Superhero Webinar 99 – Article 3: What about when someone who has died with a flexible life interest trust Will?

A Flexible Life Interest Trust (FLIT) provides the beneficiary, usually a spouse or Civil Partner with an immediate life interest in the assets due to the Trust, which is often a share of the main residence. Helpfully, this protects the assets from potential lifetime threats that the life tenant may face, as well as, providing the beneficiary with certain rights for example, to reside and the right to income.

With some Flexible Life Interest Trusts, issues may occur on the passing of the spouse or civil partner whereby the immediate life interest automatically reverts to a discretionary trust, thus losing the availability for the personal representative to claim the residence nil rate band allowance. Certain problems that the remaindermen may face include, but are not limited to:

• Where the surviving spouse is the life tenant, the Residence Nil Rate Band (‘RNRB’) is more likely to be tapered away. (Assuming the remaindermen receive the property absolutely after the death of the life tenant)

• The remaindermen may have their own IHT problems that are adversely affected by the further inheritance.

• The remaindermen may consider their inheritance to be precarious, with the life tenant able to take capital from the trust… Too much control for the life tenant?

• The remaindermen may qualify for means tested benefits or may require additional support in the future and be concerned that their inheritance may stop this.

• The remaindermen may be concerned about the security of their future inheritance should they encounter marital problems.

• The trustees may wish to rent the property if the life tenant enters care but the trust stipulates that other courses of action may have to take place, such as the property being sold.

What is the root cause of all these problems? Inflexibility! There can be solutions!

What might be the solution for the beneficiaries?

There may be options available to the beneficiaries to try and mitigate the above. The beneficiaries may be able to vary the terms of the will/trust to create greater flexibility, protection and tax efficiency.

The life tenant and the remaindermen may be able to give up their interest before it adds to their estate for inheritance tax purposes, along with providing further security for their own inheritance. Tune in to find out some snippets of how the situation can be repaired!

For more information about using Deeds of Variation, join the next Superhero Webinar 99, or get in touch with our experts.