Life interest trust and probate: what executors and trustees need to know
A life interest trust is a specific type of arrangement that a testator (someone who makes a will) can include to control what happens to part of their estate after they die. When someone dies and their will contains one, the probate process gains an extra layer of administration. If you are named as an executor or trustee, understanding how a life interest trust works, what its tax implications are, and what duties it creates for you is essential before you begin.
This page explains what a life interest trust is, why families use one, the disadvantages to weigh up, how the flexible life interest trust differs, and what executors and trustees must do at each stage of probate.
What is a life interest trust?
A life interest trust gives one person, called the life tenant, the right to benefit from certain assets for the rest of their life. That benefit is usually either the right to receive all income produced by the assets (for example, rent from a property or dividends from an investment portfolio) or the right to live in a property rent-free.
When the life tenant dies, the underlying assets pass to the people named next in the will. These are known as the remaindermen, and they are often the children of the person who died.
Example: Jean’s will places her share of the family home into a life interest trust. Her husband Tom can live there for life. When Tom dies, Jean’s children inherit the house.
The life tenant never owns the capital outright. As a result, there are two distinct stages of inheritance. First, the assets move from the deceased’s estate to the trustees so the trust can begin. Then, sometimes decades later, those same assets transfer again when the life tenant dies and the trust ends.
That second event can be a long time away. Even so, the groundwork laid during the first probate sets the inheritance tax position and legal framework for everything that follows.
The IPDI: the most common form created by a will
A life interest trust created by a will may qualify as an Immediate Post-Death Interest, or IPDI, if the life tenant becomes entitled to the interest immediately on the testator’s death. The term “immediate post-death interest” refers to a type of beneficial interest in a trust for which the inheritance tax treatment is aligned to that of an individual rather than the separate regime for trusts.
There is a chargeable transfer by the deceased on death unless the IPDI is for the benefit of a spouse or civil partner, in which case it is an exempt transfer. IPDI trusts created on death are not treated as “relevant property” and so the trust is not subject to periodic or exit charges.
This is an important distinction. For inheritance tax purposes, interest-in-possession trusts created on or after 22 March 2006 are taxed as relevant property trusts unless they are IPDIs or transitional serial interests, both of which preserve the pre-2006 treatment of being inside the life tenant’s estate. In practice, this means a properly drafted IPDI in a will still enjoys the most favourable IHT treatment available for this type of trust.
Why do families choose a life interest trust?
Most testators use a life interest trust for one or more of the following reasons.
- Second marriages and blended families. The surviving spouse can stay in the family home or draw investment income, yet the children from an earlier relationship can inherit the capital later under the trust terms.
- Asset protection. Because the life tenant never owns the capital, it is harder for care-fee means tests, future creditors or subsequent spouses to reach it.
- Tax planning. The UK spouse exemption usually means gifts and bequests between spouses and civil partners are free of inheritance tax, with no upper limit. The exception for some couples with different long-term residence status is explained below. A spousal IPDI preserves the nil-rate bands for the ultimate heirs.
There is one situation where that exemption is capped. If the person who died was a long-term UK resident but the surviving spouse is not, the exemption stops at £325,000. The survivor can elect to be treated as a long-term resident. That unlocks the full exemption. However, it also brings their worldwide assets into UK inheritance tax. This only affects couples with international ties.
Any unused percentage of the deceased spouse’s £325,000 nil-rate band and £175,000 residence nil-rate band can pass to the survivor. Both are claimed on the second death, but on different forms. The ordinary nil-rate band goes on form IHT402. The residence nil-rate band goes on form IHT436, alongside form IHT435. A married couple who plan correctly can therefore pass up to £1 million outside the scope of IHT where a qualifying home goes to direct descendants.
To get these benefits, drafting must be precise and the trustees will face ongoing duties. Specialist advice before relying on life interest provisions in a will is strongly advisable.
Life interest trust disadvantages
A life interest trust offers real benefits, but it also brings constraints that can cause difficulty later on.
- Limited access to capital for the life tenant. They receive income but have no automatic right to the underlying capital. If they need a lump sum, for care-home fees or major repairs, they must rely on whatever discretionary powers the trustees hold. If those powers are missing, or the trustees decline to act, the tenant cannot require the trustees to pay out capital.
- Continuing administration costs. Annual trust accounts, tax returns and routine legal advice all carry fees. On a large estate those costs are expected. On a modest estate they can erode the very income the tenant relies on.
