Interest in Possession Trust

The assets in the trust (the ‘trust fund’) are invested and A has the right to the income (or occupation of property if this power is given in the deed). A has an ‘interest in possession’. After a specified event (usually the death of A), A’s interest in possession ceases. 

The document setting up the trust will specify what happens to the trust fund. For example:

1. The trust fund is settled for A for his lifetime and thereafter for B and C absolutely. A has the right to the income or to occupation of trust property during his lifetime. After A’s death the trust fund is given outright to B & C.

 This type of trust is commonly used in wills to provide for a spouse or partner, while protecting the assets for the ultimate beneficiaries from claims on the survivor’s estate (eg from a new spouse or partner, from creditors, protect against long term care fees or simply to be sure that your assets pass to your chosen beneficiaries once your spouse has died). It is particularly suitable in a situation in which you wish to provide for your children from a previous relationship as well as your current spouse.

2. A more specialised version of the interest in possession trust is a ‘Protective Trust’ In this case any beneficiary given a life interest in the income of the trust can automatically lose this entitlement on the occurrence of a specified list of specific situations. The most common event is the personal bankruptcy of the beneficiary. This is designed to protect the income of the trust from the beneficiary's creditors.

This type of trust, also known as a Life Interest Trust, is particularly suitable if you have child who owns a business, who is poor at managing their finances or is otherwise at risk of being sued by creditors or going bankrupt – or alternatively if you are concerned that they may get divorced.

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