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

Trusts

Business trusts

A business trust is normally used to make sure that if a partner or shareholder dies, the payment from a life protection policy is paid out to the remaining shareholders or partners in a firm. This money can then be used in conjunction with a single or double option agreement to buy back the shares of the company from the deceased partner/shareholder's estate.

This is usually done to keep control of the company with the remaining partners or shareholders. Otherwise the share/shares can be passed on to a spouse, children or other people who could have a say in how the business is run, and this may not be agreeable to other shareholders or partners in the business.

Business trusts are not currently available using our Trustbuilder tool.

We offer four trust deed forms and three specimen cross option agreements for you to use. Alternatively, we will accept bespoke arrangements drawn up by a client solicitor, which can be a better option especially if your client’s circumstances are complex.

Types of business trusts

Cross option agreements (specimens)


Common questions

Click on the questions below to read more.

About the trust

When can a business trust be used?

Your client could use our business trust on a life protection or life and critical illness policy if they:

  • want to ensure that money is available for the surviving shareholders/partners to buy back the shares from the deceased shareholder/partner's estate
  • want the proceeds to be efficiently in the most tax efficient way
  • need ease and flexibility for administering the arrangement

What should be placed into trust?

Our business trust should normally be used with a life protection or life and critical illness policy within the LV= Flexible Protection plan, written under their own life.

In addition to the trust and the protection policy, a shareholder or partnership agreement will need to be included. This will typically be a double option agreement due to its inheritance tax efficiency (we provide a specimen double option agreement). However, a single option agreement can be used for critical illness plans where the shareholder may not always want to sell their share in the company.

For tax reasons, it's essential that the arrangement is accepted as a commercial transaction by HM Revenue & Customs and that the shareholder agreement and business trust begins on the same day as the protection policy.

However, this is complex area of law and independent legal advice should still be taken before completing a business trust, to make sure it's right for your client's circumstances.

What shouldn't be placed into trust?

Policies written under life of another basis don't need to be written under a business trust. However, due to the nature of life of another policies, they can't cope with changes to shareholders, or size of shareholdings. As such, life of another policies are best considered for smaller companies which are unlikely to include new shareholders.

Policies which are already running aren't ideal to use with a business trust as it won't be as efficient for tax.

Who controls the assets?

Once your client puts put something into trust it's owned by the trustees, which will normally be the shareholders in the company. They will be responsible for distributing the proceeds to other shareholders in relevant proportions to meet their obligation under the shareholder agreement.

Our draft business trust deed automatically makes your client a trustee.

About taxation

This explanation of trusts and taxation is based on our current understanding of legislation. Please remember that this could change and taxation always depends on your client's personal circumstances.

Will inheritance tax apply?

Provided the arrangement is considered as commercial by HM Revenue & Customs, premium payments won't be regarded as gifts and the proceeds will be received free of inheritance tax.

A double option agreement allows for Business Property Relief (BPR) of up to 100% of the shares from the shareholder’s estate. However, if the shares have been sold due to critical illness, BPR no longer applies.

Is IHT payable if the default beneficiaries change?

No, it isn't.

Is there any inheritance tax to pay if the beneficiaries die?

No, as the trust assets aren’t legally owned by any of the beneficiaries. So if money hasn’t been paid out from the trust, it won’t be included in any beneficiary’s estate when they die.

This explanation of trusts and taxation is based on our current understanding of legislation. Please remember that this could change and taxation always depends on your client's personal circumstances.

Who is responsible for paying the inheritance tax?

Normally, the trustees are responsible. They can use the trust contents to pay it.

In some circumstances the settlor can pay any inheritance tax due. This usually works out to be more expensive though.

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

0800 678 1890

TextDirect 18001 0800 678 1890

9am - 5.30pm Monday - Friday

We may record and/or monitor calls for training and audit purposes.

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FOR UK FINANCIAL ADVISERS ONLY
LV=, County Gates, Bournemouth, BH1 2NF, UK