Right to Occupy or Discretionary Trust: Which Is Better?

Last verified: July 2026 (England and Wales)

Conclusion first

The choice between a Right to Occupy and a Discretionary Trust usually comes down to which outcome is non-negotiable.

If your partner must have an enforceable legal right to remain in the property for over two years, a Right to Occupy is normally the clearer answer. The trustees cannot simply change their minds and ask your partner to leave.

If the inheritance-tax position is the overriding priority, particularly preserving the Residence Nil-Rate Band for children or grandchildren, a Discretionary Trust may offer more flexibility. However, your partner would not have the same guaranteed legal right. They would depend on the trustees exercising their discretion properly.

You may not be able to maximise both certainty and tax flexibility. The real decision is which risk matters more.

Quick-read summary

Right to Occupy

• Gives the partner a defined legal right to remain.
• Can last for a fixed period, for life or until a specified event.
• Provides certainty for the partner.
• Gives trustees less freedom to respond to changing circumstances.
• May prevent the Residence Nil-Rate Band from being available where the right creates an Immediate Post-Death Interest.

Discretionary Trust

• Gives the trustees flexibility over who benefits, when and how.
• Can allow the partner to remain without giving them an automatic entitlement.
• May provide an opportunity to preserve the Residence Nil-Rate Band through a correctly completed appointment to direct descendants within two years.
• Does not guarantee that the partner can remain.
• Requires carefully chosen trustees and a clear Letter of Wishes.

This comparison is particularly relevant to unmarried couples and blended families. Married couples and civil partners have different inheritance-tax exemptions and may need a different analysis.

A typical family situation

Imagine that David owns his home in his sole name.

His unmarried partner, Helen, lives with him. David wants Helen to have time to recover from his death and arrange somewhere else to live. He also wants the property to pass ultimately to his children.David’s first thought is:

Helen should be able to stay in the house for three years, and then it should pass to my children.

That sounds like a straightforward Right to Occupy.

However, the estate may also qualify for the Residence Nil-Rate Band if the home passes to David’s direct descendants. Giving Helen a fixed right over the property can affect that allowance.

A Discretionary Trust may offer an alternative, but Helen would no longer have the same guaranteed legal right to remain.

The decision therefore becomes:

Does Helen’s legal certainty matter more, or does preserving the possible inheritance-tax saving matter more?

Option one: a Right to Occupy

A Right to Occupy gives a named person the legal right to live in a property.

The Will can state that the right lasts:

• For a fixed period, such as three years.
• For the rest of the occupier’s life.
• Until the occupier moves out permanently.
• Until another specified event occurs.

The precise terms can also address:

• Who pays the council tax, utilities and insurance.
• Who is responsible for repairs and maintenance.
• Whether the occupier can move to another suitable property.
• What happens if the occupier stops using the property as their main home.
• Who receives the property when the right ends.

The principal advantage: certainty

If the Will gives Helen the right to remain for three years, the trustees must respect that right.

Helen is not merely asking the trustees for permission. She has a legal entitlement under the Will, subject to its terms.

That may be the decisive factor where:

• Helen has nowhere else suitable to live.
• Three years is genuinely required rather than merely preferred.
• David does not want Helen to be dependent on his children or other trustees.
• Family relationships may become difficult after David’s death.
• David wants the arrangement to be clear and enforceable.

The principal disadvantage: inheritance tax

A right to live in trust property will often create an interest in possession. Where that interest starts on death, it may be treated as an Immediate Post-Death Interest.

For inheritance-tax purposes, this can mean that the property is treated as passing to the occupier rather than directly to the children.

If the occupier is an unmarried partner rather than a direct descendant, the Residence Nil-Rate Band may not be available on that death.

There can also be inheritance-tax consequences when the occupier’s interest ends during their lifetime. Specialist advice may therefore be needed when the trust is brought to an end.

For a fuller explanation of the structure itself, read Right to Occupy Trust in Your Will.

Option two: a Discretionary Trust

A Discretionary Trust does not give any beneficiary an automatic entitlement to the property.

Instead, the trustees decide:

• Who may benefit.
• When they may benefit.
• How they may benefit.
• Whether support is provided as money, property, a loan or permission to occupy.

The potential beneficiaries could include Helen, David’s children, grandchildren and other descendants.

David’s Letter of Wishes could explain that he would like the trustees to allow Helen to remain temporarily after his death.

The principal advantage: flexibility

The trustees can consider the circumstances that actually exist when David dies.

For example, they could consider:

• Whether Helen still lives in the property.
• Whether she needs a few months or a longer period.
• Whether she has another property available.
• Whether she would prefer financial support towards moving.
• Whether the property needs to be sold.
• Whether the children need the property or its value.
• The inheritance-tax position at that time.

The trustees may then allow Helen to remain temporarily before appointing the property to David’s children.

The principal disadvantage: no guaranteed right

Helen would be a potential beneficiary, not the holder of an enforceable three-year right.

She would depend on the trustees considering her position and exercising their powers in her favour.

A strong Letter of Wishes helps explain David’s intentions, but it is not legally binding.

This means the discretionary route may be unsuitable if David’s instruction is categorically:

Whatever else happens, Helen must be legally entitled to remain for three years.

The quality and independence of the trustees become particularly important. David must be satisfied that they will balance Helen’s needs against the interests of his children fairly.

For more detail about how this structure operates, read Discretionary Trusts: Protection and Flexibility for Your Family.

Why the two-year period matters

Where property is placed into a Discretionary Trust by a Will, the trustees may be able to appoint it to direct descendants within two years of death.

