Flexible Life Interest Trust and IHT

DecisiveBobcat

Hi all,

I wonder if anyone can help me. My Dad died earlier this year (survived by my mum) and this triggered the creation of a FLIT (with mum as life beneficiary) which means we do not have to pay inheritance tax right now (only when the FLIT comes to an end).

I am in the process of applying for probate for Dad's estate using the online govt service. I have done the IHT checker and it comes out that we are owing IHT because I answered 'no' to "Have they left all assets to a surviving husband, wife or civil partner" because I believe the FLIT is not left to mum but to the trustees (me, mum and my brother). Does that sound right?

Does this mean that I have to then go on to submit an inheritance tax form IHT400 to HMRC. My understanding is that I should fill in form IHT400 and declare spousal exemption under 'exemptions and reliefs' in that form to ensure IHT is not payable until the FLIT is dissolved.

Can anyone confirm that sounds correct? I'm trying to do this all myself to avoid probate lawyers (I was quoted £5k for probate fees and that was without anything to do with the FLIT)

Thank you

Isthisforreal99

So on who's advice did you (collectively) deem a FLIT as a good option? Surely you didn't DIY this?

DecisiveBobcat

This is what was in the will. It wasn't a collective decision but something my dad put in his will with his solicitors. I spoke to the solicitor who drew up the will shortly after the funeral and she advised me to apply for probate myself online. This was several months ago. I have since asked her this question but she hasn't got back to me. I wondered if anyone else would know here if they have already been through it so I can crack on during my annual leave.

Keep_pedalling

IHT is not payable as your mother is the sole beneficiary of the trust until her death. The real complication is going to be on her death when the trust converts to a discretionary trust.

Do you know why your father was advised to have his will create a FLIT rather than a good old IPDIT?

Does the trust include any liquid assets or is it just the family home?

DecisiveBobcat

I'm guessing to protect the estate from any care costs needed by my mum and to ensure everything comes down to me and my brother without being claimed by any future partners of my mum, or any scammers. That is I believe the main reason to have a FLIT?

There are liquid assets plus half the family home.

I know there is no IHT due until mum goes, but right now I need to apply for probate and the online service is suggesting I fill in the IHT400 form which I'm doing but there is a lot to it. I don't know if I apply for probate and say the asset has gone to mum (i.e. no IHT400 needed) or I say the asset has not gone to mum but tell HMRC in the IHT400 and declare spousal exemption there.

Keep_pedalling

A simple IPDIT would provide the same protection, a FLIT has some added advantages for the descresionary beneficiaries in some cases but not most and according to this link you can’t use the transferable RNRB with a FLIT which if your parents net worth exceeded £825K would lead to a higher IHT liability on her death.

In your shoes I would be taking professional advice on whether a FLIT is the right option for you all and if not whether a deed of variation is possible.

DecisiveBobcat

The FLIT already exists. It came into being when Dad died. Are you saying we can and should change it?

The net worth will not exceed £825k at mum's death.

DecisiveBobcat

In any case my question is not, is a FLIT a good idea, or should I change the FLIT, but given that there is a FLIT and assuming it stays a FLIT, do I need to fill in a IHT400 form or not? And if I do, how do I declare the IHT exemption in the IHT400? Is it spousal exemption in the 'exemptions and reliefs' section of the IHT400?

RAS

Why exactly are you getting probate now? What did he leave to anyone other than your mother?

At what level is the solicitor who you spoke to, in the company? I'd wonder why they advised a FLIT rather the IPDI trust?

DecisiveBobcat

I need probate to access his savings and to change the land registry docs as half of the house is now owned by the trust. Everything has been left to the trust - of which I, my brother and my mother are trustees.

I don't know what level the solicitor is. I don't know why the solicitor originally recommended a FLIT other than to protect the estate while allowing flexible access to the assets before mum dies. My question isn't about why a FLIT has been set up. It is about whether I need to fill in an IHT400 or not.

Keep_pedalling

You don't need to do an IHT return, but you will need to register the trust with HMRC.