What are Interest in Possession Trusts?

A trust is a legal obligation binding a person (which can be an individual or a company) called a trustee to deal with the assets, or property of the original owner (or settlor), for the benefit of those who have been nominated by the settlor to receive the assets, who are known as beneficiaries.

‘Property’ will typically include money, investments, land or buildings and other assets, such as paintings.

Life policies can be assigned into a trust. This is done by a deed whereby the policyholder assigns the policy to trustees for the benefit of the beneficiaries. Usually, the assignment is for inheritance tax purposes.

An Interest in Possession Trust is a type of trust providing the beneficiary with a legal right to the income (interest) from the trust as it arises. Because the beneficiary may not have any rights over the capital of such a trust the beneficiary is sometimes referred to in English law as a ‘life tenant’. In cases where beneficiaries are entitled to the trust capital (property), they are known in English law as ‘remainderman’.

 

What are the types of Interest in Possession Trust?

There is only one type of interest in possession trust.

 

Why should I hold my property in an Interest in Possession Trust?

Holding your assets or property in a trust has a variety of uses:

  • If your family circumstances are likely to change.
  • For Protection, if the beneficiaries are to be someone who is mentally incapable or the donor does not wish the beneficiaries to take the capital at too young an age.
  • To mitigate some form of taxation, usually inheritance tax.
  • To pass property on to future generations but enable the settler to retain some control over it by being a trustee.
  • To allow a claim under a life policy to be dealt with a quickly as possible.
 

How do I assign my property into an Interest in Possession Trust?

The first and most important step after you have decided you may want to hold your investments in an flexible trust is to have a discussion with us to provide you with independent financial advice.

Once we have agreed what the most suitable type of trust for your particular circumstances we make an application on your behalf to place into a trust, the property, or assets that you wish to hold. This application must be signed by all settlers, trustees and beneficiaries. The signatures must also be witnessed by an independent person.

 

Want to know more?

Talk to one of our qualified financial advisers on 01553 777600 or e-mail us at enquiries@ringassociates.co.uk

Also you may want to read the articles and associated links

Her Majesty’s Revenue and Customs

(http://www.hmrc.gov.uk/pdfs/ir152.htm)

Direct.gov.uk

(http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/InheritanceTaxEstatesAndTrusts/index.htm)