FLEXIBLE INTEREST TRUSTS

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.

 

How will my spouse be provided for?

Your spouse can be given a right to receive income generated from the trust for life.

 

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.

 

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.

 

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.

 

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.

 

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

 

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).

 

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.

 

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.