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Life Interest Trusts for Blended Families Explained

· 22 min

Note: The following scenario is fictional and used for illustration.

Rachel, 52, remarried four years ago after her first husband died. She owns a £485,000 house in Leicester with her new husband, Paul, but has two adult daughters from her first marriage. Rachel desperately wants Paul to have somewhere to live if she dies first—but she's terrified her daughters will lose their inheritance if Paul remarries or changes his will.

Last year, her friend's children were cut out entirely when their stepfather inherited everything and later married someone new. Rachel's been putting off writing her will because she doesn't know how to be fair to everyone.

Rachel isn't alone. According to the ONS Census 2021, there were 781,000 stepfamilies in England and Wales, representing around one in three UK families. Yet 32% of marriages in England and Wales involve at least one person previously married, creating complex inheritance challenges.

This article explains life interest trusts—a legal structure that lets you provide housing security for your spouse while guaranteeing your children inherit the property capital.

Table of Contents

What Is a Life Interest Trust?

A life interest trust is a legal structure where one person—the life tenant—benefits from assets during their lifetime, while the capital ultimately passes to different beneficiaries called remaindermen when the life tenant dies.

Most commonly created in wills rather than during your lifetime, life interest trusts split property rights into two parts. The life tenant has the right to income or use of the assets. The remaindermen have the right to the capital itself.

Think of it like a house with two sets of keys—your spouse gets the front door key with the right to live there, while your children get the ownership deeds with the right to the capital.

Here's a concrete example: David leaves his 50% share of a £400,000 house to his children from his first marriage, but gives his wife Janet the right to live there for life. Janet is the life tenant who can occupy the property rent-free. David's children are the remaindermen who inherit the capital value when Janet dies.

This isn't just "having the house after I die." It's a legal ownership split between use rights for your spouse and capital rights for your children. Both parties have protected interests that trustees must balance fairly.

Why Blended Families Need Life Interest Trusts

The core problem facing blended families is that marriage automatically revokes your existing will under Section 18 of the Wills Act 1837, making it invalid unless you included specific wording anticipating the marriage.

If you die without a new will after remarriage, intestacy rules give your new spouse up to £322,000 plus personal possessions before children receive anything. For many estates, this means children from first marriages inherit nothing.

Consider Mark's situation. He left everything to his wife Sarah in a standard will, trusting she'd provide for his two sons from his first marriage. Sarah later remarried and changed her will to leave the house to her new husband. Mark's children inherited nothing from the estate their father built.

Or Emma's case. Her £280,000 estate went entirely to her new husband under intestacy rules because it fell below the £322,000 threshold. Her adult daughters from her first marriage received nothing, despite Emma assuming they'd be provided for.

If you own property as joint tenants with your new spouse, the right of survivorship means the surviving spouse gets 100% ownership automatically. Your children are completely excluded, regardless of your intentions.

Life interest trusts prevent three critical risks:

  • Your surviving spouse changing their will to benefit someone else
  • Remarriage leading to your children's disinheritance
  • Property being sold against your children's interests

This isn't about distrust. It's about protecting bloodline inheritance while honouring your commitment to your new spouse. The emotional stakes are real—27% of people from blended families don't receive expected inheritances, compared to 17% from traditional families.

How Life Interest Trusts Work in Practice

A life interest trust activates when you die, following a clear sequence:

Step 1: You write a will creating a life interest trust, typically for property but sometimes for investments or other assets.

Step 2: When you die, your share of the property transfers to the trust rather than to your spouse outright.

Step 3: Trustees are appointed—often adult children plus a trusted friend or professional advisor.

Step 4: Property ownership changes at the Land Registry, showing both the life tenant and trustees as having interests in the property.

Step 5: The life tenant lives in the property rent-free for their lifetime, maintaining it and paying utilities and council tax.

Step 6: When the life tenant dies, trustees either sell the property or transfer it directly to the remaindermen—your children.

