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Find out about the trusts we offer and how to use them

Trusts

Who is needed to set up a trust?

There are three groups of people needed to set up a trust. These are the settlor, the trustees, and the beneficiaries. These are commonly used terms referred to in our trust deeds, and throughout our trust pages.

  • The settlor – this is the person or people who set up the trust, and put their life policy into it. So the person or people who set up the trust will be the current owners of the life insurance policy. The settlor chooses the trustees, and decides who they would like the beneficiaries to be.
  • The trustees – these are the people responsible for looking after the policy put into trust, for the person or people who will get the money when the life policy pays out – the beneficiaries.
  • The beneficiaries – these are the people who will get the money from the trust.

What are the advantages of placing a policy in trust?

The proceeds get paid to the right person or people

By writing a policy in trust your client can indicate who they want the proceeds from their policy to be paid to. These people of groups of people are named on the trust deed, and are called the beneficiaries. If your client doesn’t write their policy in trust the proceeds are usually paid to the policy owner. In many cases this will also be the person who is insured under the policy, and so for a life insurance policy (for example) they won’t be alive when the policy proceeds are paid out. In this case the proceeds would usually then be paid to the people who are appointed to look after your client’s affairs when they die (their executors or administrators). If your client has made a will then they may have left specific instructions about who should get what. But if your client hasn’t left a will, they will be deemed to have died ‘intestate’ and their estate will be distributed according to the laws of intestacy. This may mean that the people who eventually get the money from their policy may not have been the people your client wanted to get it.

The proceeds get paid out quickly

One of the main advantages of your client putting their policy in trust is that payment of the policy proceeds can be made quickly to the trustees. All the trustees need to do is send us the original death certificate, and the original trust deed. We won’t need to wait for Probate to be granted (or confirmation in Scotland) which can be a lengthy and complicated process, taking up to several months in some cases.

To help avoid inheritance tax

Once a policy is in trust, the proceeds that are paid out won’t normally be included in your client’s estate for inheritance tax purposes, and can usually pass tax-free to whoever is chosen as beneficiaries.

What are the disadvantage of placing a policy in trust?

The policy can't be taken out of trust later on

As explained earlier, placing a policy in trust is what’s known as an ‘irrevocable’ act. This means that once it’s done, your client can’t normally change their mind later on and take it back out of the trust.

Control over the policy is given to the trustees

A policy in trust has been effectively given away to the trustees to look after. This means that if your client needs to make changes to it they can’t – only the trustees can do this.

Our trust deeds automatically make the settlor a trustee as well, so they can still have an element of control over their policy. But their role as a trustee is different – as a trustee you look after the policy for the beneficiaries, and so any actions they take must be in the interests of the beneficiaries. We’ve produced a separate guide called “Your guide to being a trustee”, which explains the roles and responsibilities of a trustee.

Your client can't benefit from the policy

As a settlor your client cannot normally benefit from the trust under our trust deeds. This isn’t usually a problem if they’re the only settlor – their life insurance policy will pay out when they die. But it can be a problem if they’ve taken out joint life first death life insurance. In most circumstances, if they’ve got joint life first death life insurance, you want the survivor to get the money. This would happen automatically under a joint life first death policy, and you don’t need to put the policy into trust.

But what if they die together? Usually in this scenario, you want to make sure the money goes to their family without any inheritance tax liability. You can achieve this by placing the life insurance policy into trust. But if they’ve written it into trust and one of them survives then they won’t be able to access the money in the trust. To help address this issue, we’ve added a survivorship clause to our trust deeds.

Read more on the survivorship clause

Speak to our adviser support team for quotes or more information.

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