Wills: Flexible Life Interest Trusts: ideal for most couples.
According to our specialist solicitor (who used to be a tax barrister), Flexible Life Interest Trusts in Wills are potentially useful for many families, but exceptionally useful in two particular areas:
1) Where there are real assets including perhaps property to be protected to help future generations. Most homes are substantial assets these days and justify consideration of Flexible Life Interest Trust Wills. They are more complex to set up, and need professional advice after a death. But that pales into insignificance compared to the potential benefits.
A FLIT Will builds in adequate provision for the surviving spouse/partner, but still allows the flexibility to allow other family members/beneficiaries to be looked after if the survivor has enough assets of their own. It is an each way bet on whether their fortunes are good on not, with the survivor being looked after if necessary.
The FLIT is flexible because it allows the Trustees of the Flexible Life Interest trust created by the Last Will of the first to die to advance capital as well as income to the survivor, if required. Income includes the right to live in the family home, should it be in the trust. In most cases, the survivor will automatically be entitled to any income generated with the FLIT – but they don’t have to take it if it isn’t needed.
For married couples or those in a Civil Partnership, it the creation of the Flexible Life Interest Trust does not cause a tax charge, nor does it use up any of the Inheritance Tax allowance of the deceased spouse. Their may be some issues under the new rules George Osborn proposed for increased Nil Rate Bands on more expensive properties – we keep that sort of thing under constant review for new clients, and under our Peace of Mind Service for existing clients. Currently the full normal Nil Rate Band is preserved for the later use on the death of the surviving spouse. (It is only the extra property related Nil Rate Band which may be affected – but we have already developed an answer to that anyway.) As the trust is not owned by the surviving spouse/partner, it cannot be given away by them to, say, a new spouse or partner, and it cannot under current be assessed if the survivor needs to end their days in a care home, though the Trustees can of course decide to pay such fees anyway.
The Flexible Life Interest Trust Will:
Includes powers for the trustees to lend trust capital to the survivor. So if they need capital, the trustees can lend it to them – with the capital being repaid either when the survivor dies or if they go into care. This helps to keep the capital for future generations – and for several generations if the Trustees feel that is right bearing in mind that each generation could save substantial Inheritance Tax as well as protecting the original assets.
The FLIT also allows the trustees to give capital to the survivor (though why you would when it can be much more effectively lent to the survivor we’re not sure). However, it is unlikely that this power would be used because the capital would then be owned by the survivor and could be given by them to a new spouse or partner and would be assessed if they went into care.
The wide powers of a flexible life interest trust enable it to cover pretty much any circumstance, including allowing the Trustees to close the trust and give everything to the survivor.
The trustees may also gives the ability to pay capital to the nominated beneficiaries (children, for example – you decide who they can be when you write the Will) so that if children need capital and the surviving spouse/partner does not (e.g., if the survivor is in a care home and the children are in need of capital to reduce their mortgages), capital in the trust could be paid to them.
Includes powers for the trustees to convert some or all the trust fund into another type of trust. So if, for example, Inheritance Tax laws change and make it preferable for the trust capital to sit in, say, a Nil Rate Band Discretionary Trust, the trustees could do this.
Key benefits of Flexible Interest Trust Wills:
Guarantees as far as is humanly who will benefit from your assets if your surviving spouse/partner either remarries, enters into a new relationship or writes a new Will after your death.
Allows your partner or other nominated beneficiary to help from the income generated from your investments after the death of the first partner, whilst protecting the capital value for future generations.
Reduces the potential impact of residential care fees on the value of your estate should your surviving partner go into care. But this should never be considered a reason for creating FLIT Wills, but it can be a side effect.
But my spouse / partner is bad with money – is a flexible life interest trust Will still suitable?
Yes, it is but we can change the trust in the Will to make sure that they only receive the income from the Trust, and cannot access the capital. This doesn’t stop them moving, but it does protect the capital for future generations.