- No influence for remaindermen. The ultimate beneficiaries cannot direct the trustees’ day-to-day decisions while the tenant is alive. Yet if trustees allow a property to fall into disrepair, it is the remaindermen’s inheritance that suffers.
- Rigidity when family circumstances change. New relationships, additional children, insolvency or loss of mental capacity can create pressures the original will did not anticipate. Adapting may require costly variations or court applications.
Balancing these life interest trust disadvantages against the protection a trust provides is a careful judgment, and one best made with specialist advice before the will is signed.
What is a flexible life interest trust?
A flexible life interest trust (sometimes called a FLIT) starts like a standard IPDI: one person receives the income for life. However, the trustees also hold a discretionary power to advance capital to the life tenant, or to other named beneficiaries, if circumstances change.
That added discretion can have tax consequences. If the fund passes into a discretionary trust when the life tenant dies, it then enters the relevant property regime under the Inheritance Tax Act 1984. The tax treatment of capital appointed during the life tenant’s lifetime depends on the trust terms and how the trustees exercise their powers. Any periodic ten-yearly charge is calculated at up to 6% of the trust’s chargeable value, applied to the value above the available nil-rate band, with proportionate exit charges when capital leaves between anniversaries.
One detail catches trustees out. The ten-year clock does not start when the trust becomes taxable in this way. It runs from the date the trust began, which for a will trust is the date the testator died. So if the life tenant lived for many years, an anniversary charge can fall due very soon after their death. Check the date of the original death before assuming you have a decade to plan.
In return, the family gains the flexibility to meet care costs, fund major repairs or respond to changed circumstances. The nil-rate band (£325,000) and residence nil-rate band (£175,000) are frozen until April 2031, and unused pensions will enter the IHT estate from April 2027, both increasing the relevance of careful IHT planning.
There is a further cost worth understanding, because it can be expensive. The residence nil-rate band is only available if the home passes to children, grandchildren or other direct descendants. Stepchildren of the life tenant count too. That is why a straightforward life interest trust usually preserves the allowance in a second marriage.
A discretionary remainder may not preserve the allowance. Say the fund simply falls into a discretionary trust when the life tenant dies. Nobody has then inherited the home outright, and the allowance can be lost. That is up to £175,000 per person on a qualifying home. Ask the drafting solicitor to model this before choosing flexibility over certainty.
Because a FLIT is more complex, drafting it correctly and modelling the tax consequences is a job for a specialist solicitor.
How a life interest trust fits into probate
Applying for probate starts in the usual way. The executors prove the will, value the estate and settle any debts. The trust affects the estate from the date of death, although the assets are usually transferred to the trustees only after the Grant of Probate has been issued.
Identify the trust clause. The executors must confirm which assets are earmarked for the trust, who the trustees are and who is the life tenant.
Transfer legal title. After probate, the executors transfer the chosen assets, often the family home or an investment portfolio, into the trustees’ names. Land Registry or stock-transfer forms are needed, and the estate accounts must record the date and value of each transfer.
Hand over to the trustees. From that point, the trustees, not the executors, manage the assets.
Registering the trust with HMRC
Trustees must register the trust with HMRC’s Trust Registration Service if it is registrable. Most UK express trusts must register unless an exclusion applies. A non-taxable trust created after 6 October 2020 must generally be registered within 90 days of its creation. A taxable trust created on or after 6 April 2021 must generally be registered within 90 days of becoming liable for tax. Older taxable trusts can have different deadlines. Taxable trusts also have to confirm their details every year by 31 January, even when nothing has changed.
Trustees must also update the register within 90 days of any reportable change. A new trustee or a change of beneficiary would both count. HMRC can charge a fixed £5,000 penalty. HMRC says it will not charge a penalty if trustees correct the failure within the time limit it sets, and it decides cases individually. Do not rely on that as a reason to delay.
There is one useful concession for executors. A trust created by a will is exempt from registration for the first two years after the death. That only holds if it is wound up inside that period. A life interest trust runs for far longer, so it will need registering. Even so, the window gives you breathing space at the point when you are busiest.
There is a further registration obligation for some trusts. Regulations updated in July 2025 require any trust, company or partnership considered either a Reporting Financial Institution or a Trustee-Documented Trust to register with HMRC, even where they are not required to report under the automatic exchange of information regime. If a professional investment manager manages the trust assets, trustees should take advice promptly on whether this applies to them.
In a modest estate, the extra paperwork may add only a few weeks to the administration. In larger estates, particularly where property has to be split between a trust and outright beneficiaries, administration can take many months.
