How can I protect my children's inheritance?

With the advancement of medicine and wellbeing the population is now living longer than we ever have before, with increased vitality in our later years. One of the most common concerns that many people have when considering estate planning is what will happen to their estates when one partner dies and the other survives for many years. 

You do not have to look far for horror stories about a widow or widower remarrying and, on their death, leaving their entire estate to a new spouse or stepchildren with the children from the first marriage receiving nothing. 

For many people the first priority when estate planning is to ensure that their surviving spouse can continue enjoying the standard of living to which they have become accustomed. The balancing act is to ensure that your spouse can maintain the same standard of living, while also protecting your own children’s inheritance. A life interest trust over jointly owned property can assist with this. 

This type of trust can also be particularly useful for blended families, where each partner has children from a previous relationship and wants to protect their own share of the home for the benefit of their own children.

How to deal with jointly owned property after remarrying

For most couples who own property, their main asset is their home. A property can be owned by a couple as either joint tenants or tenants in common. Most properties are initially purchased as joint tenants - this is important to understand because under this ownership structure, when the first person in the couple dies, the property passes automatically to the survivor, no matter what their will says. 

If, however, the marital property is owned as tenants in common, each proprietor owns a defined share, and each person can leave their share of the home under the terms of their will. Each of the owners of the property can create a life interest trust in their will, if they choose to do so. 

Do not panic if you do not own your property as joint tenants, this is fairly simple to rectify, and we can help. 

What is a life interest trust?

A life interest trust is a type of trust created in a will, which allows your surviving spouse to benefit from your share of the home during their lifetime, without gifting it to them absolutely. Effectively, a life interest trust will mean that your spouse does not have to move out of the home you share together, after you die. 

Under the terms of the life interest trust, the survivor is usually free to:

• live in the property rent free for the rest of their life;
• downsize to somewhere smaller if the property is too large for them; or 
• move to any other property they wish. 

If the surviving spouse downsizes, or moves to a different property, the terms of the life interest trust apply to the next property they choose to live in . In these circumstances, if there is surplus cash from a sale of a larger property, the cash can form part of the trust and would be invested by the trustees, and the surviving spouse would be entitled to the income generated by any such investment, during their lifetime. 

Ultimately, the share of the property (or capital from the sale of the marital home) is kept in trust, and is protected for your chosen beneficiaries (such as your own children) so that they can inherit it once your surviving spouse passes away. 

The key purpose of a life interest trust is therefore to ensure that your surviving spouse can use of your share of the property for their lifetime. However, they do not own your share of the property and cannot give it to anyone else, for example by making a new will. 

Why create a life interest trust? 

Leaving your entire estate to your spouse outright may feel like the best and most simple option. However, in these circumstances you cannot control what happens to your property after your death, if you are a joint tenant with your spouse. It is simply impossible to predict future circumstances, the surviving spouse may remarry and leave your property to a new spouse, any new children they may have or any stepchildren from a subsequent marriage. Each of these scenarios would disinherit your own children and leave them in a very different position to the one you intended for them. 

A life interest trust is a mechanism to try and balance your competing intentions. It affords your surviving spouse the security and use of the property during their lifetime, whilst ensuring that your share of your property ultimately passes to your intended beneficiaries. 

Another potential benefit of creating a life interest trust in your will is that if your spouse requires residential care later in life, the trust assets would not usually be treated in the same way as assets owned by them outright. Therefore, it is unlikely that the share of the property held in trust would be clawed back to meet the survivor's care costs. 

Get legal help to set up a life interest trust

Estate planning is complex and technical, and without expert advice, your wishes may not be carried out in the way you intend. 

At Samuels, we can assist with all aspects of estate planning. We can:

• change the ownership structure of your marital home (severing a joint tenancy and setting you and your partner up as tenants in common) to allow a life interest trust to be created;
• checking the terms of your current will to see whether it has prepared in accordance with your wishes or if it needs redrafting; 
• advising you about the effect of any subsequent marriage or other life changes (such as having more children or inheriting cash or property) since your last will was drafted; and
• prepare a new will for you which includes a life interest trust, allowing your spouse to remain in your marital home after your death.  

If you need help to protect your children's inheritance after you die, we will be able to assist you. 

Contact us today to speak to one of our legal experts in our private client department.