top of page

What is a life interest trust?

You may have read our earlier article in which we spoke about quality street chocolates and discretionary trusts. We thought you might like a further insight into Kelly's head and how she explains life interest trusts to clients!


A life interest trust is a totally different type of trust to a discretionary trust and it is used for different reasons. It is still very effective at protecting assets which are placed in it. Often a life interest trust will be used to ensure that someone can live in a house for their lifetime. Or it may be used to protect assets in a marriage if one partner dies young and the other may remarry. Kelly often talks about the survivor having a whirlwind romance with a Greek waiter/waitress (or any other nationality for that matter) and marrying in haste. A life interest trust can ensure that assets are protected for the children of the deceased and do not disappear to the Greek waiter/waitress. Many of our clients in their 90s find this potential scenario very amusing!


A life interest trust has trustees, people you trust to look after assets. You really need two but no more than four. It has beneficiaries, those you wish to benefit from the assets, but usually there is just one rather than many. It also has assets. Again these could be lots of different things like your house, your bank accounts, your premium bonds, your car and your furniture. With a life interest trust the beneficiary does not have an automatic right to these assets but can have the interest, dividends or rental income which is generated by an asset or the beneficiary can enjoy living in a property or making use of a car or furniture.


When clients ask for an explanation of a life interest trust Kelly talks about cows and milk! Let us know at the end what you think!


When you think about all of the assets in a life interest trust you need to compare them to a cow. With careful management of the cow, the correct hay and water, the right protein and living conditions, the right love and attention the cow will become happy and content. When it is happy and content it will produce lots of milk. The milk is the product of the good care of the cow and equivalent to the dividends, interest and rent that is produced by the assets in a life interest trust. The beneficiary of the life interest trust can have all of the milk to do with what they want regardless of how much milk is produced.


It is possible with some trusts that a beneficiary can have access to the assets within the trust but this is with special permissions given to the trustees. Kelly doesn't like to talk about this too much in relation to cows as she would not advocate chopping off a tail to make oxtail soup whilst the cow is still mooing around the field!


You need to be careful with life interest trusts if your beneficiary receives state benefits or pays for care fees. The income that is generated from a life interest trust must be declared in a means tested benefit or care calculations so could undo the good that was intended by protecting the assets themselves.


If you are thinking about creating a discretionary trust or would like to talk this through please contact Kelly at post@argolifeandlegacy.co.uk and take advantage of our free fifteen minute advice call.




34 views0 comments

Comments


bottom of page