Here's how this works in practice:

James and Linda own a £500,000 house as tenants in common, each holding a 50% share. James' will creates a life interest trust for his £250,000 share. Linda is named as the life tenant, while James' two daughters from his first marriage are the remaindermen.

When James dies, Linda continues living in the house exactly as before. Nothing changes in her day-to-day life. But she doesn't own James' half of the property—the trustees hold legal title on behalf of the daughters.

Twenty years later, Linda decides to move to a smaller flat. The trustees sell the house for £550,000. Linda receives her original 50% share, which has grown to £275,000. James' daughters receive his 50% share, also £275,000, fulfilling their father's intention that they inherit his property capital.

The crucial point: the life tenant doesn't "inherit" the property. They inherit the right to use it. This distinction protects everyone's interests.

Who Controls the Property: Trustees vs Life Tenant Rights

Understanding who has authority over what prevents family conflict and sets realistic expectations.

Trustees' responsibilities:

Trustees are the legal owners holding the property title. They have a duty to preserve the capital for the remaindermen and must approve major decisions including selling, moving, or significant alterations. They can't act in their own self-interest—this fiduciary duty means putting the trust beneficiaries first.

Life tenant's rights:

The life tenant has the right to occupy the property and can't be forced out. They have exclusive possession, meaning the children can't demand to live there too. However, they're responsible for maintenance, insurance, council tax, and utilities—all the costs of living there.

What the life tenant cannot do:

They can't sell the property without trustee consent. They can't mortgage it independently. They can't make structural alterations without permission. In most trusts, they can't gift or transfer their life interest to someone else.

Choosing trustees:

Most people appoint adult children plus a neutral third party—an accountant, solicitor, or trusted friend. The life tenant should not be the sole trustee due to the obvious conflict of interest. Professional trustees cost £150-£300 per hour but significantly reduce family conflict.

Consider Susan's situation. After 15 years living in the trust property, she wants to downsize. The trustees agree to sell the £400,000 house and purchase a £220,000 bungalow for Susan to live in. They invest the remaining £180,000 to generate income for Susan while preserving the capital for the children.

The balance of power is intentional: trustees can't evict the life tenant, but the life tenant can't squander the capital. Both parties' interests are protected through this carefully designed structure.

Tax Implications of Life Interest Trusts (2025 Rules)

Tax treatment makes life interest trusts particularly attractive for spousal arrangements.

Inheritance Tax:

Life interest trusts for spouses or civil partners are exempt from inheritance tax, treated identically to outright gifts. This means no immediate tax charge when you die.

Life interests for anyone else create a chargeable transfer potentially subject to 40% IHT. When the life tenant dies, trust assets count as part of their estate for IHT purposes.

The crucial advantage: life interest trusts avoid the 10-year anniversary charges that discretionary trusts face. This makes them significantly more tax-efficient for long-term planning.

For example, your estate is worth £500,000 when you die, with your spouse as life tenant. Twenty years later when your spouse dies, the trust assets have grown to £600,000. These assets are taxed as part of your spouse's estate at that time.

Capital Gains Tax:

From 30 October 2024, gains realized by trustees are taxed at 24% regardless of asset type. Trustees receive an annual CGT exemption of only £1,500 for 2025/26, significantly less than individuals.

If the property is sold during the life tenant's lifetime, capital gains tax may apply to the increase in value since your death.

Business and Agricultural Property Relief:

From April 2026, new rules limit these valuable reliefs. Each trust has a £1 million allowance. You receive 100% relief up to £1 million but only 50% relief above that threshold. Importantly, this allowance is not transferable to your spouse like nil-rate bands are.

If you die with trust assets, the £1 million allowance splits proportionally between your free estate and trust assets.

Income Tax:

If trust income is £500 or less, it's tax-free from April 2024. Above £500, trustees pay tax at 20% on standard income and 45% on dividend income above the basic rate. If property is sold and proceeds invested, investment income goes to the life tenant.

Pre-2006 vs Post-2006 trusts:

Life interest trusts created before 22 March 2006 benefit from more favourable treatment under old rules. Those created after that date face the stricter regime described above.

