Wills and estate planning are full of phrases that can seem familiar yet have precise legal meanings. Clients often hear terms like life interest, discretionary trust or letter of wishes without understanding how each affects their planning in practice. This article begins our Plain‑English Series with trust terms explained, helping both professionals and clients navigate some of the most frequently used concepts in modern succession planning.
Life interest (and the life tenant)
A life interest trust gives one person the right to benefit from trust assets for their lifetime (or a defined period), with others entitled to what remains afterwards.
- The person receiving the lifetime benefit is the “life tenant”.
- The people who receive what is left at the end are the “remaindermen”.
What does the life tenant actually receive?
Typically, the life tenant is entitled to:
• the income the trust fund produces (for example, dividends or rent); and/or
• the right to occupy a trust property (for instance, the family home), depending on the trust terms.
They are not entitled to the capital of the trust, although the trust deed may give the trustees a discretionary power to advance capital to the life tenant.
Why use a life interest?
Life interest arrangements are commonly used for spouses or civil partners. They ensure the survivor can benefit during their lifetime while protecting capital for the intended ultimate recipients and shielding that capital from third‑party claims.
Discretionary trusts
A discretionary trust is one where no beneficiary has an automatic right to income or capital. Instead, the trustees decide:
• which beneficiaries may benefit,
• how much they receive, and
• when they receive it,
all within the framework of the trust deed or Will.
Why use discretion?
Discretionary trusts are useful where:
• a beneficiary is young or financially inexperienced;
• there are concerns about addiction, vulnerability, or undue influence;
• a beneficiary has a disability (noting that specialist structures may sometimes be preferable);
• the family wants flexibility (for example, to respond to changing needs, divorce, bankruptcy, or tax law changes).
Relevant property regime
The relevant property regime is the inheritance tax (IHT) framework that applies to many trusts, most commonly discretionary trusts.
In plain terms, rather than beneficiaries being taxed as owning the trust fund, the regime can impose charges at set points during the trust’s life. The three main “charge points” under the Inheritance Tax Act 1984 are:
- Entry charge – when assets are put into a trust. (This only applies to lifetime transfers, as assets placed into trust on death will always be taxed as part of the deceased’s estate.)
- Ten‑year (periodic) charge – an IHT assessment on each tenth anniversary of the trust.
- Exit charge – when assets leave the trust between ten‑year anniversaries.
Example
Priya settles £500,000 into a discretionary trust during her lifetime. Depending on available reliefs and her use of the nil‑rate band, an entry charge may arise. Ten years later, if the trust still holds relevant property, a periodic charge may apply. If trustees distribute capital to a beneficiary in year seven, an exit charge may be due (calculated by reference to the effective rate since the last charge point).
Protector
A protector is a person appointed under a trust deed to provide additional oversight of trustees. Protectors are common in larger family trusts and international structures but also appear where the settlor or testator wants an extra safeguard.
What powers might a protector have?
This depends on the deed, but commonly includes:
• power to appoint or remove trustees;
• power to consent to certain trustee decisions (for example, adding or removing beneficiaries, large distributions, or significant investment changes);
• power to resolve deadlock.
Example
Evelyn establishes a discretionary trust. Concerned that future trustees might drift from the family’s intentions, she includes a requirement that the protector must give written consent before any distribution above £100,000. This adds a “second key” without removing trustee discretion.
Drafting caution
Protector provisions must be carefully drafted so decision‑making remains clear. The protector’s powers should be defined precisely to avoid uncertainty.
Letter of wishes
A letter of wishes is a non‑binding document, usually prepared alongside a trust deed or Will, explaining how the settlor or testator would like the trustees to exercise their powers.
Why use one?
- It provides context about the settlor’s or testator’s family circumstances, values and priorities.
• It preserves flexibility because it can be updated as wishes change.
• It avoids placing sensitive matters directly into a public‑facing Will.
Practical tip
Review letters of wishes periodically, especially after life events (marriage, divorce, births, deaths) or material changes in wealth.
Trust Terms Explained – Conclusion
The concepts outlined in this article are at the heart of many wills and trust structures. A strong grasp of these trust terms explained helps clients understand both the purpose of their documents and the reasoning behind particular provisions. As the series progresses, we will continue to build on these foundations, ensuring each essential element of trust and estate planning is clearly and confidently understood.
If you have subscribed to our Quiz Membership 2026, please find this article’s quiz here. You must be signed into the partner area of our website to access this.
