Interest in Possession Trust

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Review summary

Interest in Possession Trust

An Interest in Possession Trust is one where the beneficiary of a trust has an immediate and automatic right to the income from the trust as it arises.

The trustee must pass the income, less any expenses, to the beneficiary.

The beneficiary entitled to the income of the trust for life is known as a life tenant or as having a life interest, and a beneficiary who is entitled to the trust capital is known as the capital beneficiary.

Overview

The beneficiary who receives income typically doesn’t have any rights over the capital – instead the capital will normally pass to a different beneficiary or beneficiaries in the future – but depending on the terms of the trust, the trustees might have the power to pay capital to a beneficiary even though that beneficiary only has a right to receive income.

Interest in Possession Trusts offer the same IHT benefits as discretionary trusts, but they offer less immediate flexibility on the distribution of trust income. 

In comparison with Discretionary Trusts, Interest in Possession Trusts are less suitable for minors, as income must be distributed to beneficiaries.

The pros

  • Provides income payments and capital payments to different defined beneficiaries

The cons

  • Remainderman (entitled to capital benefit from the trust) usually only able to access the capital after the death of the Life Tenant (entitled to onling income payments from the trust)
FAQs
What happens on the death of the Life Tenant?

The assets held in trust pass to the remainderman outside of the life tenant's estate.

Customer reviews
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Expert verdict
Expert Assessment of an Interest in Possession Trust

An Interest in Possession Trust can be a useful solution, but whether it is applicable has to be determined on a case-by-case basis.

The case for using trusts in general also needs careful consideration on an individualised basis.

If you already have a trust structure in place and would like a second opinion - or, if you are wondering whether the utilisation of a trust could be of benefit in your personal circumstances contact our trust experts for comprehensive, highly qualified advice.

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