Flexible Life Interest Trusts (FLITS)
Protect your assets from care fees, safeguard your children’s inheritance from divorce or bankruptcy, and achieve significant generational Inheritance Tax savings—all while ensuring your surviving spouse is provided for.
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Flexible Life Interest Trust (FLIT) - Part 1
Ian Winterbotham talks to us about Flexible Life Interest/family Trusts (FLITs).
What is a FLIT – a Flexible Life Interest Trust? How does it differ from a standard Family Trust?
The generic name for this type of Trust is a Flexible Life Interest Trust, and it’s a type of Will Trust. This type of Trust is almost exclusively created on death, and not during the settlor’s lifetime. It gives a named beneficiary, usually your spouse, the right to income for life, and then reverts to become a Discretionary Trust after the spouse has died.
Wordings in Wills can differ, and each Will may give different powers to the executors and Trustees. I’m going to speak from my experience of the powers given in our Flexible Family Trust Wills.
Who typically sets up a FLIT? What situations does it suit best?
It’s not really for single people. It’s really designed for a married couple or civil partners, and works best when parents want to protect assets for the children and bloodline. It gives the descendants the opportunity to continue the Trusts during their lifetimes.
Who controls the Trust, and how much control does the settlor retain?
This is a frequently Googled question about FLITs, which demonstrates a misunderstanding. The settlor is the person who has died – the one who has written the Will. After they’ve died, the Trust has been created by their Will. I assume that the person asking this question wants to know how much control the life tenant or surviving spouse retains. In this case, the spouse has the right to income, not the capital, from the deceased person’s assets, and this cannot be taken away without his or her consent. The right to income includes the right to live in the family home if this is part of the Trust.
Can beneficiaries be changed over time? How easy is it to do that?
The spouse is usually named as a Trustee in the Will, which means that he or she retains control of what happens to the family home and other assets. They can decide if any of the assets are appointed out of the Trust, if they don’t want the income from them. This is because all decisions by Trustees must be unanimous, and the spouse is one of the Trustees.
What happens to the Trust if the settlor passes away or becomes incapacitated?
All Wills can be different, but there’s nearly always the power to add beneficiaries. Potential beneficiaries of the assets can often be added by the Trustees in accordance with the powers given in the Will. This would only come into effect after the spouse has died, usually.
Again, I’m assuming that this is asking what happens to the Trust if the spouse passes away or becomes incapacitated. If the spouse passes away, the Trust becomes a Discretionary Trust, and the Trustees have discretion to distribute the assets to any of the potential beneficiaries, including themselves if they’re the children. If the spouse becomes incapacitated, it can potentially cause problems in selling a property.
The Land Registry wants evidence that decisions can be made by all the Trustees. The remaining Trustees must continue to ensure that the spouse has a right to the income from the Trust, regardless. If the spouse becomes incapacitated and perhaps goes into long-term care, the local authority will recognise that the spouse has the right to the income from that Trust – you can’t hide it away from them.
This is an important thing to consider. Decisions should be made if someone’s about to go into care, but they still have capacity to sign documents.
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We talk to you about who you would like to benefit and in what amounts, including specific gifts and any charitable legacies, and then help you create the will itself.
How does a FLIT protect assets from divorce, creditors or claims?
Let’s take a situation where one half of the family home is in the FLIT. Then, the local authority should not be able to treat it as an asset of the surviving spouse when assessing contributions towards care fees.
Other assets that were solely owned by the testator can similarly be protected from being lost for care fees. The same is true if the surviving spouse remarries or makes unwise decisions, which can happen in later life.
After the spouse has died, the assets that remain in the Trust can be lent to the children to spend or invest as they wish. And this inheritance can be protected from being lost if the children get divorced, become bankrupt or from other claims – because it’s a loan from the Trust and not treated as one of their assets.
Every person’s situation is different. This is just a taster of what you might need to think about and look at.
What are the tax advantages and potential tax pitfalls of using this type of Trust?
On first death, the spouse, in this case, has a life interest in the assets. There is no inheritance tax to pay at this stage because of the spousal exemption. In recent years, pitfalls have often arisen – but can usually be overcome as long as you review your Wills regularly and talk to experts who are up to date in inheritance tax rules and the latest Budgets.
The pitfalls relate to the children claiming the additional Residence Nil Rate Band inheritance tax allowances that George Osborne introduced, but there’s nearly always a way of doing that.
Taxes on income and gains generated in Trusts are usually higher than those paid by individuals. After both parents have died and the surviving spouse has passed away, that’s something to be considered.
How does income and capital gains tax work within a FLIT?
The Trustees may be the children wanting to protect assets for themselves and the grandchildren. They’ll be liable to pay taxes on any income or gains made within the Trust.
Generally, in a normal family situation, these can be mitigated by the use of loans. A loan of all the assets from the Trust often avoids these taxes.
Can a FLIT help with inheritance tax planning? If so, how?
