The Lemon Fool

Does anyone have any experience with Flexible Life Interest Trusts which apparently turn into discretionary trusts after a first death?

I’m particularly interested in the experience of anyone whose parents set these up in their wills and who had to manage probate.

I can see that this approach will save IHT on estates over a certain value but to be frank, I have always been very sceptical of trusts in this type of situation, seeing them as adding complexity and cost for adult children inheriting after the second death of parents.

Hypothetically I’m wondering if such arrangements might save, an IHT bill of say £50k but cost almost as much in legal/accountancy fees and add complexities to probate which only lawyers can solve? Would they be a real pain for financially unsophisticated children to manage?

Any views would be appreciated.

regards

Howard

Howard wrote:Does anyone have any experience with Flexible Life Interest Trusts which apparently turn into discretionary trusts after a first death?

I’m particularly interested in the experience of anyone whose parents set these up in their wills and who had to manage probate.

I can see that this approach will save IHT on estates over a certain value but to be frank, I have always been very sceptical of trusts in this type of situation, seeing them as adding complexity and cost for adult children inheriting after the second death of parents.

Hypothetically I’m wondering if such arrangements might save, an IHT bill of say £50k but cost almost as much in legal/accountancy fees and add complexities to probate which only lawyers can solve? Would they be a real pain for financially unsophisticated children to manage?

Any views would be appreciated.

regards

Howard

I have no experience of this particular trust, but do have some in trying to manage a discretionary Will trust. I think I would do my very best to avoid having anything to do with complicated trusts, especially if the only reason is an attempt to avoid some IHT.

Discretionary Trusts have become increasingly hard/expensive to manage and are highly taxed. If you want to save on IHT there are better options, such as gifts which can then be paid into recipients ISAs and SIPPs to grow and/or provide income in a much more tax efficient manner.

I have some experience of Life Interest Trusts but not the 'flexible' bit which as far as I can see simply turns it into a discretionary trust.

This seems to explain it
https://www.willwriters.com/blog/back-to-basics-flit/

I think these sort of things are useful to protect the assets against relatives doing something stupid!

The problem is tax and costs!

A life interest trust is usually aimed so that the surviving spouse is provided for for life but can't do anything with the capital that the deceased might disapprove of (like re-marry and cut off the children in favour of the new spouse!)

There is always a potential conflict as the surviving spouse may want the trust to generate the maximum income, whereas the children might prefer to preserve the capital intact for them to inherit.

Generally I have an aversion to trusts based on wider family experience

Thank you Hiriskpaul and Scrumpyjack, comments appreciated.

It is helpful to have confirmation of my aversion to trusts. I have a suspicion that they are pushed by advisers because they generate substantial income for their organisations.

We are in the nice position of having provided major gifts for house purchases for our children and investment accounts for them more than seven years ago and continuing gifts to charities. I think we'll just have to carry on with this approach and let whichever of us survives the first death sort out the inevitable IHT situation. Luckily we have had frank discussions with the children so they are kept informed.

And, Scrumpyjack, you may remember your comment a couple of years ago in another discussion about the one kind of trust that is ok. I followed your suggestion and each granchild now has investments in a blind trust.

If I get any useful advice from the new will writing process I'll post it here.

regards

Howard

Howard wrote:Thank you Hiriskpaul and Scrumpyjack, comments appreciated.

It is helpful to have confirmation of my aversion to trusts. I have a suspicion that they are pushed by advisers because they generate substantial income for their organisations.

We are in the nice position of having provided major gifts for house purchases for our children and investment accounts for them more than seven years ago and continuing gifts to charities. I think we'll just have to carry on with this approach and let whichever of us survives the first death sort out the inevitable IHT situation. Luckily we have had frank discussions with the children so they are kept informed.

And, Scrumpyjack, you may remember your comment a couple of years ago in another discussion about the one kind of trust that is ok. I followed your suggestion and each granchild now has investments in a blind trust.

If I get any useful advice from the new will writing process I'll post it here.

regards

Howard

Thanks Howard.

I agree it is better if possible to give it away, rather than get involved in Trusts (other than Bare Trusts). Re the grandchildren's bare trusts, we have recently set up Junior ISAs for them and then pay the dividends from the bare trusts into the JISAs - they more than cover the full annual subscription. Luckily HL have abolished charges and dealing fees for JISAs.