Protecting family wealth with a life interest trust

Life interest trusts are often employed within a person's Will, particularly for blended families, to allow a spouse/partner to benefit from assets owned by a will-maker but not their ownership. Upon the spouse's death, the Trust's assets can then pass to other beneficiaries, including children from a former relationship.

Life interest trusts are used to help preserve wealth for the benefit of children from a former relationship or another generation. They also provide important asset protection features for the spouse. This is because the assets of the Life interest trust are not "owned" by the spouse but by the Trust. The spouse is protected in circumstances where they may face a personal claim from a creditor, or they suffer a future relationship breakdown. In those circumstances, the trust assets don’t constitute "matrimonial property".

Typically, a life interest trust will hold an interest in a property with a right given to a spouse to use or occupy the property; but the Trust can hold other assets such as shares and cash, which can be used to provide income support to the spouse.

If a life interest trust is recommended, Inherit’s AI legal bot will conduct a detailed investigation to help you ask your client the appropriate questions. Some of those questions include:

- What assets will form part of the Trust

- If a property is to be held by the Trust, if a spouse will have a right to occupy the property and on what terms or restrictions

- The right to purchase other property or interests in property including a retirement village interest or refundable accommodation deposit ( RAD) in an aged care facility ; and

- When the Trust ends, eg on the death of the spouse or when they should re partner

Life interest trusts can be used where property is co-owned and can be established on death in conjunction with an outright gift of property. This approach can provide an important balance between protecting a spouse and children from another relationship from any loss of family wealth with the benefit of a spouse having absolute control from an outright gift. Managing this balance to avoid a potential claim is what your Inherit lawyer will address with you and your client.

Inherit testamentary wised bot contains a detailed investigation into life interest trust to ensure all aspects are cleared and understood by advisers and clients before referring to a panel lawyer.