What is a lifetime interest trust?
A life interest arrangement separates the right to benefit from an asset now from the right to receive the underlying capital later. The person with the current benefit is commonly called the life tenant. Those entitled to the capital after the life interest ends are often called remainder beneficiaries or remaindermen.
How a life interest can work with a home
A common estate-planning example is a share of a family home being held in trust after death. The surviving spouse or partner may have the right to occupy the home for life, while the deceased owner’s share is ultimately preserved for children or other beneficiaries.
The precise occupation rights, responsibility for costs, ability to move house and circumstances in which the interest ends all depend on the drafting.
Lifetime interest trust vs lifetime trust
The expressions answer different questions. Lifetime trust usually tells you when the trust was established: during the settlor’s life. Life interest tells you about a beneficiary’s entitlement.
A life interest can therefore be created during lifetime or by a Will. This is why search results that use the terms interchangeably can be confusing.
Tax treatment needs individual review
Interest-in-possession trusts have their own tax rules. The treatment can depend on when the trust was created, how the interest arose, the assets involved and the relationship between the parties.
For substantial property or investment values, tax consequences should be considered before a trust is established or materially changed.
Questions the trust document should answer
- Exactly what may the life tenant use or occupy?
- Who pays insurance, repairs and other property costs?
- Can the trustees sell and purchase a replacement property?
- Does remarriage, permanent vacation or another event end the interest?
- Who receives the capital when the interest ends?
Frequently asked questions
Frequently asked questions
Is a lifetime interest trust the same as a lifetime trust?
No. “Lifetime trust” generally describes a trust created while the settlor is alive. A life or lifetime interest describes the nature or duration of a beneficiary’s entitlement and can also arise under a Will.
Can a life tenant sell the trust property?
The answer depends on the trust terms and trustee powers. The trustees hold the legal title and must act under the trust. A life tenant’s occupation right does not necessarily give them unrestricted power to deal with the capital.
What happens when the life tenant dies?
The life interest usually ends and the trustees then deal with the capital for the remainder beneficiaries in accordance with the trust deed or Will.
Tell us what you want to achieve
You do not need to know the name of the legal document or trust before speaking to us. Explain the family, property or planning issue and we can discuss the relevant options.