Navigating the Nuances of Flexible Life Interest Trusts in Wills

When it comes to making a will, one of the paramount concerns for many is ensuring that their spouse or civil partner is well provided for after they’re gone. In the complex world of estate planning, a Flexible Life Interest Trust (FLIT) stands out as a particularly effective tool. This blog post explores how FLITs can be used in your will to offer security and peace of mind for your loved one.

What is a Flexible Life Interest Trust?

A FLIT is a type of trust included in a will that grants the surviving spouse or civil partner the right to benefit from the income generated by the trust assets during their lifetime. The beauty of a FLIT lies in its flexibility – while providing for a surviving partner, it also ensures that the underlying capital is preserved for future beneficiaries, like children or grandchildren.

1. Protection for Your Spouse/Civil Partner

The primary function of a FLIT in your will is to safeguard the financial interests of your spouse or civil partner. Here’s how it works:

• Income Benefit: Upon your passing, your partner will receive a regular income from the trust, which can be crucial for their day-to-day living expenses and maintaining their standard of living.
• Capital Protection: The capital, or the main body of your estate, remains protected within the trust. This means that while your partner enjoys the income, the principal amount is safeguarded for other beneficiaries.

2. Flexibility to Respond to Changing Circumstances

One of the key advantages of a FLIT is its inherent flexibility:

• Trustees’ Discretion: Trustees can decide if and when to distribute some of the capital to the surviving partner, depending on their needs and circumstances.
• Adaptability: Should your partner’s needs change over time, the trust can adapt accordingly, providing additional financial support when necessary.

3. Asset Protection

FLITs offer a robust mechanism for asset protection. By placing assets in a trust, they are generally shielded from threats like bankruptcy or divorce settlements involving the surviving spouse. This ensures that the assets remain intact for future beneficiaries.

4. Providing for Multiple Generations

A hallmark feature of FLITs is their ability to cater to multi-generational planning. After the death of the surviving spouse, the trust assets can be passed down to children and potentially further generations. This setup can be particularly effective in blended family situations, ensuring that children from previous marriages are not disinherited.

5. Protection of Vulnerable or Young Beneficiaries

FLITs are instrumental in protecting beneficiaries who may be too young or otherwise vulnerable. The trust structure allows for controlled distribution of assets, ensuring that beneficiaries do not squander their inheritance prematurely or fall prey to financial exploitation.

6. Inheritance Tax Planning Opportunities

From a tax perspective, FLITs can offer significant benefits. Assets within the trust may be treated favourably for inheritance tax purposes, particularly if the trust is structured correctly. This can result in substantial tax savings, maximising the inheritance passed on to future generations.

Ongoing Considerations and Costs

Managing a FLIT involves ongoing responsibilities and potential costs, including trustee management fees, legal and accounting services for trust administration, and potential tax liabilities. These factors should be carefully weighed against the benefits of the trust.

A Flexible Life Interest Trust in your will is a powerful way to ensure that your spouse or civil partner is well provided for after you’re gone, without sacrificing the long-term security of your estate for future beneficiaries. With the right planning and professional advice, a FLIT can be an invaluable component of your estate planning, offering financial security and peace of mind for you and your loved ones

Follow us