The key takeaway: life interest trusts for spouses are IHT-efficient and avoid discretionary trust charges, but tax planning is complex and requires professional advice.

When Your Spouse Might Want to Move or Sell

Life interest trusts adapt to changing circumstances through trustee-approved flexibility.

Scenario 1: Downsizing

Your spouse wants a smaller, cheaper property. The trustees sell the original home for £450,000 and purchase a £250,000 bungalow in the trust. They invest the £200,000 difference, which generates £8,000 per year income for the life tenant. Your spouse lives comfortably in the new property while your children's capital inheritance is preserved and actually grown.

Scenario 2: Moving to residential care

Your spouse needs care and can't live independently. The trustees sell the property and invest the proceeds. The investment income funds care fees, meaning the life tenant still benefits from the trust assets. When your spouse dies, the preserved capital passes to your children.

One important caveat: life interest trusts are not deliberate deprivation for care fee purposes. You can't set one up purely to avoid care costs if that's your primary motivation.

Scenario 3: Remarriage or new partner

Your spouse remarries and wants to move in with their new partner. The trustees have several options: rent out the trust property with income going to the life tenant, sell and invest the proceeds, or allow the life tenant to surrender their interest if appropriate.

This situation can get complicated when your spouse's new partner also owns property, but the trust structure provides flexibility.

Scenario 4: Need to release equity

Your spouse can't remortgage alone because they don't own the property. Trustees may refuse equity release requests due to their duty to preserve capital for the children. However, trustees could agree to sell the property and invest if the life tenant genuinely needs funds for health or care needs.

Modern "flexible life interest trusts" give trustees more discretion to adapt to circumstances. The trust deed should specify what powers trustees have and under what conditions they can exercise them.

Communication is essential. Family conflicts arise when trustees and life tenants don't talk openly about needs, expectations, and major decisions.

Life Interest Trust vs Other Blended Family Solutions

Life interest trusts aren't your only option. Here's how they compare to alternatives:

Solution How It Works Pros Cons Best For
Life Interest Trust Spouse gets use rights; children get capital Protects both parties; flexible Complex; setup costs Second marriage with children from first marriage
Outright Gift to Spouse Everything to spouse in will Simple; spouse fully provided for Children may inherit nothing if spouse remarries or changes will Strong trust in spouse; no children from previous relationships
Discretionary Trust Trustees decide who benefits when Maximum flexibility for uncertain futures 10-year IHT charges; complex tax rules Uncertain future needs; vulnerable beneficiaries
Tenants in Common Each owns defined share that can be left to chosen beneficiaries Simple; each controls their share Surviving spouse may need to sell or share with children immediately Want control over your share but no ongoing life interest needed
Protective Property Trust Similar to life interest but with statutory protections Legal safeguards without overly restricting spouse Less common; requires professional setup High risk of remarriage or creditor claims

Specific scenarios:

If your children are young or vulnerable, a discretionary trust may be better because trustees can decide when they're mature enough to inherit.

If your spouse has their own property and pension, an outright gift to your children might work since your spouse doesn't need your assets.

If you want your spouse to have the option to give assets to your children early, consider a flexible life interest trust with power to surrender the interest.

If your main concern is protecting against care home fees, understand that protective property trusts can't be deliberate deprivation—timing and motivation matter.

Life interest trusts are the most common solution for typical blended family property inheritance dilemmas, but they're not always the right answer.

Disadvantages and Common Problems with Life Interest Trusts

Honesty about downsides helps you make an informed decision.

Problem 1: Limited access to capital

Your spouse can't access property equity for emergencies. Only half the property value is available if they need substantial funds. If the life tenant needs £60,000 for urgent medical treatment abroad, they can't remortgage, and trustees may refuse to sell. This restriction could reduce quality of life or limit care options.

Problem 2: Restricted freedom

Your spouse needs trustee permission to move, sell, or make major alterations. This can feel infantilizing—imagine asking your stepchildren for permission to make decisions about your home. One widow wanted to move closer to her grandchildren, but her stepchildren-trustees delayed the decision for eight months while they deliberated.

