Life Interest Trusts Solicitors

Life interest trusts are a practical solution for estate planning, balancing current beneficiary needs with future asset distribution.

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What are the key features of a Life Interest Trust?

A life interest trust has several distinctive features that make it a valuable tool for estate planning and asset management.

  • Defined Roles – The trust involves distinct roles: the settlor who creates the trust, the life tenant who benefits from the trust assets during their lifetime, and the remainder beneficiaries who receive the assets after the life tenant’s death.
  • Asset protection – Assets within the trust are protected from the life tenant’s personal financial risks, such as creditors or divorce settlements, so the assets remain intact for future beneficiaries.
  • Control over asset distribution – The settlor specifies how assets are handled and distributed, providing a clear roadmap for managing the trust assets that aligns with their wishes.
  • Flexibility and security for the Life Tenant – The life tenant enjoys the use of the assets (like living in a house) without owning them, offering both stability during their lifetime and protection for the assets from misuse or mismanagement.
  • Tax benefits – While the trust must be carefully structured, it can potentially reduce inheritance tax liabilities, making it an effective tool for tax planning.

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What are the advantages of a Life Interest Trust?

A life interest trust offers several advantages for estate planning.

It protects assets, safeguarding them from creditor claims, divorce settlements, or bankruptcy, so they remain intact for future beneficiaries.

This structure allows for precise control over asset distribution, which is particularly helpful in blended families, so various family members are cared for according to the settlor’s explicit wishes.

On top of this, the trust ensures provision for the life tenant, who can benefit from the assets (like residing in a home or receiving investment income) without owning them outright, maintaining stability and financial security during their lifetime.

Life interest trusts can also be tailored for tax efficiency, potentially reducing inheritance tax liabilities. This strategic tool also makes for clear succession planning, minimising potential conflicts among heirs by providing clear guidelines for distributing assets after the life tenant’s death.

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Who should consider a Life Interest Trust?

A life interest trust is a strategic choice for those looking to manage their estate with specific goals in mind, including:

Blended families

In families with children from previous relationships, a life interest trust takes care of the current spouse for their life while preserving the inheritance for children from earlier relationships.

Protection for vulnerable beneficiaries

If there are concerns about a beneficiary’s ability to manage financial affairs due to youth, disability, or other vulnerabilities, a life interest trust can provide them with security and support without transferring full control of the assets.

Estate Tax planning

For those looking to reduce the impact of inheritance taxes on their estate, life interest trusts can be structured to optimise tax efficiencies.

Preserving long-term assets

Those who want to keep cherished family assets like homes, farms, or businesses within the family but manage them professionally can use life interest trusts to do so.

Asset control in second marriages

Like blended families, those in second marriages might use a life interest trust to balance the interests of a new spouse and children from a previous marriage, ensuring fair and clear distribution of the estate.

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