Life Interest Trust (IPDI)
Life Interest Trust (IPDI)
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A Life Interest Trust (also called an Immediate Post-Death Interest Trust, IPDI) allows trustees to hold assets and pay the income to a named person (the life tenant) for life or a defined period (e.g. until remarriage).
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The underlying capital is preserved and passes to other beneficiaries at the end of the trust.
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Trustees may be given power to advance capital to the life tenant, outright or as a loan.
Why it’s used:
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Commonly used to provide for a surviving spouse or civil partner while protecting assets for children or other beneficiaries.
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Prevents assets passing to a new spouse, being lost on divorce, bankruptcy, or used for long-term care fees.
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Useful where spouses want different beneficiaries on second death.
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Can reduce the risk of claims against the estate where a spouse is in long-term care.
Inheritance Tax (IHT).
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Treated as an interest in possession trust.
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For IHT, the life tenant is treated as inheriting the trust assets.
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If the life tenant is a spouse/civil partner, spousal exemption applies, deferring IHT until second death.
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If the trust ends during the life tenant’s lifetime (e.g. on remarriage), the transfer to beneficiaries is a potentially exempt transfer, subject to the 7-year rule.
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No anniversary or exit charges apply.
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IPDIs may be unsuitable for unmarried couples concerned about IHT; alternatives may be better.
Residential Nil Rate Band (RNRB)
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If the life tenant is a spouse/civil partner and the final beneficiaries are direct descendants, RNRB applies on second death.
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If final beneficiaries are not direct descendants, RNRB is not available.
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If the life tenant is a direct descendant, RNRB can apply on the testator’s death.