Guide to Interest in Possession Trusts - estate planning risks and solution

Oct 1, 2026

Uploaded by Ivy

Explains risks to assets where there is no will, only basic or mirror wills, particularly around first and second death. Details exposure to care costs, creditor claims or bankruptcy, and complications such as marriage after death and divorce, including inheritance tax pressures and generational IHT. Then presents a solution using discretionary trusts and interest in possession (IIP) trusts, including severing the family home tenancy to tenants in common to protect intended beneficiaries.

LanguageEnglish

CategoryHealthcare

FormatPDF

Pages3

Reading Time8 min

AccessFree to download

Where there is no will: key risks

Care costs after first death

Creditor claims or bankruptcy

Marriage after death (MAD)

Second death: additional risks

Inheritance tax (IHT)

Divorce

Their own future care costs

Generational IHT

Our solution: the trust approach

Sever the tenancy on the family home to tenants in common

Protect trust assets from beneficiaries’ risks

Guide to Interest in Possession Trusts WHERE THERE IS NO WILL, OR COUPLES HAVE ONLY A BASIC WILL/ MIRROR WILLSIN PLACE, YOUR ASSETS ARE EXPOSED TO THE FOLLOWING RISKS: Care Costs Following first death, should the surviving spouse or partner need Care then the whole estate including the family home would be assessed to pay for the cost of that Care. Creditors or Bankruptcy If the surviving spouse were to be subject to Creditor Claims/Bankruptcy then the inherited estate is fully at risk. ! Marriage After Death (MAD) On first death all the assets are then solely owned by the surviving spouse. What if the surviving spouse re-marries? The inherited estate could be lost to the new spouse, disinheriting your children. ON SECOND DEATH THERE ARE FURTHER RISKS TO THE ESTATE YOU WISHED YOUR LOVED ONES TO BENEFIT FROM: Inheritance Tax (IHT) Inheritance Tax would be payable on any amount in excess of the couple’s Nil Rate Bands (NRB) . Divorce If your children/chosen Beneficiaries are subject to divorce proceedings, then half of what you intended them to receive is at risk to Divorce settlements. Creditors or Bankruptcy Similarly, if any of your Beneficiaries are subject to Creditor Claims/Bankruptcy then the inherited estate is fully at risk. ! Their own future Care Costs If the inheritance has been passed to your chosen Beneficiaries, these assets could later be assessed for their own Care Costs. ! Generational IHT On second death the remaining estate is likely to be directed by the Will to the Beneficiaries. This then adds to the Beneficiaries’ estates and could impact their own Inheritance Tax. This sheet contains only general planning and is not to be construed as advice for any personal planning. Each strategy recommended is based on individual circumstances. 28 Benton Road, High Heaton, Newcastle upon Tyne, NE7 7DU [www.thewillguys.co.uk](www.thewillguys.co.uk) OUR SOLUTION SEVER THE TENANCY ON THE FAMILY HOME TO BE HELD AS ‘TENANTS IN COMMON’ On death, the deceased’s assets, including their share of the property, is passed into their Discretionary Trust and Interest in Possession (IIP) Trust via the will. On first death, the surviving spouse or partner continues to live in the property and able to move as they wish, if they choose to do so. In the event the surviving spouse or partner should enter care, they only own half a house. THE BENEFICIARIES HAVE ACCESS TO THE TRUST FUNDS BUT WE ENSURE THAT THESE ASSETS DO NOT ENTER THEIR ESTATES AND SO ARE PROTECTED FROM ATTACK BY THE FOLLOWING: Care If assets are held in Trust, they could also be protected against the beneficiaries’ own Care costs. Creditors or Bankruptcy Similarly, if any of your Beneficiaries are subject to Creditor Claims/Bankruptcy then their inheritance could be protected from such claims. Further or Generational IHT Holding the assets in the Trust ensures that they do not add to the Beneficiaries’ estates and impact on their own Inheritance Tax. Residence Nil Rate Band (RNRB) Our Trusts ensure that if there are lineal descendants as beneficaries, the Trust will still qualify for the RNRB. Marriage After Death (MAD) Placing half of the family home and other assets into a Trust on first death ensures that, should the surviving spouse remarry in the future, those assets cannot betaken into the second marriage and removes the threat of your own children being disinherited. The survivor is still able to use the assets in the Trust. Divorce Placing the assets into Trust ensures that, if your children/chosen Beneficiaries are subject to Divorce proceedings then what you intended them to receive could be protected from any Divorce Settlements. This sheet contains only general planning and is not to be construed as advice for any personal planning. Each strategy recommended is based on individual circumstances. 28 Benton Road, High Heaton, Newcastle upon Tyne, NE7 7DU [www.thewillguys.co.

FAQs

What risks do assets face when there is no will or only basic/mirror wills in place?

Assets are exposed to care costs for the surviving spouse or partner, creditor claims or bankruptcy, and the inherited estate being redirected after re-marriage. These risks can undermine what you intended your loved ones to receive.

What further risks can apply to the estate you wished your beneficiaries to benefit from on second death?

Risks include inheritance tax on amounts beyond the couple’s nil rate bands, divorce proceedings affecting what beneficiaries receive, beneficiary exposure to creditors or bankruptcy, additional future care costs, and generational IHT impacts.

How does the proposed solution using an Interest in Possession (IIP) trust and discretionary trust protect beneficiaries?

It severs the tenancy on the family home to hold it as tenants in common and, on death, passes the deceased’s assets into the discretionary trust and IIP trust via the will. The beneficiaries can access trust funds while the assets are intended to be protected from beneficiaries’ care costs, creditor claims, further/generational IHT, MAD, and divorce settlements.

Oct 1, 2026

Uploaded by Ivy