Wills: Is a life interest or discretionary trust appropriate spouse provision?

Wills: Is a life interest or discretionary trust appropriate spouse provision?

When preparing wills, many farming families choose to provide for a surviving spouse, through creation of a “life interest” or a discretionary trust. These trusts often give the surviving spouse the right to use the assets and receive income from them, but it does not give the surviving spouse legal ownership of the deceased spouse’s assets.  Equally, some wills put all of the deceased’s assets into a discretionary trust, and the trustees of the trust are given the power to make provision for the surviving spouse, if they so wish.

This makes sense in the context of a family farm; often the principle farmer wants the next generation to farm the land after his/her death, rather than the spouse.  As well as achieving the desired result in terms of succession, it also prevents the surviving spouse from selling or otherwise dissipating the farm and ensures that the farm is ‘kept in the family’.

Many of these arrangements work perfectly well, with the surviving spouse being comfortably provided for. Increasingly, however, we are seeing challenges to ‘life interest wills’ by the surviving spouse.  These challenges are brought under the Inheritance (Provision for Family and Dependants) Act 1975, with the cause for concern being that the surviving spouse is left without any assets in their legal ownership, and at the mercy of the trustees of the trust.

Cowan v Foreman

Whilst not a farming case, the case of Cowan v Foreman [2020] was heard by the Court of Appeal last year and makes for interesting reading on this specific point.  It concerned a husband and wife who had been married for a short period of time, but had been in a relationship for over 25 years before marriage.  Mr Cowan’s estate was worth £29 million, yet he left Mrs Cowan with little other provision than naming her as a beneficiary of a discretionary trust (which included a number of other beneficiaries).

The Court of Appeal commented that the court will have regard to all of the circumstances of each case, including the size of the estate and the length of the relationship.  Significantly however, it placed weight on the fact that life interests and discretionary trusts will often provide the surviving spouse with “no autonomy”, “no security” and “no direct interest” in the deceased spouse’s assets.  Whilst the surviving spouse may be able to ask the trustees of the trust for income or capital provision, the trustees are often under no legal obligation to agree to such requests, leaving the surviving spouse with no enforceable right(s) over the farm.

Court discretion to change will

It is therefore important to think carefully before making a will that only leaves a spouse with a life interest or an interest in a discretionary trust.  If, as the recent trend shows, the court is sympathetic to the fact that the surviving spouse has been left with no assets in their legal ownership, it has complete discretion under the 1975 Act to grant whatever provision it sees fit.  This could include the court giving the surviving spouse much more than a half share in the deceased spouse’s estate, meaning that they end up with more than if the marriage had ended by divorce, rather than death.