Problem 3: Family conflict potential

Adult children may resent supporting a stepparent's housing for decades. The stepparent may feel controlled by stepchildren they never fully connected with. Disputes arise over maintenance costs, renovation decisions, and selling timelines.

Inheritance disputes have increased 37% since 2021, with many involving blended families where trust arrangements exacerbate rather than resolve tensions.

Problem 4: Setup and ongoing costs

Solicitor fees for a will with life interest trust provisions run £650-£1,500+ depending on estate complexity. Ongoing costs include professional trustee fees if used, Land Registry changes, property valuations for tax purposes, and accountant fees for trust tax compliance.

Problem 5: Inflexibility if circumstances change

The life tenant can't easily surrender their interest without tax consequences—it becomes a potentially exempt transfer for IHT purposes. If all children predecease the life tenant, the trust may continue pointlessly. Divorce or remarriage complicates trust dynamics in ways the original trust deed may not address.

Problem 6: Property market timing

Your children's inheritance is tied to property values. They may not receive funds for decades if the life tenant lives to an advanced age. Property might fall in value. If you die when your spouse is 50 and they live to 95, your children wait 45 years for their inheritance.

Problem 7: Care fee complications

Life interest trust property counts as the life tenant's asset for care fee assessments. You can't completely shelter property from care home costs. Deliberate deprivation rules apply if the trust was set up primarily to avoid care fees.

When NOT to use life interest trusts:

Don't use them if your spouse is vulnerable and needs full financial flexibility for their protection. If you fully trust your spouse to provide for your children, a simpler outright gift reduces costs and complexity. If your children are hostile to your stepparent, a trust creates a recipe for conflict. If your estate is small, costs outweigh benefits. If property is your only significant asset and your spouse has no other housing options, restricting their control may be inappropriate.

Life interest trusts solve real problems but create complexity. Only use them if competing interests genuinely need this level of legal protection.

How to Set Up a Life Interest Trust in Your Will

Creating a life interest trust requires careful planning and professional expertise.

Step 1: Assess whether you need one

Do you have children from a previous relationship who need inheritance protection? Does your spouse need housing security from your assets? Is your estate complex enough to justify the cost? Would simpler solutions like outright gifts or tenants in common ownership work?

Step 2: Get professional legal advice

Life interest trusts require solicitor drafting—they're too complex for DIY wills. Expect to pay £650-£1,500+ depending on your estate's complexity.

WUHLD's online wills don't currently support life interest trusts due to their technical and legal complexity. This requires specialist legal input from a wills and probate solicitor, ideally one who specializes in trusts rather than a general practice solicitor.

Step 3: Decide trust structure

Which assets go into the trust? Just property, or investments too? Who will be the trustees? You need a minimum of two and a maximum of four for land. Who is the life tenant—usually your spouse, but it could be a parent or sibling. Who are the remaindermen—usually your biological children.

What powers will trustees have? Can they sell? Invest? Loan money to the life tenant if needed? Your trust deed must specify these details.

Step 4: Change property ownership if needed

If you own property as joint tenants with your spouse, you must sever the tenancy to become tenants in common. Joint tenancy ownership means the property passes to the survivor automatically, bypassing your will entirely.

Severing the tenancy requires completing a TR1 form and notifying the Land Registry. This usually costs £50-£150 in solicitor fees plus the Land Registry fee.

Step 5: Execute your will properly

Your will must be signed by you and witnessed by two independent witnesses who watch you sign. Store the will safely—with your solicitor, at your bank, or at home in a fireproof safe.

Tell your executors and trustees where the will is located. They can't implement your wishes if they can't find the document.

Step 6: Review regularly

Review your will every five years or after major life events. Marriage, divorce, births, deaths, and property moves all trigger the need for updates. Tax law changes may affect trust efficiency and require amendments.