What are the ongoing duties for trustees?
Once the trust is running, trustees carry personal legal responsibility for its proper management. They must:
- Collect and pay net trust income to the life tenant, or allow them to live in the property
- Keep trust assets separate from their own personal funds
- Review investments regularly and keep written records of decisions
- Keep trust accounts and file any required tax returns
- Give the life tenant an R185 certificate for any year in which they receive or are entitled to trust income
Trustees must file a Trust and Estate Tax Return (SA900) for any year in which the trust has taxable income or gains. Where total income is £500 or less, no tax is due and a return is usually not needed. Failure to meet these duties can leave trustees personally liable, so even family trustees should budget for professional help.
It also helps to be clear about who really pays the income tax. In a life interest trust the net income belongs to the life tenant, not to the trust. The trustees pay tax at the rate that applies to an interest-in-possession trust, then give the life tenant a certificate called an R185. The life tenant uses that to declare the income on their own return. They then claim credit for what the trustees have already paid. A higher-rate taxpayer will owe more; a non-taxpayer may be able to reclaim. Trustees who forget to issue the R185 leave the life tenant unable to file correctly.
CGT within the trust
Trustees also face capital gains tax when trust assets are sold or transferred. Gains realised on or after 30 October 2024 are taxed at 24%. The trustees have an annual CGT exemption of a maximum of £1,500 for 2026/27. In addition, the trustees may qualify for private residence relief when they sell a trust property occupied as the only or main residence of a beneficiary who is entitled to occupy it under the trust. A specialist adviser can help trustees model these costs and plan disposals accordingly.
Get help with probate or a life interest trust
The Probate Network connects executors and trustees with regulated probate professionals who deal with these matters every day. Whether you face a life interest clause in a will, have questions about trustee duties, or want to understand a flexible life interest trust, we can introduce you to the right specialist.
Get a quote today from our network of probate professionals.
You may also wish to read:
- The will trust
- What is a discretionary trust?
- What is a bare trust?
- What is a property protection trust?
- When property is left in a trust in a will
Frequently asked questions
Does a life interest trust avoid inheritance tax?
Not entirely. If the life tenant is a surviving spouse or civil partner and the trust qualifies as an IPDI, the spouse exemption applies on the first death and no IHT is payable on that transfer at that point. However, the trust capital forms part of the life tenant’s estate when they die, and IHT may then be due. The trust defers rather than eliminates any liability in most cases. Transferable nil-rate bands from the first death can help reduce the bill on the second, but the detail depends on the individual estate. Speak to a qualified specialist for advice on your own circumstances.
Who can be a trustee of a life interest trust?
The trustees can be individuals (including family members) or a professional trustee company. There is no legal rule against a beneficiary also acting as trustee, though this can create conflicts of interest. At least two individual trustees, or a trust corporation, are normally needed to receive capital money on a sale of trust land. Family trustees carry exactly the same legal duties as professional ones, including the duty to invest prudently and file any required tax returns, so many families appoint at least one professional alongside family members.
What happens if the life tenant needs care and their assets are in a trust?
The life tenant does not own the trust capital, so the trust assets are not automatically counted in a local authority means test for care fees. However, the rules around deprivation of assets are complex, and the timing and manner in which the trust was set up can be relevant. If the trust includes a power for trustees to advance capital to the life tenant, local authorities may take a different view. Always take specialist advice before relying on a trust as protection against care-fee means testing.
Can a life interest trust be changed after the person has died?
The trust terms are fixed at the date of death, but limited changes are possible. A deed of variation can sometimes alter the will’s provisions. Anyone whose entitlement is reduced must consent. To obtain the special inheritance tax and capital gains tax treatment, the variation must be made within two years of the death. If a beneficiary cannot give consent, an application can be made to the court under the Variation of Trusts Act 1958. That route exists precisely because some beneficiaries cannot agree for themselves. Children under 18, people not yet born and people who cannot be identified yet all fall into that category. The court consents on their behalf. The position is different where every beneficiary is an adult with capacity and between them they are entitled to the whole fund. They can usually end or rearrange the trust without going to court. Both routes carry costs and are not always available, which is why careful drafting at the will stage matters so much.
This article is for general guidance only and does not constitute legal, tax or financial advice. Rules and thresholds can change and every estate is different. For advice on your own circumstances, speak to a qualified professional. You can book a free legal consultation through The Probate Network.
