An interest in possession trust is a trust in which at least one

beneficiary A beneficiary (also, in trust law, '' cestui que use'') 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 ...

has 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. 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 as an income beneficiary, or the

life tenant In common law and statutory law, a life estate (or life tenancy) is the ownership of immovable property for the duration of a person's life. In legal terms, it is an estate in real property that ends at death when ownership of the property may ...

. Beneficiaries of a trust have an interest in possession if they have the immediate and automatic right to receive the income arising from the trust property as it arises, or have the use and enjoyment of it, such as by living in a property owned by the

trustee Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to ...

s. Such a beneficiary is also known as an income beneficiary or

. There may be more than one income beneficiary, who may have either a

joint tenancy In property law, a concurrent estate or co-tenancy is any of various ways in which property is owned by more than one person at a time. If more than one person owns the same property, they are commonly referred to as co-owners. Legal terminolo ...

or as

tenants in common In property law, a concurrent estate or co-tenancy is any of various ways in which property is owned by more than one person at a time. If more than one person owns the same property, they are commonly referred to as co-owners. Legal terminolo ...

. The trustee must pass all of the income received, less any trustees' expenses, to the beneficiary/ies. For

income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Ta ...

purposes, the income so accruing to the income beneficiary is taxable income of the beneficiary, and taxed accordingly, unless otherwise exempted. A beneficiary who is entitled to the income of the trust for life is known as a ‘

’ or as ‘having a life interest’. A beneficiary who is entitled to the trust capital is known as the ‘ remainderman’ or the ‘capital 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 United Kingdom, the 10-yearly

inheritance tax An inheritance tax is a tax paid by a person who inherits money or property of a person who has died, whereas an estate tax is a levy on the estate (money and property) of a person who has died. International tax law distinguishes between an e ...

charge may be payable on assets transferred into this type of trust on or after 22 March 2006.Trusts and Inheritance Tax
/ref> In the example of a life interest trust, the interest in possession ends when the income beneficiary dies. The

capital Capital may refer to: Common uses * Capital city, a municipality of primary status ** List of national capital cities * Capital letter, an upper-case letter Economics and social sciences * Capital (economics), the durable produced goods used fo ...

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 may refer to: Common meanings * Will and testament, instructions for the disposition of one's property after death * Will (philosophy), or willpower * Will (sociology) * Will, volition (psychology) * Will, a modal verb - see Shall and wi ...

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 may be created as part of a will. Typically, a surviving spouse will be granted by the

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 se ...

a right to the income of the trust and/or a right to remain in the family home for the remainder of their life. When the surviving spouse dies, the rest of the fund (the remainder) may pass to the couple's children or other named persons.

Examples

The

Duchy of Cornwall The Duchy of Cornwall ( kw, Duketh Kernow) is one of two royal duchies in England, the other being the Duchy of Lancaster. The eldest son of the reigning British monarch obtains possession of the duchy and the title of 'Duke of Cornwall' at ...

is the legal owner of large land holdings in the

United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...

and owns financial investments. The Duke of Cornwall has an interest in possession in the duchy's assets, meaning the Duke is entitled to the income of the duchy and the enjoyment of its assets. When there is no Duke (the lifetime ('inter vivos') owner), the interest in possession reverts to the pre-1337 owner,

the Crown The Crown is the state in all its aspects within the jurisprudence of the Commonwealth realms and their subdivisions (such as the Crown Dependencies, overseas territories, provinces, or states). Legally ill-defined, the term has differ ...

. It is then under its exceptional statutory and quasi-statutory terms revested on the future Duke of Cornwall, which means it is not subject to the

rule against perpetuities The rule against perpetuities is a legal rule in the American common law that prevents people from using legal instruments (usually a deed or a will) to exert control over the ownership of private property for a time long beyond the lives of p ...

References

{{DEFAULTSORT:Interest In Possession Trust Wills and trusts