Step 7: Communicate with family

Tell your spouse about the life interest arrangement. Don't let it be a shock when they're grieving your death. Explain to your children why you've structured inheritance this way.

Consider a family meeting to discuss expectations and address concerns. This reduces the risk of will challenges or family conflict after you die. Open communication prevents misunderstandings that tear families apart.

Alternative approach:

Create a standard will with WUHLD now for £99.99, covering everything except trust assets. This gives you basic protection while you explore complex trust options. You can then consult a solicitor separately for trust provisions or a codicil adding trust language later.

This ensures you have some protection in place immediately rather than putting off estate planning entirely due to complexity.

Frequently Asked Questions

Q: What is a life interest trust for blended families?

A: A life interest trust allows you to provide your spouse with the right to live in your property or benefit from assets during their lifetime, while ensuring the capital ultimately passes to your children from a previous relationship. The surviving spouse becomes the "life tenant" with usage rights, but the property legally belongs to trustees who manage it for your children's future benefit.

Q: Do stepchildren automatically inherit in the UK?

A: No, stepchildren have no automatic inheritance rights under UK intestacy law unless legally adopted. Under intestacy rules, only biological children, adopted children, and the surviving spouse inherit. If you want stepchildren to benefit from your estate, you must name them explicitly in your will.

Q: What happens to my will when I remarry?

A: Marriage automatically revokes your existing will in England and Wales, making it invalid unless you included specific wording anticipating the marriage. If you die intestate after remarriage, your new spouse inherits up to £322,000 plus personal possessions, with any remainder split between them and your children. This often leaves children from previous relationships with nothing.

Q: Can my spouse sell the house if it's in a life interest trust?

A: Your spouse cannot sell the house without the trustees' consent, as they don't own the property—they only have the right to live there. If they want to move, the trustees can sell the property and purchase another for them to live in, or invest the proceeds to provide income. This protects your children's inheritance while giving your spouse housing security.

Q: What are the tax implications of a life interest trust in 2025?

A: Life interest trusts for spouses are exempt from inheritance tax. The trust assets count as part of the life tenant's estate when they die, but avoid the 10-year anniversary charges and exit charges that discretionary trusts face. From April 2026, new rules limit business and agricultural property relief to the first £1 million within the trust.

Q: What happens if my spouse remarries after I die?

A: If your spouse is the life tenant and remarries, they retain their right to live in the property—their new marriage doesn't affect the trust. However, this highlights why life interest trusts matter: without one, your spouse could leave everything to their new partner, and your children would inherit nothing from your original estate.

Q: How much does it cost to set up a life interest trust?

A: Solicitor-drafted wills with life interest trusts typically cost £650-£1,500+ depending on complexity. There may be additional ongoing costs for trust administration after your death, including trustee fees and professional valuations. However, these costs are usually minimal compared to the protection provided for blended families.

Conclusion

Key takeaways:

  • Life interest trusts let you provide housing security for your spouse while guaranteeing your children inherit the property capital
  • Your spouse becomes the "life tenant" with the right to live in the property; your children are "remaindermen" who inherit when your spouse dies
  • Trustees control major decisions like selling or moving, but your spouse can't be evicted or forced out
  • Life interest trusts for spouses are inheritance tax exempt and avoid the 10-year charges that discretionary trusts face
  • Professional legal advice is essential—expect to pay £650-£1,500+ for a will with life interest trust provisions

Rachel doesn't have to choose between Paul and her daughters anymore. A life interest trust means Paul will always have a home, and her daughters will definitely inherit the house she and their father built together. The decision that felt impossible now feels fair.

Understanding your options is the first step toward protecting everyone you love. While life interest trusts require solicitor support for complex estates, WUHLD makes it simple to create your baseline will in just 15 minutes online for £99.99 (vs £650+ for a solicitor).

You'll get your legally binding will plus three essential guides, and you can preview everything free before paying. If you need a trust, you'll already have the foundation in place—and if your situation is straightforward, you're done.

Preview Your Will Free – No Payment Required

Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.

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