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Property Trusts

Interest In Possession Trusts

When writing a legal will for clients there’s often a desire to control the destiny of something after the death of the Testator (the testator is the person who’s will it is), so, for example, if your father owns the family home in his own name, then he might want to guarantee that the house goes to you and your siblings eventually but, whilst your mother is still alive, she should be able to live there without fear of losing it or being evicted.

This is usually done by an Interest in Possession Trust, sometimes called a Protective Property Trust, meaning that your mother has in interest in the property, as if she possesses it herself, but it does not fall inside her estate, it is always ring-fenced and outside her estate, meaning she cannot sell it and use the money for other purposes, the trust wording may allow her to move house with the money but usually restricts her from being able to spend it on other items.

Such a property, being outside your mother’s estate but giving her a Life Interest in it, does not mean that it is not inside her estate for Inheritance Tax (IHT) calculations, if she has a Life Interest in the property then this is seen to be inside her estate for IHT.

Whilst the example used is in regard to the family home, it’s quite possible to give people an Interest in Possession in other items in your will if the need comes about. You can say that someone is allowed to keep a work of art, for example, on their wall until they die because you don’t want them to be deprived of it’s enjoyment after your death, but then, on the death of the person concerned, the work of art can go to your son “x” or daughter “y”. Again, whilst they enjoy the work of art, it is inside that person’s estate for IHT purposes.

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