How To… Set up an Interest in Possession Trust


What is a trust?

A trust consists of a settlor, trustee and a beneficiary: An interest in possession trust is one where the beneficiary has a right to the 'income' from the trust. This income could be the interest on the trust. The trustee is then responsible for passing on this income to the beneficiaries.

Wills, Trusts and Probates

Who receives the property in an interest in possession trust?

In an interest in possession trust, the beneficiary often does not have any control over the actual assets in the trust, such as the money, property, land etc. Instead, they receive the income earned on the capital and are sometimes referred to as the ‘income beneficiary’.

If the income beneficiary dies, then the assets will usually pass to a different beneficiary or beneficiaries. These beneficiaries are often called the ‘remaindermen’ or ‘capital beneficiaries’.

Why should I set up an interest in possession trust?

An interest in possession trust is important if you want to ensure your partner and children are provided for in the event of your death.

For example, John is married to Jane and they have 3 children. In his will John had set up a trust. This trust states that all the shares he owned will be held within the trust.

The income earned on those shares will go to his wife Jane for the rest of her life. This makes Jane the ‘income beneficiary’.

When Jane passes away the trust will come to an end and the shares will be passed onto John and Jane’s children, the ‘remaindermen’ or ‘capital beneficiaries’.

Why do I need a solicitor?

To ensure your wishes are followed after your death, it is important that you are very clear in your will or trust deed. If you are setting up an interest in possession trust, you need to specify when the trustees can release the assets to the capital beneficiaries. Therefore, a solicitor can clarify all aspects of the trust, explain the tax implications and help set up a trust that is flexible.

If you don’t set up a trust or create a clear will there can be consequences for your loved ones. If this is the case, your estate, everything you own, will be subject to the rules of intestacy. The rules of intestacy are the UK’s laws on how to deal with assets left after a death when no will has been made. It can often lead to unsatisfactory consequences and loved ones missing out on what otherwise would have been left for them.

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