Flexible Lifetime Interest Trusts
The Trust creates rights for the surviving spouse or chosen life tenant during their lifetime.
The share of the property held in trust is not assessed as an asset of the surviving spouse.
The Trust is an interest in possession Trust and is not taxed as part of the relevant property routine.
In addition to a right of income, the FLIT allows for capital to be appointed out at the Trustee’s discretion.
A Flexible Lifetime Interest Trust (FLIT) is a discretionary Trust similar in nature to a PPT but with greater flexibility for the Trustees and beneficiaries.
A FLIT provides the right of occupation and income to the surviving spouse / partner as Life Tenant but varies from the PPT by also allowing the Trustees to also appoint out capital from the Trust at their discretion.
FLITs are one of the most commonly used Trusts in Wills today because they provide flexibility to cope with the structure and circumstances surrounding modern families and are able to take into account future changes and the addition of new family members.
A FLIT WILL
Provide a right of income and capital to a surviving spouse / civil partner.
Preserve Inheritance Tax allowance where a spouse / civil partner is a Life Tenant.
Protect the Trust Asset from third party creditors including potential bankruptcy, divorce settlements and local authority assessment.
A FLIT EXAMPLE
John and Karena are married with two children and four grandchildren. Karen wants to ensure the John is provided for whilst ensuring that their children and grandchildren can benefit from her assets. Karen drafts her Will to include a FLIT for John and their two children as Trustees.
After Karen’s death, her estate passes into a FLIT and provides John with a regular income. In addition to the income, John requires an advancement of capital from the Trust to purchase a new car so that he can visit his grandchildren. The FLIT provides the Trustees with the flexibility to advance the funds to John for this purpose.
Whilst a FLIT is effective for the purposes above, consideration must be given to the appointment of Trustees to avoid potential issues such as sideways disinheritance.
Property placed into a FLIT requires a minimum of two Trustees by law, which affords protection by ensuring that decisions cannot be made by a single party. Any other assets placed into a FLIT (cash, stocks and shares etc) require only one Trustee buy law which can contradict the wishes of the testator by allowing one person to have absolute discretion over the appointment of funds.
For more information about the use of FLITs in your Will, please contact us.