Flexible Life Interest Trust
Protecting your Family’s Future
When making your Will, you may want to ensure your spouse/
civil partner is well-provided for, but feel anxious about what
would happen if his/her situation changes.
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If your whole estate passes directly to your spouse, there is
a risk that your children’s inheritance may be lost entirely or
substantially reduced. If, for example, your spouse:
• Remarries/has a new partner
• Needs long-term care
• Owes money to others
• Changes his/her Will
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If you are in a couple with children from previous
relationships, you may be concerned about how family
relationships can change after death and the increased risk of
conflict and loss of inheritance.
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You may also feel concerned about your children (or other
beneficiaries) inheriting, for example, if they are young,
vulnerable or go through a divorce in future.
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As the future is difficult to predict, you may want flexibility so
that decisions can be made at the time to protect inheritance
from being wasted or ending up in the wrong hands.
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Including a Flexible Life Interest Trust in your Will can offer
several benefits:
• Protection for your spouse/civil partner
• Flexibility to respond to changing circumstances
• Asset protection
• Provide for multiple generations
• Protection of vulnerable or young beneficiaries
• Inheritance tax planning opportunities
What assets can I include in a Flexible Life
Interest Trust?
Property, money, investments, and important
possessions. Many people choose to include either
the residue or whole of their estate within the trust.
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How will my spouse be provided for?
Your spouse can be given a right to receive income
generated from the trust for life.
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Your trustees will also have powers to loan or gift
the capital of the trust fund to your spouse and
other named beneficiaries. This enables flexibility to
meet future needs.
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If you include your home in the trust, your spouse
can be given a right to remain as well as flexibility to
move to a new home that continues to be protected
by the trust.
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How are assets protected?
Assets are protected because the beneficiaries do
not own the trust property. Trustees will only make
distributions if they think that it is wise to do so.
This means your legacy is better protected from
third parties e.g. where there is remarriage, divorce,
bankruptcy, care fees, lifestyle or vulnerability issues.
You can include a letter of wishes to guide your
trustees over how funds are used.
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Who can be my trustees?
Trustees can be family, friends or a professional
trustee. You should appoint between two to four
trustees. You must be confident that your trustees
will act fairly and responsibly in carrying out their
duties.
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If the trust still exists two years after death, the
trustees must register the trust with HMRC within
90 days. The exception is that if the trust incurs a
UK tax liability earlier than the two-year anniversary,
it must be registered within 90 days of the tax
liability arising. Your trustees may need to seek legal,
tax and financial advice to run the trust correctly.
Trust expenses are paid from the trust fund
Why is this type of trust good for married couples/civil partners?
• Assets passing into the trust benefit from the spousal exemption to Inheritance Tax.
• No periodic or exit charges from the trust fund apply whilst your spouse is alive
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Will the Residence Nil Rate Band be available?
If you include your home in the trust, providing your trustees
appoint the property out of the survivor’s trust to qualifying beneficiaries within two years of the survivor’s death, your executors may claim all or part of the Residence Nil Rate Band (up to £350,000).
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For the full amount to be available, the surviving spouse’s share of the property must be at least £350,000.
For this reason, many couples choose to have a separate trust (a Protective Property Trust) for their home so the availability of the tax relief is not reliant on the trustees or the value of the survivor’s share of the property only.
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What happens after my spouse / civil partner dies?
• The trust becomes a discretionary trust. Whilst this can provide ongoing asset protection for your beneficiaries, your trustees should seek advice on how to manage the trust in a tax-efficient way as different rules apply.
• Depending on the circumstances of the beneficiaries, if the trust is no longer necessary it may be possible for the trustees to end the trust early. Legal advice should be sought to ensure this is done properly.