IHTM20561 - Flexible Reversionary Trusts: Introduction

Flexible reversionary trusts are similar to discounted gift schemes (IHTM20421). Each involves the settlor transferring a bond or a series of endowment policies into trust and retaining the right to benefits in the form of:

• a percentage amount,
• a cash sum,
• an entitlement to one or more individual policies, or
• in the form of policy maturity proceeds.

These benefits only become payable to the settlor provided they are alive at the date the payment falls due. The other benefits under the bonds or policies are held for the chosen beneficiaries.

With a discounted gift scheme the rights retained by the settlor are indefeasible. As a result the transfer of value made by the settlor when entering into a discounted gift scheme is reduced by the value, if any, of those retained rights.

With a flexible reversionary trust, the settlor’s retained rights can be defeated or deferred by the trustees. This means that the settlor can ask the trustees to defer their entitlements from vesting, which is why the trusts are referred to as being ‘flexible’. However this lack of certainty over whether the payments will actually be made to the settlor means that the settlor’s retained rights have no open market value. The settlor makes a transfer of value equal to the full sum invested when a flexible reversionary trust is set up.