Life Interest Trusts in a Will Explained

Say you own a house with your second spouse and have children from your first marriage. Rather than leaving your share of the house outright to your spouse (who could then leave it to whoever they choose in their own will) or outright to your children (which could leave your spouse without a home), a life interest trust lets your spouse continue living in the house for their lifetime, or until they remarry or move into care, depending on how the trust is worded.

When your spouse dies, or the trigger event you specified occurs, the property, or its sale proceeds, passes to the beneficiaries you named originally, typically your children. Your spouse, as the 'life tenant', benefits from the asset during their lifetime but does not own the capital outright and generally cannot leave it to someone else in their own will.

The core problem a life interest trust solves is the tension between wanting to provide for a current spouse and wanting to make sure children from an earlier relationship eventually inherit. An outright gift to a spouse relies entirely on trust that they will, in turn, leave assets to your children in their own will, something you cannot control or guarantee, particularly if they remarry.

A life interest trust removes that reliance by fixing, in your own will, who ultimately receives the capital, while still making sure your spouse is properly provided for during their lifetime. It is one of the most commonly recommended structures for second marriage estate planning for this reason.

Trustees hold legal title to the trust asset and are responsible for balancing the interests of the life tenant (who benefits now) against the remaindermen (who benefit eventually). This can require real judgement, for example deciding whether to allow the life tenant to downsize the family home and reinvest the proceeds within the trust, or dealing with maintenance and running costs of a property the trust owns.

Choosing trustees who can act fairly and are willing to take on this ongoing responsibility, sometimes for many years, is an important decision, and trustees will usually need professional guidance to carry out their role correctly.

Life interest trusts created in a will (as opposed to lifetime trusts) generally have their value treated as part of the life tenant's estate for inheritance tax purposes when the life tenant dies, known as an 'immediate post-death interest'. This means the asset is assessed as though the life tenant owned it, potentially using their own nil rate band and any spouse exemption, before passing to the remaindermen.

The rules here are genuinely technical and interact with the residence nil rate band, spouse exemptions and the trust's own registration requirements. Getting professional tax advice alongside the legal drafting is essential, since the tax outcome can vary significantly depending on exactly how the trust is worded.

A life interest trust is one of the clearest examples of a will provision that cannot be safely created through a standard template or online form. The wording must precisely define the life tenant's rights, what happens if they want to move house, who the remaindermen are, and how the trust interacts with inheritance tax.

If, having read this, you think a life interest trust might suit your family, particularly if you are in a second marriage or blended family with property involved, the right step is to instruct a solicitor experienced in this area rather than attempt it yourself.