What is a Flexible Life Interest Trust..?
Working out how to divide your assets between your loved ones is a difficult task. You want to ensure that your surviving spouse has what they need, but that your children’s future inheritance is protected from the survivor’s potential future remarriage or care fees.
A useful option to consider is a Flexible Life Interest Trust (FLIT)
When you die, rather than your assets passing outright to your surviving spouse, they are held ‘in trust’ for them. The Trust gives them the right to use your assets as if they were their own – such as living in the family home, or moving / downsizing, but without them passing under their own Will on their death.
The survivor is absolutely entitled to any income arising from your assets – who is described as having a ‘life interest’ in them – for the rest of their life. The Trust can also be drafted to enable the survivor to receive capital from your estate, either outright or – more preferably – in return for an ‘IOU’, so that on their death the IOU is recalled by the Trustees, to pass to your own children rather than an unintended third party.
Only after the death of the surviving spouse would both the income and remaining capital of the Trust pass on to the other beneficiaries named in the Trust eg your children. Because the assets are owned by the Trust rather than your surviving spouse, it ensures that they could not be given away to someone else, such as their next spouse, step-children or care fees
This type of Trust is particularly useful for families where one or both spouses have been married before, or where there are children involved from previous relationships – so-called ‘blended families’.
The key with a FLIT as opposed to a normal Life Interest Trust (LIT) is of course the flexibility on offer. With a LIT, the survivor is only entitled to the income from those assets – the capital is off limits. However, with a FLIT the Trustees have the option to lend or even give some of the capital from those assets to the surviving spouse.
Another useful benefit is that a FLIT gives Trustees the power to convert some or all of the Trust into another form of Trust. Given the rate at which the tax system changes, this can be particularly useful, for example if Inheritance Tax laws change, the Trustees are able to react to that.
With a FLIT, it’s important to set out an Expression of Wishes letter, explaining to the Trustees precisely how you wish them to handle the assets in that Trust.
Making use of Trusts like a FLIT is an excellent way to provide certainty for your loved ones after your death, but it’s important that you speak to experts in estate planning to establish which form of Trust is most appropriate for your circumstances.
Heir Tight Wills help clients put in place robust provisions and valid documents, to protect their loved ones and their assets both during their lifetime and after their death. For a FREE Consultation to discuss writing or updating your Will & estate planning provisions, contact Rachael Rodgers on 0845 519 7585, or CONTACT US via email.