Right to Occupy vs Life Interest Trusts

When planning your estate, particularly in blended families or second marriages, you may want to protect your share of property for your children while still providing for your partner. Two common approaches are giving someone a right to occupy or creating a life interest trust. Understanding the difference helps you choose the right solution for your circumstances.

What is a right to occupy?

A right to occupy (sometimes called a right of occupation) is a personal right to live in a specific property without owning it. The property itself is held in trust for other beneficiaries - typically children - but the occupier is permitted to remain there for as long as certain conditions are met.

This arrangement allows your partner to continue living in the family home after your death, while ensuring that your share of the property ultimately passes to your children.

What is a life interest trust?

A life interest trust (also known as a life interest in possession trust or interest in possession trust) is a trust that gives someone the right to benefit from trust assets during their lifetime. The person with the life interest is called the "life tenant."

The life tenant typically has the right to:

• Live in any property held by the trust
• Receive any income generated by trust assets
• Use the trust assets for their benefit during their lifetime

When the life tenant dies, the trust ends and the remaining capital passes to the "remaindermen" - usually children or other specified beneficiaries.

Key differences

While both arrangements can achieve similar goals, there are important differences:

Scope of rights

A right to occupy is typically limited to living in one specific property. A life interest is broader and may include rights to income, use of the property, and sometimes even the ability to move to a different property with trustee consent.

Legal protection

Life interest beneficiaries have stronger statutory protections than those with a simple right to occupy. This can affect their position if disputes arise or if circumstances change.

Flexibility

Life interest trusts are often more flexible, potentially allowing the property to be sold and the proceeds invested, with the life tenant receiving income. A right to occupy is usually tied to one specific property.

Tax treatment

The tax treatment of life interest trusts and rights to occupy can differ. Professional advice is important to understand the implications for your specific situation.

When does a right to occupy end?

A right to occupy typically ends when:

• The occupier dies
• The occupier permanently moves out
• The occupier remarries or cohabits (if this is specified in the trust)
• The property is sold (though proceeds may then be used for alternative accommodation)
• Specific time periods or conditions stated in the trust are met

The exact circumstances depend on how the trust is drafted.

When does a life interest end?

A life interest typically ends on the death of the life tenant. However, the trust document may specify other ending conditions, such as remarriage or cohabitation.

Practical considerations

When deciding between these options, consider:

• The relationship between your partner and children: Will they need clear rules to prevent disputes?
• Your partner's financial position: Do they need income from the trust assets or just somewhere to live?
• The value and nature of your assets: Is property your main asset, or do you have investments too?
• Future flexibility: Might your partner need to move, downsize, or release equity?
• Tax implications: These can be complex and depend on individual circumstances

Common uses in estate planning

Both arrangements are commonly used by families across Kent, including in Tonbridge and Sevenoaks, in situations such as:

• Second marriages where each partner has children from previous relationships
• Protecting property from potential care costs
• Ensuring a surviving partner has security while protecting capital for children
• Managing assets for a surviving partner who may not be experienced in financial matters

Getting the right advice

Choosing between a right to occupy and a life interest trust depends on your specific circumstances, goals, and family dynamics. The wrong choice can create problems for both the surviving partner and the ultimate beneficiaries.

Professional guidance from experienced will writers ensures the trust is drafted correctly and achieves what you intend.

Key takeaways

Both right to occupy and life interest trusts can protect property for future generations while providing for a surviving partner. A right to occupy is simpler but more limited; a life interest offers greater flexibility and protection. The right choice depends on your circumstances, and professional advice is essential to get it right.