Flexible Life Interest Will Trust
The FLIT Will trust created in favour of the surviving spouse or civil partner will still benefit from the transferable IHT nil rate band introduced from 9 October 2007.
The FLIT is flexible as it allows the trustees to grant capital as well as income to the surviving spouse or civil partner.
The use of a FLIT should protect the testator’s estate (capital assets) from any claims made against it by the Local Authority if the surviving spouse or civil partner goes into care.
The FLIT will also create a situation where the testator’s capital can be protected so that it eventually falls into the names of the testator’s children or other named beneficiaries rather than into the pockets of a new spouse or civil partner.
The main benefits to this situation are:
If any of the children who are potential beneficiaries under the discretionary trust are the subject of matrimonial or insolvency proceedings, their interest as potential beneficiaries of the discretionary trust ensures that the funds are protected from ex-spouses and creditors.
In some circumstances, the children may already have assets of their own which already exceed the NRB available to them. Under these circumstances the trustees would have the right to make loans or to make occasional benefits from the discretionary trust would be a particularly tax efficient way of utilising the trust.