Yes, these Trusts can save a lot of inheritance tax on a generational basis. People think it’s a way to reduce tax on their estate – but it’s actually on the children’s and grandchildren’s estates that the big advantages come in.
Your children can receive their inheritance in the form of a loan from the Trust created by your Will. This means that the value of the assets remains in the Trust as an IOU.
Your children, when they die, can then leave the inheritance they’ve been left by you to your grandchildren, free of inheritance tax. The money borrowed from the Trust is repaid from their estate into the Trust, and then can be loaned out again to the grandchildren.
It’s a way to make sure that what you’ve worked so hard to achieve and leave to your bloodline cannot be lost if your grandchildren get divorced, remarried or made bankrupt.
It’s a really, really powerful estate planning tool. Some families do find them difficult to administer and understand, but that’s where a company like ours comes in to explain everything.
Are there limits on how much money or assets should be placed into the Trust?
There are no limits, but it’s more important to think about what the implications may be.
There can be taxes, but not during the surviving spouse’s lifetime and not for the first 10 years after the surviving spouse has died.
If there are assets worth more than the Nil Rate Band, which is currently £325,000 [at the time of recording in February 2026], in one Trust, taxes on everything above that limit can apply every ten years.
The simple solution is to make a diary date to review it after nine and a half years, because if you take everything out of the Trust, there’s no tax to pay – as long as everything was loaned out in the first place.
Key Takeaways:
- A FLIT is a Will Trust created upon death, designed to give the surviving spouse a “life interest,” which means they have the right to income from the assets (including the right to live in the family home) for life, but not the capital. After the spouse dies, the Trust converts into a Discretionary Trust.
- FLITs are primarily used by married couples or civil partners to protect assets for their bloodline. Assets in the Trust can be shielded from being counted for care fees for the surviving spouse, and they can protect the inheritance from being lost due to the children’s divorce, bankruptcy, or other claims, especially when the inheritance is structured as a loan from the Trust.
- The surviving spouse is typically named as a Trustee, which gives them control over decisions regarding the assets, as all Trustee decisions must be unanimous. However, if the spouse becomes incapacitated and enters long-term care, the local authority will still recognise their right to the income from the Trust.
- These Trusts can significantly reduce Inheritance Tax (IHT) on a generational basis (for the children’s and grandchildren’s estates). This is achieved by loaning the inheritance from the Trust to the children, keeping the value out of the children’s taxable estate as an IOU.
- There is no IHT to pay on the first death due to the spousal exemption. However, if assets in one Trust exceed the Nil Rate Band (currently £325,000 as of February 2026) after the surviving spouse dies, taxes can apply every ten years. This can be mitigated by reviewing the Trust and loaning out the assets before the nine-and-a-half-year review date.
Flexible Life Interest Trust (FLITs) - Part 2
Can property be placed into a FLIT? What are the implications?
Yes. Normally, one half of the family home is placed into a FLIT to protect it from being lost to pay for care fees or on remarriage.
This gives the surviving spouse the right to live in the property for the rest of their life, and protects half of the property from being treated as part of the survivor’s estate when assessing care fees, on remarriage or future divorce.
If any investment properties were in the sole name of the person who died, the whole property would be in the FLIT. If they’re jointly owned, which is more usual, half the investment property could be in the FLIT and half in the name of the surviving spouse. Again, that would stop the local authority from being able to possess that property for care fees.
How does owning property through a Trust affect mortgages or refinancing?
This is a really important question. It usually means that you cannot obtain a mortgage, because the mortgage company wouldn’t be able to repossess the whole property if payments are not made.
Nowadays, where a lot of people want equity release to help them in retirement, this is something to discuss and consider.
Can Trust assets be used to support children or dependents without giving them direct access?
Yes. For families who have vulnerable children, this use of a Trust is almost essential. You wouldn’t want to see your life savings disappear to pay for drugs, gambling debts or whatever it might be. It’s an important benefit of any Discretionary Trust arrangement.
How adaptable is the Trust as family circumstances change?
It’s called a flexible Trust for many reasons, and it is adaptable. You can add potential beneficiaries. Usually, new children are beneficiaries anyway, because they would be named as descendants of the person who made the Will.
If the surviving spouse remarries, the assets in the Trust are ring-fenced for the children and descendants of the person who died. This can be helpful for a blended family, as it gives the spouse the right to income during their lifetime, but the capital will pass to the bloodline of the testator.
After the spouse has died, the inheritance of all the assets in the Trust can be lent to the children to spend or invest as they wish. This inheritance is protected from being lost if they get divorced, become bankrupt, or they put assets up as surety for their own business. It’s a loan from the Trust to spend and invest how they wish, but it shouldn’t be treated as an asset by a creditor.
This can cover business changes as well. Shares in a business can also be protected for the bloodline.
Can the Trust work alongside a Will, pensions and other estate planning tools?
Yes. The important thing to consider is that regulatory bodies only allow regulated individuals to advise on certain investments and Trusts during one’s lifetime. You need to think about talking to a specialist Will writer about Will planning. We give powerful, valuable advice on inheritance tax planning on a generational basis.
