One of the most common instructions we receive from clients when reviewing their Wills is that they want to provide for their main asset (i.e. their home) to pass to their children but also to provide their surviving spouse with the security of a home for the remainder of their life.

The solution is often a ‘life interest trust’ although in some respects such an arrangement may be far from perfect.

While the life interest trust is certainly a useful vehicle, a trust where the sole asset is a property can cause difficulties around the payment of expenses and often leave the trustees in an unenviable position. The practicalities of such an arrangement must therefore be considered and the trustees armed with an appropriate understanding.

The trustees have a general duty to protect the trust asset (repairs, insurance, etc) but where the sole asset is the property the trustees may find themselves without access to necessary funds in order to fulfil this duty.

The trustees are by no means expected to use their own funds to pay such expenses but nor are they able to use the lack of available cash to avoid having to fulfil this duty. A balance must therefore be struck between protecting themselves as trustees and protecting the trust asset.

In this case, the trustees must first look to the terms of the trust and the life tenants’ occupation. The trust deed will often detail the life tenants’ ongoing responsibility to pay for repairs and insurance but it may also be silent on the matter. If the trust does detail the terms of the life tenants’ occupancy, a refusal by the life tenant to pay these expenses may be a breach of trust and make their occupation vulnerable to termination.

But what should the trustees do if the life tenant is unable or unwilling to pay? The trustees have a number of options although this may be governed by family circumstances and the individuals involved.

The trustees could ask the ‘remaindermen’ (i.e. those who are entitled to the trust assets once the life tenant’s interest comes to an end) to pay but as this style of trust is often used in instances of second marriage, it may be unlikely that the children of the first are willing to fund such expenses. That being said, if the costs aren’t the responsibility of the life tenant then the costs incurred are capital expenses and will be payable from the underlying capital and therefore the remaindermen. If the trustees proceed on this basis, they should ensure the remaindermen are informed of the ‘tab’ at regular intervals.

If the beneficiaries are not willing or are unable to fund the expenses, the trustees have no option but to find a way forward or else risk being held liable for breach of duty. This is particularly important where professional trustees are involved. Often contrary to the purpose of the creation of the trust, the trustees will need to consider the sale of the property (in whole or in part) or to arrange another source of funding. Unfortunately, where the only asset in the trust is non-income producing, most banks will be unwilling to lend and any loan may therefore need to be a personal loan. This is certainly not feasible for professional trustees and unlikely to be a solution for any trustee.

If the life tenant is simply unable to afford the costs, the trustees should consider whether the purchase of a less expensive property may be more appropriate. The trustees may allow the life tenant’s occupation to continue, despite the breach of trust, but this should only be allowed with the full knowledge and approval of the remaindermen in order to protect the trustees’ position.

Regardless of the terms of occupation, the trustees will remain under a legal obligation to maintain the structure of the property in a safe condition and to insure third parties against injury or loss resulting from the failure to maintain the property. The trustees shouldn’t therefore be tempted to ignore repairs despite the breach of trust. When insuring the property the trustees will need to declare it is in a satisfactory state of repair and a failure to inspect by the trustees may invalidate any insurance and leave them liable to any claim.

The ultimate solution is to seek repossession. This may be expensive and is likely to defeat the original purpose of the trust (i.e. to provide a home and security for the surviving spouse). It also brings with it its own funding issues as the costs involved will need to be met from trust assets. Trustees would be advised, if seeking this course of action, to obtain indemnities from the remaindermen.

In light of the duties imposed on the trustees, when settling such a trust or agreeing to act as trustee, consideration should be given to how expenses and repairs should be funded, by whom and how.