Giving only a Life Interest

Of all the strategies to protect the children’s inheritance this is probably the most common. Note that although for ease of reference we refer to ‘life estate’ that may not be completely accurate as often the interest ceases if the surviving spouse re-marries.

What is a Life Interest?

It involves the first-to-die giving the surviving spouse only a life interest in the deceased’s share of the estate so that they do not own the assets outright but only have the use and benefit of them during their life or perhaps until they re-marry. On their death they automatically revert to the children, by-passing the surviving spouse’s estate and as a result not being available to the second spouse.

There are a number of different ways that a life interest can be achieved:

• a formal life estate set out in the Will
• a testamentary discretionary trust set up in the Will
• a simple right of occupancy set out in the Will.

Whichever way they are structured, the first-to-die wants to make sure that the surviving spouse doesn’t challenge the Will under the family provision law to do away with the life interest (see sections 8, 9 & 10 following).

A separate strategy involves the surviving spouse giving only a life interest to their second partner with the full ownership of the assets going to the children of the first marriage on the death or re-marriage of the second spouse.

This second strategy is problematic as there has been case law making clear that in most cases such a limited interest would not meet the deceased’s obligation to their second spouse (see Section 3 above).