The beneficiary, known as an income beneficiary, has a current legal right to the income from the trust as it arises and so the trustees must pass of the income received, less any trustees’ expenses and tax, to the beneficiary.

A beneficiary who is entitled to the income of the trust for life is know as a life tenant or as having a life interest. The income beneficiary need not, and often does not, have any rights over the capital of such a trust as normally the capital will pass to a different beneficiary, or beneficiaries, at a specific time in the future or after a specific future event.

Depending on the terms of the trust, trustees may have the power to pay capital to a beneficiary even though that beneficiary only has a right to receive income. A beneficiary who is entitled to the trust capital is the remainderman or the capital beneficiary.

An Example Of An Interest In Possession Trust

Gary is married to Sharon. On his death, Gary’s Will creates a trust and all the shares he owned are to be held in trust. The dividends are to go to Sharon for the rest of her life and when she dies pass to the children or grandchildren.

Sharon thus has an ‘interest in possession’ in the trust as she is entitled to the income arising on it for the rest of her life. However, she has no right to the capital as the trust ceases on her death with the entire capital passing to her children or grandchildren.