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Trust guidance

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.

Should a policy be put into trust?

Advantages
  1. Proceeds are paid to the right person or people.
  2. Proceeds are paid out quickly; there's no need to wait for probate (which can take some time).
  3. Helps to avoid inheritance tax - the proceeds won't normally be included in the deceased's estate and can usually pass tax-free to whoever is chosen as beneficiaries.
Disadvantages
  1. The policy can't be taken out of trust later on.
  2. Control over the policy is given to the trustees, so your client can't make changes to it.
  3. Your client can't benefit from the policy (can be complicated for joint life policies).

Survivorship Clause

A survivorship clause allows a surviving settlor to get the proceeds of a trust if they survive 30 days from the death of the first settlor to die. If both settlors die within 30 days of each other, then the trust property reverts to the beneficiaries.

For example, if your clients are married with children, they could make sure the proceeds of their protection policy would go to:

  • Their children if they die within 30 days of each other
  • The surviving spouse if one of them survives the other by 30 days

This means the trust can be flexible enough to provide the money where it needs to, by supporting the family at a difficult time, or provide for the children without being part of their estate for Inheritance Tax purposes.

To include the survivorship clause, your client will need to 'opt in' when filling in the trust deed. This is explained in the guidance notes for the trust deeds.


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LV=, County Gates, Bournemouth, BH1 2NF, UK