A flexible friend

KEY POINTS

• Mechanics of a flexible reversionary trust.
• Flexible investment features.
• Importance of using independent professional trustees rather than settlors.
• Effect of pre-owned assets tax on FRTs.

Discounted gift trusts (DGTs) and loan trusts remain the most popular method to mitigate inheritance tax while retaining some form of access to an income or capital.

Practitioners are often divided on the use and suitability of these schemes. This article highlights an alternative planning structure: the flexible reversionary trust (FRT).

I use the generic term flexible reversionary trust as the terms ‘trust carve out’ or ‘reverter to settlor’ do not adequately differentiate the unique nature of the planning.

The relative obscurity of FRTs may be explained by their description as reverter to settlor trusts which are therefore presumed to have been rendered ineffective...