Life interest in property subject to a mortgage

H and W are tenants in common of their property. They are making wills so that the surviving spouse is given a life interest in their half share of their property with kids as remaindermen. Residue passes to spouse and then kids. The property is subject to a mortgage. I am unsure as to whether this means that the trust property will be subject to the whole mortgage, part of it or none of it. I suppose it would be preferable for it to only be subject to one half or ideally none (in the event that the survivor needs residential care). can anybody offer any thoughts regarding this or alternatively please would you suggest a precedent? There is some cash in the residuary estate but not enough to be able to discharge the mortgage.

Evelyn Barker
Joanne Ball Solicitor

I take it that there is no mortgage protection policy assigned to the lender that would repay the debt on the first death.

As the property is held as tenants in common, I suspect the mortgage is joint and several. On the basis that equity is equality, responsibility for the debt would normally be apportioned between the estate and the survivor in proportion to their entitlement (50/50?).

The trustees would be entitled to a beneficial interest in the deceased’s share subject to the relevant proportion of the mortgage. If a repayment mortgage, how do the trustees fund the capital element of the repayments? If all payments are made by the survivor, how is the trustees’ share accounted for? Is the survivor making a further settlement when each mortgage repayment is made, or is the capital element a loan by them to the trustees (which I itself could have tax consequences)?

Consideration should also be given to how the trustees might fund any costs associated with maintaining the property and which should fall upon the trust fund. Holding property, even just a share of property, in an otherwise dry trust raises issues of its own, as has previously been identified by a number of contributors to this forum.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals