Flexible trusts are similar to a fully Discretionary Trust, except that alongside a wide class of potential beneficiaries, there must be at least one named default beneficiary. Flexible Trusts with default beneficiaries set up in the settlor’s lifetime from 22 March 2006 onwards are treated in exactly the same way as Discretionary Trusts for Inheritance Tax purposes.
Different Inheritance Tax rules apply to older Trusts set up by 21 March 2006 that meet specified criteria and some Will Trusts. All post-21 March 2006 lifetime trusts of this type are taxed in the same way as fully Discretionary Trusts for Inheritance Tax and Capital Gains Tax purposes.
For income tax purposes, any income is payable to and taxable on the default beneficiary. However, this does not apply to even regular withdrawals from investment bonds, which are non-income-producing assets. Bond withdrawals are capital payments, even though chargeable event gains are subject to Income Tax. As with Bare Trusts, the parental settlement rules apply if parents make gifts into trust for their minor children or stepchildren.
When it comes to beneficiaries and control, there are no significant differences between fully Discretionary Trusts and this type of trust. There will be a wide range of potential beneficiaries. In addition, there will be one or more named default beneficiaries.
Naming a default beneficiary is no more binding on the trustees than providing a letter of wishes setting out whom the settlor would like to benefit from the trust fund. The trustees still have discretion over which of the default and potential beneficiaries actually benefits, and when. Some older Flexible Trusts limit the trustees’ discretionary powers to within two years of the settlor’s death, but this is no longer a common feature of this type of trust.
Growing your wealth
Goals based investing
- Cash flow modelling
- Creating a financial roadmap
- Investment objectives
- Timescales and market activity and the impact of losses
- ‘What if’ scenarios
- Discussing legacy planning with your loved ones
- Inheritance Tax (IHT)
- Inheritance Tax Residence Nil Rate Band (RNRB)
- Lasting power of attorney
- Lifetime transfers
- Making a Will
- Preserving wealth for future generations
- Protecting your assets for the next generation
- Slicing up your wealth pie
- Children’s pensions
- Defined benefit (or final salary) pensions
- Defined contribution pensions
- Personal pensions
- Self-Invested Personal Pensions (SIPPs)
- The state pension
- Annual allowance and lifetime allowance limits
- Busting myths about pensions
- Increases to pension age and new normal minimum pension age
- Pension freedoms
- Pension withdrawal methods
- The lifetime allowance
- Delaying retirement
- Generating income from investments throughout your retirement years
- Importance of a retirement wealth check
- Retirement goal setting
- Retirement planning
- Reviewing your retirement plan
- Staggered retirement
- Taking control of your retirement plans
- What can I do with my pension?
- What happens to my pension on death?
- Market timing
- Minimising risk
- Multiple asset classes
- Portfolio insulation
- Pound cost averaging
- Principles of investing