Life Interest or Use and Enjoyment Trust?
After you die, you might want a spouse or a child to have the benefit of a certain asset – like being able to live in a particular house – for the rest of their lives or for another specific period of time. You can achieve this a number of ways in your Will. The first option is to grant a life interest, which was more common in the past than it is now, although life interests have become far more complex and flexible than they used to be. The other main option is to create a use and enjoyment trust, and to give the specific person the benefit of that trust.
Let’s say that you want to let you second husband life in your house after you die, but you want the house to belong to your children. There are certain events that can trigger the end of the use and enjoyment trust, and even the life interest if it is drafted properly:
- death of your second husband, in which case your children would then be able to use or sell the house,
- your second husband remarries, or forms a de facto relationship,
- your second husband no longer wants to live there so leaves, or perhaps cannot continue to live there due to health reasons.
This list is not a complete list, because you can put all sorts of conditions on such a trust or life interest.
If you want to create such a trust, or a life interest, you should consider who needs to pay the outgoings on the property, who insures the property, and who maintains it. Generally, it is the person you leave the asset too, such as your second husband used in the example above. Terms can also be built into such a trust that if your second husband doesn’t pay for things or maintains things properly (remember this house is meant to be your children’s inheritance), then your children could either step up and pay, or they could have the option to evict your second husband.
One of the main reasons you would use such a trust, or a life interest, is because you want to make sure your second husband is provided for, but you still want your children to receive their inheritance. So if your true intention is to make sure your second husband has somewhere to live, you should also think about the circumstance when he wants to downsize, or if he has to go into a nursing home. Clauses can be built in to allow the property to be sold and part of the proceeds to be used to buy something smaller – the surplus would go to your children, and the smaller property would also be your children’s in the long run. The same would apply if the property needed to be sold to raise the money for your second husband to go into a nursing home – surplus would go to your children straight away, and the rest would be used as the bond for the nursing home. When your second husband died, the nursing home would return the bond to your children.
Another alternative would be that instead of the surplus on a sale going straight to your children, you could also specify that it was to be invested and your second husband would be entitled to the interest off that investment, but the capital would be kept for your children once your second husband finally died.
