What is a FLIT?
Simply put, having a FLIT helps property to be protected for future generations, in particular where the individual owns substantial assets such as a home.
Under a FLIT, when one of the couples dies the assets will be placed into a Trust rather than being transferred straight onto the survivor. The trustees pay any income and capital generated from the assets to the survivor for the duration of his/her lifetime – creating a ‘life interest’ in the property. Upon the individual’s death, it is translated into a discretionary trust i.e., the assets will be distributed to the intended beneficiaries at the trustees’ discretion.
A common situation making FLITs a viable option is where the testator dies passing their entire estate to the surviving spouse, but the surviving spouse remarries. Having a FLIT would protect the assets from the original will to continue to benefit the original intended beneficiaries, such as children.
What are the benefits of having a FLIT?
The most important advantage is for the testator to be able to control what should happen to the assets upon his/her death. Where your partner as a beneficiary remarries, the new partner will have no claim from the Trust.
FLIT enables the mitigation of Inheritance Tax. When the first individual dies, there is no tax to pay. The tax allowance will also pass onto the survivor. If the capital is re-arranged and the survivor lives for another 7 years, this will essentially be Inheritance Tax free, and the survivor will still have a double allowance available.
Where your partner needs residential care, your assets will still be protected as they will not be considered when determining your partner’s ability to pay care fees.
Several powers can be attached to how trustees handle the assets such as provision for trustees to pay capital to beneficiaries prior to the death of the survivor.
In the event that your surviving spouse goes bankrupt, the assets will not be taken into account where a bankruptcy order may be issued. This ensures the capital value of the asset is preserved.
They are significantly more complex to set-up than simple wills, however, with the right advice and guidance the process can be far simpler.
Whether you are considering a FLIT or would like general guidance on Wills, speak to our team members on 020 3745 7271 or email us your query at info@carterbondwills.co.uk
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