Interest in possession trust
Encyclopedia
An interest in possession trust
is a form of legal arrangement which gives a person a "present right to the present enjoyment of something". At least one of the beneficiaries
of this type of trust will have the right to receive the income generated by the trust (if trust funds are invested) or the right to enjoy the trust assets for the present time in another way, for example by living in a property owned by the trustees. The beneficiary with the right to enjoy the trust property for the time being is said to have an interest in possession and is colloquially described (though not always strictly accurately) as an income beneficiary.
A trust can give the interest in possession to a beneficiary for a fixed period, for an indefinite period or, more usually, for the rest of the beneficiary's life. Such a life interest trust is the most common example of an interest in possession trust.
In the example of a life interest trust, the interest in possession ends when the income beneficiary, also called the life tenant, dies. The capital
of the trust will then pass to another beneficiary (or more than one). Where a charity has the right to income under a trust, it will also have an interest in possession, but this will clearly not be a life interest trust - an example would be a trust under which an art gallery has the right to display works owned by the trustees for a certain period.
Either the will
or trust
deed establishing the trust, or the general law, will set out how tax and trustees'
expenses will be divided between the income beneficiary and the capital of the trust. Trustee investment policies will also allow emphasis on either present income (which may reduce the real value of the capital) or capital growth (increasing income in the long term and capital remaining when the interest in possession is terminated) or a balance.
Interest in possession trusts are often created as part of a will
. Typically, a surviving spouse will be granted a right to the income of the trust by the settlor
. When the surviving spouse dies, the rest of the fund (the remainder) may pass to the couple's children or other named persons.
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...
is a form of legal arrangement which gives a person a "present right to the present enjoyment of something". At least one of the beneficiaries
Beneficiary
A beneficiary in the broadest sense is a natural person or other legal entity who receives money or other benefits from a benefactor. For example: The beneficiary of a life insurance policy, is the person who receives the payment of the amount of insurance after the death of the insured...
of this type of trust will have the right to receive the income generated by the trust (if trust funds are invested) or the right to enjoy the trust assets for the present time in another way, for example by living in a property owned by the trustees. The beneficiary with the right to enjoy the trust property for the time being is said to have an interest in possession and is colloquially described (though not always strictly accurately) as an income beneficiary.
A trust can give the interest in possession to a beneficiary for a fixed period, for an indefinite period or, more usually, for the rest of the beneficiary's life. Such a life interest trust is the most common example of an interest in possession trust.
In the example of a life interest trust, the interest in possession ends when the income beneficiary, also called the life tenant, dies. The capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
of the trust will then pass to another beneficiary (or more than one). Where a charity has the right to income under a trust, it will also have an interest in possession, but this will clearly not be a life interest trust - an example would be a trust under which an art gallery has the right to display works owned by the trustees for a certain period.
Either the will
Will (law)
A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his/her estate and provides for the transfer of his/her property at death...
or trust
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...
deed establishing the trust, or the general law, will set out how tax and trustees'
Trustee
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...
expenses will be divided between the income beneficiary and the capital of the trust. Trustee investment policies will also allow emphasis on either present income (which may reduce the real value of the capital) or capital growth (increasing income in the long term and capital remaining when the interest in possession is terminated) or a balance.
Interest in possession trusts are often created as part of a will
Will (law)
A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his/her estate and provides for the transfer of his/her property at death...
. Typically, a surviving spouse will be granted a right to the income of the trust by the settlor
Settlor
In law a settlor is a person who settles property on trust law for the benefit of beneficiaries. In some legal systems, a settlor is also referred to as a trustor, or occasionally, a grantor or donor. Where the trust is a testamentary trust, the settlor is usually referred to as the testator...
. When the surviving spouse dies, the rest of the fund (the remainder) may pass to the couple's children or other named persons.