If the statutory requirements are met, section 144 of the Inheritance Tax Act 1984 can treat the appointment for inheritance-tax purposes as though the Will had originally left the property that way.

This may enable the Residence Nil-Rate Band to be claimed where it would otherwise have been unavailable.

However:

• The appointment must be completed correctly.
• The property must pass in a qualifying way.
• The recipients must be qualifying direct descendants.
• The estate must otherwise qualify for the allowance.
• The tax rules in force at the time must be checked.
• The trustees should obtain appropriate legal and tax advice.

A Discretionary Trust does not automatically save inheritance tax merely because it exists.

Read our separate Residence Nil-Rate Band guide for a broader explanation of that allowance.

A simplified inheritance-tax example

Assume:

• David’s estate is worth £700,000.
• His home is worth enough to use the full Residence Nil-Rate Band.
• He has no transferable allowances from a deceased spouse or civil partner.
• There are no relevant debts, gifts, exemptions or reliefs.
• His children are direct descendants.
• The standard nil-rate band is £325,000.
• The Residence Nil-Rate Band is £175,000.
• Inheritance tax is charged at 40%.

If the Residence Nil-Rate Band is unavailable

Estate: £700,000

Less nil-rate band: £325,000

Taxable amount: £375,000

Inheritance tax at 40%: £150,000

If the full Residence Nil-Rate Band becomes available

Estate: £700,000

Less nil-rate band: £325,000

Less Residence Nil-Rate Band: £175,000

Taxable amount: £200,000

Inheritance tax at 40%: £80,000

In this simplified example, the difference is £70,000.

That does not mean every Discretionary Trust saves £70,000, or that every Right to Occupy loses the allowance. The actual position depends on the estate, the beneficiaries, the trust wording and what the trustees do after death.

The example shows why tax can become important enough to change what initially appears to be the obvious solution.

A three-year right and the two-year tax window

This is where the priorities may collide.

If Helen must have a guaranteed legal right to remain for three years, a Right to Occupy may achieve that outcome directly.

However, a discretionary appointment intended to use section 144 normally needs to be completed within two years of David’s death.

The planning cannot simply assume that Helen will have a guaranteed three-year right while the property is also appointed to the children within the two-year tax window.

There may be other arrangements to consider, but they require individual legal and tax advice. The apparent conflict should not be hidden from the client.The decision may genuinely be:

• Guarantee Helen’s occupation for three years; or
• Retain the opportunity to complete the inheritance-tax planning within two years.

When a Right to Occupy is more likely to fit

A Right to Occupy is more likely to be appropriate where:

• The partner’s legal entitlement to remain is non-negotiable.
• The partner would be at serious risk without that entitlement.
• The family wants a fixed and easily understood period.
• The person making the Will does not want trustees deciding whether the partner may stay.
• The potential inheritance-tax saving is small, unavailable or less important than the partner’s security.
• The family accepts that the arrangement is less flexible.

When a Discretionary Trust is more likely to fit

A Discretionary Trust is more likely to be appropriate where:

• The inheritance-tax position is a major concern.
• The Residence Nil-Rate Band may otherwise be lost.
• The partner needs support but not necessarily an enforceable right for a fixed period.
• The partner has alternative accommodation or could move within the two-year period.
• Trusted and balanced trustees are available.
• The family wants flexibility to respond to circumstances at the date of death.
• The estate can justify the additional administration and professional advice.

What if neither option is quite right?

The choice is not always limited to these two structures.

Depending on the family and the property, other options may include:

• An outright gift.
• A Property Life Interest Trust.
• A Life Interest Trust.
• A Flexible Life Interest Trust.
• A shorter or differently conditioned Right to Occupy.
• A combination of property and cash arrangements.

Our wider guide, Choosing Your Family Trust, explains how several common Will-trust structures relate to one another.

You are not expected to identify the correct technical product before your meeting. The starting point is to decide which outcomes matter most.

Questions to work through

When comparing these options, we would normally discuss:

• Must your partner have a legal right to remain, or is that only your current preference?
• How long would they realistically need?
• Do they own another property or have other accommodation available?
• Would they be financially able to move?
• Is your estate likely to pay inheritance tax?
• Is the Residence Nil-Rate Band likely to be available?
• How valuable could the allowance be?
• Who would act as trustees?
• Can your partner and children trust those trustees?
• What should happen if circumstances change?
• Who should pay the property expenses?
• Is the additional trust administration proportionate to the possible benefit?

The answers usually reveal which priority should control the decision.

Ethical and governance note

Fern Wills & LPAs does not take trustee appointments or provide trust administration or trust registration services.

We do draft trusts that arise on death within Wills. If a trust later needs to be operated or registered, we can usually provide general pointers and introduce an appropriate specialist. Any specialist legal, tax or trust-administration work is provided separately, and you remain free to choose your own adviser.

Conclusion

The answer comes back to the same question with which we started.

If your instruction is:

My partner must have a legally enforceable right to remain in the property for three years.

a Right to Occupy is normally the more direct structure, even if that produces a less favourable inheritance-tax result.

If your instruction is:

Preserving the inheritance-tax allowances for my children is the overriding priority, and I trust my trustees to support my partner fairly.

a Discretionary Trust may provide the greater flexibility, including the possibility of an appointment to direct descendants within two years.

Neither option is universally better.

The correct choice depends on which outcome you are least willing to compromise: your partner’s legal certainty or the estate’s inheritance-tax flexibility.

This article is general information only, not individual legal or tax advice.

To discuss how these options apply to your property, partner and children, contact Fern Wills & LPAs. 

We will explain the practical trade-offs in plain English and identify where specialist tax advice should sit alongside the Will planning.