Sara Parascandolo
Solicitor
Phone: 0113 200 7480
Email: Info@averywalters.com
Our Will specialist's guide to Flexible Life Interest Trust Wills
These types of Wills can be popular with individuals who wish to give a right to income to a spouse (for example) but leave the bulk of the estate for children (maybe from a first marriage).
However, the trustees would also be able to use their discretion to advance capital to the spouse, depending on their personal circumstances.
What is a Flexible Life interest Trust Will?
Your whole estate or a portion of your estate/specified asset would be transferred into the names of your trustees on your death.
Trustees are responsible for managing your estate and legally holding the funds in line with the terms of the Will. It is sensible to appoint independent trustees to manage the trust funds to avoid any conflict of interest and we would usually recommend that you appoint two. However, in many cases the trustees and beneficiaries are the same people.
The fund would be held by your trustees, and they would be required to pay the income from the assets held in trust to the life tenant for their lifetime. The income could be directly mandated to them. This may be income from investments or rental properties.
The life tenant also has the ability to ask the trustees for capital which can be advanced to them at the trustee’s discretion. This may be because the life tenant is struggling financially.
Following the death of the life tenant, the trust can either come to an end, or continue on in a discretionary trust arrangement.
The benefit of the life tenant not being automatically entitled to capital means that the capital is protected for default beneficiaries and from third party claims. However, the ability to ask for capital gives maximum flexibility to the life tenant and trustees.
How does it work?
On your death your assets subject to the trust would be transferred legally into the names of your chosen trustees.
This could involve a land registry transfer if a property is involved, stock transfer form if shares etc.
The trustees would then be responsible for managing and administering the trust funds.
If any funds were to be given to any potential beneficiaries, paperwork should be drawn up and retained to reflect this.
What is the significance of a Letter of Wishes?
It is advisable to prepare a Letter of Wishes for your trustees when setting up a Trust Will.
This Letter of Wishes is not legally binding, and the trustees are not required to follow this. However, it provides some guidance and an explanation of your intentions for the use of the trust funds.
Letters of Wishes are usually private and confidential between you and your trustees but in some cases are disclosed to beneficiaries.
What are the tax implications?
Depending on who the proposed beneficiaries are and what powers are utilised within the trust will determine the taxation.
You can take specialist advice from us regarding the taxation of these Will trusts.
Are there any downsides to doing this?
The downside to this arrangement is that it is restrictive for the life tenant who would need to request funds from the trustees each time they are required.
There is also a substantial burden placed on the trustees to administer and manage the trust, especially if they are lay trustees i.e., friends or family members as opposed to professionals.
The management and running of a trust can also be costly and complex and it is common that professional assistance is required from a solicitor or accountant.
What responsibilities do my trustees have?
Trustees should meet at least annually to consider making distributions from the estate. In the case of a Flexible Life Interest Trust, the income should be regularly transferred to the life tenant or mandated to the life tenant.
They should also do the following: -
• Prepare and keep accounts.
• Annual tax returns
• Take financial and legal advice
• Ensuring the trust is registered with HMRC, if required.
Can the trust be brought to an end?
There are usually flexible powers contained in trusts to allow the trustees to bring the trust to an end by giving all the assets to the potential beneficiaries.
If the funds run out, then the trust would also come to an end.
There may also be powers within the trust to allow the trustees to transfer the funds into a different trust on different terms.
The maximum length of time that the trust can run is 125 years. At this point, any funds remaining would be distributed to default beneficiaries or in line with the rules of intestacy.
Will Writing Made Easy
At Powell Eddison our team of specialists can provide pragmatic and cost-effective advice about Will writing.
Contact us on 01423 564551 or email us on info@powell-eddison.co.uk to arrange your free initial, no obligation consultation with a specialist.
