A lifting implementation of the discrete wavelet transform applied along motion trajectories has recently gained a lot of attention in the video community as strong candidates in incoming scalable video coders. We generalize the coding scheme for classical lifting-based motion compensation temporal filtering and permit the codec to choose adaptively between the original reference frames and new fading-compensated reference frames to predict residuals while maintaining the invertibility of the inter-frame transform. Experimental results show that the proposed algorithm not only significantly improves subjective visual quality of the temporal low-pass frames, but also has 0.15-0.3 dB gain in PSNR performance compared with the normal (5, 3) lifting schemes.