You also need to consider talking to an IFA about your pensions, investments, and even potentially Trust and inheritance tax planning during your lifetime. Sometimes you also need to go to a solicitor for advice on Trusts and taxes on Trusts. It’s often difficult to find an accountant who is good at normal, everyday accounts as well as Trusts.
We’re talking today about the Will planning side of it, which is inexpensive, simple to do and very powerful.
Speak To an Expert
We talk to you about who you would like to benefit and in what amounts, including specific gifts and any charitable legacies, and then help you create the will itself.
What does it cost to set up and maintain a FLIT?
All Trusts now need to be registered with HMRC. Once somebody’s died, the Trust exists automatically. It doesn’t have to be funded as with a Nil Rate Band Discretionary Trust, for instance.
If the surviving spouse is enjoying the income from all the assets and living in the family home, it’s a non-taxable Trust and you just need to register it as such.
You would register it as a taxable Trust if there are assets generating income, such as a rental property. You then need to consider the cost of producing accounts each year as a taxable Trust.
There can be additional costs if you want to add the names of the executors and Trustees at the Land Registry. This can ensure the family home is protected – and can’t be lost if the surviving spouse makes unwise decisions, even if they are sweet-talked by someone into signing over the deed.
Generally, it’s straightforward to maintain the Family Trust unless you’re generating income in it, which requires an extra layer of administration.
Are there common mistakes people make when setting up these Trusts?
It’s a question of understanding what you’re doing. It’s quite easy to be persuaded that they’re of benefit for everyone, and it’s going to save inheritance tax for the bloodline. But you have to think about the practical implications for the surviving spouse and children.
You must always have this in your mind, and remember that you have to trust your Trustees to follow your wishes. These Trusts are powerful and can save a lot of tax over time while protecting assets.
But often families want simple outcomes and find the administration difficult to manage – you’ve got to be realistic about that.
Who should consider a FLIT?
The classic situation is a couple who want to protect the family home for their children.
They don’t want it all to be lost for care fees or if the surviving spouse gets remarried.
It is also helpful for families with vulnerable beneficiaries. It’s not just drugs and gambling – they could have a physical or mental condition.
These Trusts are founded in English law and are very effective at allowing your Trustees to pay out as and when it’s needed. A FLIT is ideal for people who want to protect assets for children while still giving the surviving spouse security, flexibility and tax efficiency.
How early should someone start thinking about using a Trust in their financial planning?
Sometimes it can be quite early in life, after buying your first home, getting married or having children. Some high earners in the city are getting huge bonuses and worry that this money could easily disappear. They’ve already earned enough to consider how to protect their children and future grandchildren.
For the average person, who won’t pay the mortgage off until later on in their working life, that’s probably the time when you start thinking about these types of Wills.
What’s the biggest misconception people have about FLITs?
As we saw from part one, questions asked online suggest that people grasp ideas that they like, but only have a partial understanding of Will Trusts.
The solution is to write down what your assets are and details of your situation, and then talk to an expert. Talk to a Will writing company like ours – we won’t charge any fees for an initial consultation. It will help you really understand how this can affect your particular situation and how you feel about it.
Some people don’t want to make life more complicated for their spouse, partner or children. They just want things to carry on as they always have.
But the growing need to pay care fees, or the chance of remarriage and divorce, can make these Trusts quite important to protect your assets. How is the government going to fund all its expenses? Inheritance tax is not going to go away.
If you can save 40% of your children’s estate by putting these Trusts in place, they can become very attractive. If you have got this far, take a look at our website and listen to more podcasts to explore more on Wills and Trusts.
Key Takeaways:
- Normally, one half of the family home is placed into a FLIT to protect it from being lost to care fees, remarriage, or future divorce. This arrangement gives the surviving spouse the right to live in the property for the rest of their life while protecting half the property from being assessed as part of the survivor’s estate for care fees.
- Owning property through a FLIT typically means you cannot obtain a mortgage, because the mortgage company would not be able to repossess the entire property if payments are missed. This is a crucial point to consider, especially for people interested in equity release in retirement.
- FLITs are highly adaptable and essential for families with vulnerable children, as the Trust assets can be used to support them without giving them direct access that might be lost to debts. Assets in the Trust are ring-fenced for the children and descendants of the person who died, even if the surviving spouse remarries.
- All Trusts must be registered with HMRC. The Trust is considered non-taxable and straightforward to maintain if the surviving spouse is enjoying the income and living in the family home. However, if the Trust generates income (like from a rental property), it must be registered as a taxable Trust, which requires additional costs for producing annual accounts.
- A FLIT is ideal for couples who want to protect the family home for their children, especially from care fees or remarriage, and for families with vulnerable beneficiaries. By putting these Trusts in place, you can potentially save 40% of your children’s estate in inheritance tax, making them very attractive for protecting assets over time.