Right of residence trust working case
A wife (or husband) dies, and the surviving spouse (let’s call him Peter) remarries or cohabits with Anne, who is significantly younger than he is.
They agree that they have to manage their financial relationship carefully. They want to ensure that Peter’s son and daughter, Rob and Jo are not disinherited, so Peter puts a provision in his will that Pam will have the right to occupy his home, Woodlands (which is in his name only) for her lifetime, and after Anne’s death, the property will go automatically to Rob and Jo in equal shares..
One reason for his decision is to discourage, as far as possible, a claim by Anne under the Inheritance (Provision for Family and Dependants) Act, 1975 on Peter’s death. The will is executed, the couple live together happily for 10 years, during which there are the normal family ups and downs, and then sadly, Peter dies.
Anne continues to occupy the property as planned. She decides there is no need for her to make any claim for a greater share of Peter’s estate.
The years pass. Rob and Jo can only wait until Anne dies before they can benefit from the capital from the house. As they get older, they need the capital less. Their children are now grown up, and it is potential inheritance tax that starts to become an issue for Rob in particular.
The house has risen in value considerably over the years and it would significantly increase the value of his estate if he were to die. Anne meets someone and moves out of Woodlands to live with him. She, Rob and Jo as the trustees, have to sell Woodlands.
After much unpleasant correspondence involving solicitors, a compromise is reached. Then the trustees have to invest the funds.
Anne, however, then dies. Inheritance tax is paid on her life interest (out of the capital from Woodlands) and Jo and Rob receive half of the net proceeds between them.
Professional trustees, while not a cheap option, may prove good value by reducing the possibility of disagreements that lead to even more expense on legal fees. Including a mechanism for how one assesses “contribution” to the value of the property by the occupying spouse would also help to prevent problems, as would including in the will trust a condition of the occupation of the property by the surviving spouse that he or she will not make contributions to the value of the property without the written consent of the trustees.
Equally, providing a fund from which repairs and maintenance can be paid for could help to reduce difficulties arising in that regard.
Estates can be confusing when there is a second family involved.
Despite putting in detailed plans, things can still go awry when a partner dies.
Even if people initially get on well, deciding on the future of estates can jeopardise relationships, and experts should be called in to put in place some agreements.
Protect your home and assets by planning your estate NOW! Free consultation if you live in Bexhill, Hastings, Battle, Rye or anywhere in Sussex and Kent.
This message was added on Tuesday 28th April 2015