Failed Life Interest Clause?

Trusts Discussion
1

I have been advised by a husband that his wife has sadly died. I have been given his wife’s Will executed 15 years ago to review but I think I have a failed Life Interest Clause (not a Will i have drafted).

Husband and wife are a second marriage with wife having an only son from her first marriage. No children together.

It says as follows:

I GIVE free of all duty and inheritance tax all my share as beneficial tenant in common in the proceeds of sale and in the net rents and profits until sale of the freehold property known as XXXXXXX (hereinafter called ‘the property’) to my trustees to hold the same upon and subject to the following trusts and provisions:

a) Whilst my husband YYYYYYY of XXXXXXXXX remains alive and desires to reside in the Property or so long as he remains my widower (and provided that the Property is kept in good reparid and insured comprehensively and to its full value with insurers approved by my Trustees whose interest is to be noted on the policy at no cost to my Trustees and that the Trustees are kept indemnified against all rates taxes and other outgoings in respect of the Property) my Trustees shall not make any objection to such residence and shall not disturb or restrict it in any way and shall not take any steps to enforce the trust for sale on which the Property is held or to realise my share therein or to obtain any rents or profits from the Property.
b) Subject to the aforeseaid my Trustees shall hold the Property as to both capital and income UPON TRUST for my aforementioned son ZZZZZZZZZ (son from first marriage and also an executor with the son’s wife - husband in not a named executor in the Will).

The residuary clause then says - My Trustees shall stand possessed of my residuary estate upon trust to pay the income therefrom to my aforementioned husband YYYYYY for the remainder of his life. Subject thereto my Trustees shall stand possessed of my Residuary Estate for my aforementioned son ZZZZZZZZZZZZ absolutely

Question 1 - As the Will does not mention any future property that may be brought after the Will has been executed that the Deceased may own at the date of their death and I advise that the Deceased had moved from address XXXXXXXXXXXX to address AAAAAAAAAAAA at the date of the death - is it a simply construction that the clause just fails here?

If the clause fails - then the wife’s half share of the house will fall into the residue. Am I right in understanding that the the residue then sets up second life interest trust here in any event - due to it mentionning that the spouse only gets income and ultimately the intended beneficiary of wife’s estate goes to her only son?

I do not know much about what assets the Deceased had at this time nor what the husband currently has, but I am conscious the husband, could also have a claim under the IHT1975 Act if he is not been left financially provided for.

There is no mention of the STEP Provisions in the Will just 3 clauses around power to invest any part of the residuary estate in any investments (whether or not producing income) which the trustees may in their reasonable discretion consider suitable including power to retain or purchase a freehold or leasehold house or flat for the purpose of providing a home for any beneficiary and 2 fairly standard clauses for section 31 and 32 TA 1925 (pre 2014) but that it is it!

Am I thinking along the right lines here. Any advices?

Appreciate your thoughts and comments.

K

2

I gather that the specific property was not owned by W at her death. So adeemed and just as you say falls into residue for a life interest for H, an IPDI for IHT, remainder to son.

You have a wide investment clause but the TA 2000 augments powers in the trust instrument unless restricted or excluded by it.

I dislike these rights of residence. They need to be carefully defined, especially as to their termination events other than death, which is ascertainable with certainty, apart from presumption of death of the missing.

They resemble in this respect protective trusts and defining the forfeiture event, causing the drafter to give the trustees power to declare a non-forfeiture, a process reminiscent of the Monty Python parrot saga. A better alternative is a life interest plus a power of appointment (absent in your ancient will) and a LOW with all the fancy eventualities in which the will maker suggests the trustees might exercise it.

I often find that remaindermen are not fully aware of the IHT consequences of a lifetime termination of a right of occupation, particularly if it effects a CLT and not a PET. Sometimes the will maker is not either, or has forgotten advice given at or before its execution.

Jack Harper

3

If there is no provision for an alternative principle residence at death (or a property contracted to purchase after exchange has happened etc), then my view is that yes, the trust of the property fails.

The trust of residue seems to work, but isn’t ideal as it is does not include power to purchase a substitute property and is not flexible allowing for capital to be paid to the surviving spouse, should he need it. I would expect that would result in greater risk of an IPFDA 1975 claim.

I appreciate this isn’t your question, and you have probably already considered this but would the son be agreeable to a variation? I wouldn’t imagine you would have a deprivation of assets issue for the surviving spouse (should he require care in future) as there is a life interest of residue that works anyway and on top of that the motivation is to correct the position with the Will, not to avoid care fees.