These allow you to make a gift of income to a particular beneficiary – while leaving the capital to someone else (this isn’t as complicated as it sounds).
This might be useful if, for example, you own a property and you want ultimately to give this to (say) your children – but, you’d like (say) your partner or spouse to be able to live in the property, rent free, for the rest of his or her life, without fear of being evicted. In this case, your partner would have a “life interest” – and your children would have a “remainder” interest; in other words, they will eventually get the property outright – but only on your partner’s death.
Because your partner has a “life interest”, he or she would also be entitled to keep any rent from the property, as income to live on, for life; but wouldn’t be able to sell the property and keep the proceeds of sale (because that’s being kept safe for your children). That’s important, because it means the property is protected from the influence of events that might take place in your partner’s lifetime (such as a new relationship, or having more children).
These trusts can also be drafted with a great deal of flexibility. Your partner may wish to downsize, or move to another location – it’s quite possible to draft the trust so that the protections it affords your partner, continue to apply to any new property. If you wish, you could also give your Trustees the power to give a share of the property to your partner outright, if this is ever desirable for some reason in future.
In addition, the property placed in trust doesn’t just have be a house or building – these trusts can also apply to other assets, such as cash, shares or investments or anything else you may have. For example, you could give all the interest from a bank account, or the dividends from shares, to a particular beneficiary for rest of his or her life – while protecting the underlying funds (or shares) for other beneficiaries, who will receive them on the death of the first.
Life Interest trusts effectively create different rights in the same property, for different people, at different times; and this could be exactly what is required, depending on your wishes.