The Flexible Life Interest Trust (FLIT) is commonly known as the 'ideal modern will'. It is a very tax efficient way to plan for estates above £650,000 (the Nil Rate Band for two individuals who have multiple assets, i.e. Buy to Let property/Shares and other investment.) Critically it keeps these assets inherited "out of the beneficiary's estate' – otherwise they may end up having to pay Inheritance Tax on it as well as you. The Trust stops aggregation of assets and the compounding of inheritance tax down generations.
The FLIT creates a structure for estates to devolve flexibly for their partner, children and grandchildren for up to 125 years whilst protecting the deceased estate from:
- Third party intervention (including Local Authority care claims)
- Second marriage
- Marriage after death (MAD) (Sideways Disinheritance)
- Non-bloodline claims
- Vulnerable adults
- Predators and Creditors
A FLIT uniquely allows for the advancement of capital as well as income; it allows for the provision of the spouse/civil partner or any beneficiary. The FLIT protects these beneficiaries from direct inheritance where their inheritance could disappear through divorce or remarriage of the partner. It can be kept in the bloodline or if you want to keep it away from your children's partners/spouses.
- The surviving spouse/civil partner still benefits from the transferable Inheritance Tax (IHT), Nil Rate Band (NRB) with a Protective Property Trust (PPT) on the main residence.
- The Trustees can grant capital and income to the surviving spouse or civil partner.
- The FLIT can protect the estate against 'third party intervention' including Local Authority care claims. (Predators and Creditors).
- The FLIT protects the capital. Beneficiaries can ask the Trustees to release capital as needed; so it goes to the children/beneficiaries rather than to a new spouse or civil partner.
IHT benefits arising
- The deceased's estate is still included for IHT purposes once the surviving spouse dies. We can inform the Trustees if there is sufficient money, then the Trustees can take the surviving spouse off the trust. If the spouse lives for seven years, then the IHT liability ceases.
- Where the children have their own assets, which exceed the nil rate tax band, the Trustees have the right to make loans, or grant occasional benefits to them, in a very tax efficient way. Setting up a new trust at this point, without the spouse benefiting, can reduce or eliminate Inheritance Tax liability.
- In situations where the beneficiaries want the capital, they can simply close the trust. On termination of the FLIT, the benefits of a discretionary trust arise, giving beneficiaries even greater flexibility.
Making a 'Lasting Power of Attorney' is strongly recommended in order to ensure crucial decisions relating to your FLIT, if your health is ever affected.