Time Limits on a Flexible Life Interest Trust

Trusts Discussion
1

I am dealing with an estate where the deceased died in June 2020 and the GoP was issued in December 2020. The deceased’s Will leaves the residue into a flexible life interest, for the benefit of the spouse.

The deceased’s estate contains, amongst other things, 2 properties, which the widow now wishes to pass to the deceased’s children (should it be relevant - they are not her biological children), which is permitted under the terms of the trust. The properties currently remain in the deceased’s name.

I am aware of certain time restrictions on when the transfers out of the trust can take place and, my recollection is such that it needs to be after the two year anniversary of death, to avoid a writing back effect for IHT purposes, but I may be wrong on this. We obviously want to avoid a writing back effect to allow a full transfer of the Nil Rate Bands to the widow. The widow will be informed that the transfer out of the trust will be a PET by her.

Is my recollection of the time constraints correct and/or does it matter if the properties are not transferred into the trust, before being transferred to the children?

As always, any guidance is very much appreciated.

Martyn Dixon
Harold Bell Infields & Co

2

As a FLIT creates an IPDI, s.144 IHTA cannot apply, so that there should be no reading back for IHT purposes.

If the properties remain in the estate and have not been appropriated, s.62(4) TCGA should apply so that the children acquire the properties at “probate” value for CGT purposes.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

3

I assume you are referring to IHTA 1984 s 144.

If so, it has automatic effect (if its conditions are satisfied) where property ceases to be comprised in the discretionary trust within 2 years of death. The trustees are able to exercise their powers before the end of the administration period and prior to any assent of the property to the trustees.

However, for the section to apply it is necessary that no interest in possession subsisted in the property between the death and the appointment which is the case here; hence no s144 issues.