Planning for the future might not be as enticing as a holiday abroad or a new car, but it is so important if you have assets you want to protect or distribute to loved ones. Ensuring that your estate is passed on according to your wishes helps to safeguard what (and who) you truly care about.
For individuals who are entering a second marriage, or who are concerned about the impact of care home fees or potential inheritance tax, a Flexible Life Interest Trust (also known as a Life Interest Will Trust or a Flexible Life Interest Will Trust) can be a highly effective estate planning tool. It combines security, flexibility and control, which can be useful for complex financial arrangements.
In this article, we will learn more about Flexible Life Interest Trusts for 2nd marriage protection, care home and inheritance tax planning – as well as how our team at Elite Law Solicitors can help with this process.
If you require specialist legal advice or assistance in relation to Flexible Life Interest Trusts, get in touch today and book a free initial consultation with one of our specialist lawyers by calling 0800 086 2929, emailing info@elitelawsolicitors.co.uk or by completing our Free Online Enquiry Forms.
What is a Flexible Life Interest Trust?
A Flexible Life Interest Trust (also known as a FLIT) is a type of trust written into a Will. It allows a chosen beneficiary, usually a spouse or civil partner, to receive income or enjoy use of a property during their lifetime, while ultimately ensuring that the capital passes to other beneficiaries, such as children.
The trust takes effect on death and is managed by appointed trustees. The life tenant (the person benefiting from the trust during their lifetime) has the right to income from the trust assets. They may also be granted certain rights over the property, such as the right to live in the family home. However, they do not have outright ownership, which means the capital remains protected for the ultimate beneficiaries.
Flexible Life Interest Trusts differ from standard life interest trusts because they allow trustees to adjust the benefits (in accordance with any letter of wishes that you prepare with your Will) and potentially provide capital to the life tenant or other beneficiaries if circumstances change.
Why are Flexible Life Interest Trusts important for second marriages?
Second marriages are increasingly common in the UK, which often creates blended families that include children from previous relationships. Without clear legal protections in place, problems can arise in these arrangements if one spouse dies.
One of the main concerns for individuals entering a second marriage is how to provide for their new partner while also safeguarding assets so that their children ultimately inherit what they are intended to receive. It is a balancing act that can be made a little easier with the right legal protection. A Flexible Life Interest Trust allows:
- The surviving spouse to benefit from the income or use of the property during their lifetime.
- The children or other chosen beneficiaries to receive the capital once the surviving spouse dies.
This approach means that both the new spouse and the children are treated fairly, preventing situations where children are unintentionally disinherited.
How do you prevent unwanted claims or changes to the Will?
If assets are left outright to a spouse, they are free to change their Will, spend of transfer the wealth or leave the assets to someone else. This can result in children from the previous relationship receiving nothing. A Flexible Life Interest Trust prevents this by ring-fencing the capital for the chosen beneficiaries.
Without a trust structure, disagreements may arise between the surviving spouse and the children of the first spouse. By setting out clear legal rights and protections, a Flexible Life Interest Trust can reduce the likelihood of costly and stressful disputes.
Protecting assets from care home fees
An increasingly common concern for families in the UK is the potential impact of care home fees on their estate. Round-the-clock care is prohibitively expensive, which often leads to assets being sold off to pay for long-term care needs. With appropriate planning, though, this can usually be avoided. With a trust in place:
- The surviving spouse can continue living in the property or receive income from the estate.
- The underlying capital is protected for the ultimate beneficiaries.
- Local authorities typically cannot treat trust assets as belonging to the surviving spouse for the purpose of means testing.
This means that the assets originally belonging to the first spouse are protected in the trust against care costs of the second spouse.
Avoiding the risk of the family home being sold
If the property is left outright to the surviving spouse and they later need care, the property may need to be sold to pay for fees. A Flexible Life Interest Trust can allow the surviving spouse to remain in the home for life while ensuring that the property ultimately passes to the intended beneficiaries.
Inheritance tax advantages of Flexible Life Interest Trusts
Flexible Life Interest Trusts provide several potential inheritance tax (IHT) benefits, particularly for married couples. Below, we have outlined some of the main IHT perks associated with using a Flexible Life Interest Trust.
Using the Spouse Exemption
When assets are placed into a Life Interest Trust for a surviving spouse, they typically qualify for the spouse exemption. This means that no inheritance tax is paid when the first spouse dies, provided they were married or in a civil partnership.
Nil-rate bands and residence nil-rate bands
Another useful feature is that the trust structure usually allows the estate to benefit from the full range of available allowances. This typically includes:
- The nil-rate band
- The residence nil-rate band
- Any transferable allowances between spouses
This can help reduce the inheritance tax bill that may arise on the death of the surviving spouse.
Appointing assets out of the trust to beneficiaries
A clever feature of the Flexible Life Interest Trust is that the trustees can (subject to any letter of wishes that has been prepared) appoint capital out of the trust to your children or other beneficiaries if that capital is not required by the surviving spouse. If the surviving spouse survives 7 years then that appointed capital falls outside of their estate for inheritance tax purposes allowing inheritance tax planning to also tax place.
How Elite Law Solicitors can help
At Elite Law Solicitors, our team of legal experts is here to offer tailored guidance in drafting Flexible Life Interest Trusts. We can help tailor these trusts to suit your family’s circumstances and estate planning objectives. Beyond that, we can also assist with:
- Drafting bespoke Wills that include appropriate trust structures
- Advising blended families on how to balance the interests of spouses and children
- Structuring trusts to provide protection from care home fees
- Maximising inheritance tax efficiency through careful planning and use of allowances
- Appointing suitable trustees and explaining their duties
- Reviewing existing Wills and trusts to ensure they still meet your needs
Drawing on extensive experience in estate planning and trust law, our experienced lawyers can help you create a clear, secure, and tax-efficient plan for your estate.
How Elite Law Solicitors can help
How Elite Law Solicitors can helpFamily structures today are often complex, and estate planning must reflect those complexities. By incorporating a Flexible Life Interest Trust into your Will and seeking expert legal advice, you can achieve peace of mind and long-term security for those you care about most.
Flexible Life Interest Trusts offer a powerful and adaptable solution for individuals who wish to protect assets, provide for a second spouse, and ensure that children or other beneficiaries ultimately receive their intended inheritance. They can also provide additional advantages in terms of inheritance tax planning and mitigating the impact of care home fees.
If you would like tailored advice or assistance with preparing a Flexible Life Interest Trust, our specialist team at Elite Law Solicitors would be pleased to help. Get in touch today and book a free initial consultation with one of our specialist lawyers by calling 0800 086 2929, emailing info@elitelawsolicitors.co.uk or by completing our Free Online Enquiry Forms.
