Life interest trusts : a legal analysis and comparison to usufruct

Abstract

Life interest trusts create beneficial interests in income and capital. One or more beneficiaries (life tenant(s)), have a fixed entitlement to receive the whole or an ascertainable part of the net income, 01 a tight to occupy the trust property for life (a life interest), but no right to the capital. Thereafter, the remainder trust property passes to one or more named beneficiaries who take a second life interest therein, or an absolute entitlement thereto (a remainder interest), or may otherwise be held on discretionary trusts. This basic structure may be rendered more flexible through an overriding power of appointment or a power to advance the trust property, exercisable by the trustees in favour of one or more objects, enabling the release of capital assets from the trust fund. Similar rights are created through usufruct as between usufructuary who has the right to administer, use and take the fruits of the thing subject to the obligation of preserving their substance, and bare owner who has ownership stripped of all rights of enjoyment. Both, life interest trusts and usufructs create diametrically opposed interests which prevent any one person from being vested with the absolute ownership of the property affected thereby, but which together make up the absolute ownership. Life interest trusts offer the settlor a degree of flexibility which is not easily achieved through usufruct, but also entails the surrender of ownership and administration of the property in favour of the trustee. The choice better between the two will depend on various factors including the nature of the property, the extent to which its substance is required to be preserved or altered, and the extent of control which the grantor or settlor wishes to retain for himself and that which he wishes to allow to the beneficiaries.