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Trusts and Tax for Business Protection

Writing a protection policy in trust helps ensure that the right people receive the right money – at the right time. A trust is a legal arrangement that allows the owner of the insurance policy (the settlor) to gift the proceeds paid under claim to someone else (the beneficiaries). Trusts provide more control, they help speed up how quickly the claim is paid, and usually means the money avoids inheritance tax.

Trusts can’t normally be cancelled or changed – so it’s really important clients understand this when nominating their beneficiaries. The trust will end when the policy ends.

How trusts work

By setting up a trust, the settlor gives the policy to the trustees. As a result, the trustees legally own the policy and look after it on the behalf of the beneficiaries. The trustees would then make a claim, and pay the proceeds to the beneficiaries.

The settlor will select the trustees and there should be a minimum of three (or two for Relevant Life Cover). The settlor will always be a trustee.

Trustees are the people appointed as the legal owners of the policy. As owners, the trustees will make a claim on the policy, receive the money and then pass this onto the beneficiaries.

Settlors can be people (such as business owners) or companies/limited liability partnerships. Trustees need to be over 18 and preferably living in the UK. Because Relevant Life Cover isn’t arranged for commercial purposes, trustees can be a family member or friend (of the employee) and/or a professional, such as a solicitor or accountant.

Trustees can be changed, providing all the other trustees agree, and this can be arranged through the insurance provider. If a trustee dies, the remaining trustees can still carry on but a replacement may be needed.

For business protection cases that need to be written in trust, the trustees are usually the shareholder or partners within the firm.

How to set up a business protection trust

The type of trust you use will depend on the legal structure of your client’s business.

The settlor needs to complete and sign a trust deed, which is also signed by the trustees and at least one witness. Your clients can use an LV= trust deed (or a bespoke form arranged by their solicitor) which should be sent back to us. We recommend your client arranges the trust during the application stage, ensuring their wishes are met if a claim is made.

Read more about how to write Business Protection in trust

Take a look at our full list of trust documents

Our Online Trusts tool

Our Online Trusts tool will guide you through the process of setting up a trust for your client.

Simply, here's how it works:

  1. answer the questions to filter down to the most appropriate trust form we offer to use
  2. fill in the details on the trust form, including settlors, trustees and witnesses
  3. the settlors, trustees and witnesses will get an email, and can then sign the form electronically with a touch screen or mouse
  4. once everything is signed, the settlor will get an email to let you know we received the trust form
  5. we'll check the details, apply it to the policy and send a copy back to the client to keep safe

Try the Online Trusts tool

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Liverpool Victoria Financial Services Limited, registered in England with registration number 12383237. County Gates, Bournemouth, BH1 2NF, UK