Published on: 18th May 2020

Estate Planning with a Life Interest In Property Trust ~ Case Study 2 of 2

If you ask an ‘average’ family man or woman what they want to happen with their assets when they die the reply is often “Everything to my spouse and then to my children”. Unfortunately, a standard Will does not necessarily guarantee one’s children will inherit one’s hard earned wealth. The reason the majority of people make a Will is to provide for a spouse and then children. However, please see below what can happen with just a ‘simple Will’ and why Estate Planning with a Life Interest In Property Trust can be so important.

1. Mr & Mrs Smith are married.
2. Mr Smith passes away.
3. Mrs Smith inherits all of the late Mr Smith’s estate.
4. Mrs Smith, who now has all of the late Mr Smith’s estate, meets and eventually marries Mr Jones and so the couple become Mr & Mrs Jones.
5. Mrs Jones (was Mrs Smith) has revoked her Will through marriage.
6. Mr & Mrs Jones do not write Wills.
7. Mrs Jones (was Mrs Smith) passes away. The late Mrs Jones’ estate, also comprising of the late Mr Smith’s assets, pass to Mr Jones via the Laws of Intestacy.
8. The children of Mr Smith (and Mrs Smith as she was) receive nothing.

Most couples own their family home as ‘Joint Tenants’. This means that when joint owner spouse one dies the survivor, spouse two, would own the total value, by survivorship, irrespective of what might be written in spouse one’s Will. The alternative is to own a property as ‘Tenants in Common’. This means that each spouse owns a share of the PPR and can deal with it as they wish. The difference with this arrangement, combined with a Life Interest in Property trust (LIPT), is that the children or other named beneficiaries of spouse one would be guaranteed to inherit at least some of the value (usually 50%) of the family home. This arrangement will protect spouse one’s share of the family home if spouse two were to later remarry. A LIPT incorporated within spouse one’s Will would guarantee a right of residency to spouse two thus taking care of her / him but would not allow spouse one’s share of the PPR to pass to anyone other than his / her children or other named beneficiaries.

Let’s look at the example below to show how a life interest trust works.

1. Mr & Mrs Smith are married. They own their family home as ‘Tenants in Common’.
2. Mr & Mrs Smith each make a Will containing a Life Interest in Property Trust which provides for each other and then their children, or other named beneficiaries.
3. Mr Smith passes away. The late Mr Smith’s LIPT is formalised and protects 50% of the family home. It also means that Mrs Smith is taken care of during her lifetime, could sell the property if necessary and move to a smaller home, utilising all the capital if necessary. But 50% of the value will remain in trust until Mrs Smith passes away.
4. Mrs Smith meets and eventually marries Mr Jones and so the couple become Mr & Mrs Jones.
5. Mrs Jones (was Mrs Smith) passes away. Her estate (with the exception of the 50% of the family home that was originally owned by Mr Smith) passes to Mr Jones.
6. The LIPT ends with Mr Smith’s named beneficiaries (usually the children) being the beneficiaries of 50% of the family home.

The LIPT also gives protection against long term care fees assessment. If you missed our article last week, you can see our first Estate Planning with a Life Interest In Property Trust case study.

Please note that in all our articles reference to spouse also includes civil partner.

If you are a home owning couple and you do not yet have Wills, which include a Life Interest in Property Trust, together with Lasting Powers of Attorney please contact us here. If you have any questions on the above please click here. If you would like to see a video which shows a further benefit of a Will with a Life Interest in Property Trust please click here. If you would like a Consultant to visit you please click here. If you would like to receive further articles in the future such as the one above please click here.

DON’T DELAY ~ ACT TODAY!

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