend of asset protection, tax planning, and family security. While it offers many advantages, it is a legal document with long-term consequences—so it’s crucial to ensure it’s correctly drafted and tailored to your specific circumstances.
