The most common interest in possession is a life interest,
usually in income producing assets such as stocks and shares, or in
real property producing rent.
However it is not necessary for the property to produce
income. An interest in possession may commonly exist in assets that
do not produce income. A right to reside (
IHTM16131) in a house is the most
common example of enjoyment of property. Similarly, an interest in
possession can subsist in chattels such as a painting or a
necklace. It is not difficult to see that a life tenant can
‘presently enjoy’ things of this kind, without getting
any money out of them.
An interest in possession can also exist in circumstances
where the present ‘enjoyment’ is harder to identify.
This arises in cases of life assurance policies where the
beneficiary appears to take nothing until the death of the life
assured.
The leading modern case on this point is Re
Kilpatrick’s Policies Kilpatrick v IRC [1966] Ch 730. In this
case the ‘settlement’ was made by the policy itself.
The deceased effected several policies on his life for the benefit
of his named wife ‘if she shall survive the assured for more
than one month.’ (which she did); and if she did not, for the
benefit of his sons equally absolutely.
The court held that that the wife had a vested interest in
the policy from the time it was taken out, and not merely a
contingent interest depending on whether she survived her husband
for more than a month. She therefore had an interest in possession
from the beginning, although it could be defeated by her failure to
survive the husband for more than a month.
This rule might seem remarkable, but as more than one judge
in the case remarked, if any income or benefit had arisen from the
policy settlement during the husband’s life it was bound to
be immediately payable to the wife.
Re Kilpatrick is important in emphasising the care that needs
to be taken in analysing trusts of policies.
It is also helpful as a reminder that a vested defeasible
interest in possession is not a reversion or a contingent interest.
In practice the point might not be seen very often, but it
remains good law. It is not necessarily restricted to policies of
assurance and should always be borne in mind when considering
complex trusts.
In Scotland an interest in which the vesting is postponed or
defeasible does not give the potential beneficiary any right to
income as it arises (Anderson & Others v Russell & Others
1959 SLT (Notes) p23; Gloag & Henderson, The Law of Scotland
45.31). In such circumstances, that beneficiary does not have an
interest in possession merely because of the potential vesting of
the interest. Often, however, the terms of the trust direct how
income is to be dealt with, and the provisions in this respect must
be closely analysed in order to ascertain whether or not there is
any interest in possession.
