Life interest trust will

I am reviewing mirror wills whereby the first spouse to die placed their beneficial tenancy in common on life interest trust for the survivor (presumably with care fees planning in mind). The survivor was also to benefit from residue with the children only to benefit from residue on the second death. The remainder interest of the property trust is stated to be held “as an accretion to my residuary estate”. When the trust comes to an end on the surviving spouse’s death, how will that interest be dealt with, given that the surviving spouse (the beneficiary of the first spouse’s residuary estate) will have died? I normally name the children as the remainder beneficiaries of the property trust but can see that various precedents provide for the “accretion to my residuary estate” or similar wording.

Jon Grogan
Alderson Law

The residuary estate has an interest in expectancy in the property, subject to the surviving spouse’s prior life interest. On their death, that entitlement will enlarge so that residue is entitled to the property and it will pass in accordance with the provisions that apply to residue at that time.

Fortunately, the surviving spouse only has a life interest in residue, recent postings have flagged that if they had an absolute entitlement to residue, clauses such as that in this will dealing with the property on the spouse’s death can cause problems.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Many thanks, Paul. I think what the deceased would have intended would be for the residuary beneficiaries on the second death (i.e. the children of the marriage rather than the surviving spouse) to have been made the remaindermen of the trust, which is arguably not what the clause actually provides.

Jon Grogan
Alderson Law

I have a question with regard to setting up a life interest trust in a Will.

If a married couple put their home in a life interest trust with each to receive the residuary estate on first death and children to receive home and residuary estate on second death can they be trustees of their life interest trust along with their children? Also they they borrow against the property in their lifetime or on second death if the property is in the trust?

Michelle Phillips
KTS Legal

As no one else seems to have ventured an opinion, may I suggest that Michelle’s post could possibly be clarified, perhaps by stating the intention - inheritance/tax relief/ deprivation of assets?

A lifetime trust differs from a will trust; but in either case the first of the couple to die would not be able to act as trustee after his/her death. After the second death the deceased couple would surely have difficulty in passing credit checks to obtain credit?

Kevin Mullen

1 Like

Picking up on Michelle’s question. The best solution is usually this:

  1. As soon as instructed do a mutual notice of severance of the joint tenancy of the matrimonial home so that husband and wife become tenants in common in equal shares. Do not wait for land registry title numbers or inspection of the deeds as the delay can result in a negligence claim if one party dies before the severance is completed. Do severance first then inspect the deeds in cases of urgency.

  2. As soon as possible execute reciprocal wills: personal chattels to surviving spouse absolutely; rest of the estate to trustees to hold on trust to pay the income to surviving spouse for life with the remainder split: (a) the residential nil rate band to children absolutely (b) balance of the estate on discretionary trust for family generally. Have overriding powers of appointment so that you can give life tenant capital if needed or pay money to children during lifetime of life tenant if desirable.

Trustees need to be chosen well so probably have family member plus independent professional trustee.

Hope this helps.

Vincent Oakley