Life Interest Trust within the Will

Life Interest in Property Trusts are trusts established in a Will that provide the beneficiary, known as the life tenant, with the right to receive income from the trust assets during their lifetime. On the life tenant's death, the trust assets pass on to the remaining beneficiaries named in the Will.

While Life Interest Will Trusts can be useful in estate planning, providing a source of income for the life tenant, they do not necessarily help in minimising inheritance tax (IHT). In fact, a Life Interest Will Trust can be subject to IHT depending on the circumstances.

When the life tenant dies, IHT of 40% is payable on the trust assets if the life interest ends on the life tenant's death. IHT of 20% is payable if the life interest is terminated during the life tenant's lifetime and passed to a relevant property trust, such as a discretionary trust. However, there is no IHT to pay if the life interest is terminated during the life tenant's lifetime, the life tenant survives for seven years from the date of termination, and the assets are passed outright to an individual or to a trust with favourable tax treatment, such as a disabled person's trust or a bereaved minor's trust.