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

Trusts

Fixed trusts

A fixed trust is a very simple type of trust. It is sometimes called a bare trust. All the contents of the trust are given to the beneficiaries.

When you set up the trust, your client names the beneficiaries of the trust. They also decide how the contents will be split between them (for example, 50:50). The beneficiaries your client names and their share of the assets can’t be changed later on.

Under our fixed trust, once a beneficiary is 18, they are legally entitled to own the contents of the trust. This means they can force the trustees to transfer ownership of the contents to them if they want to.


Common questions

Click on the questions below to find out more

About the trust

What should be placed into trust?

Normally a fixed trust is used for life protection, which will pay out a lump sum when the settlor dies. But your client can use it for other things too, such as an investment bond.

If your client is the plan owner, they can place a new life protection plan or bond into trust when it starts. Or they can put an existing one into trust.

A fixed trust is suitable for both single life and joint plans.

What shouldn't be placed into trust?

You shouldn’t put anything into trust that your client would want to use or benefit from in the future. For example, an income protection plan will pay an income if your client can’t work because they’ve had an accident or are ill. If you put the plan into a trust, the income would be paid to the beneficiaries instead.

Also, if you put an investment bond into trust your client wouldn't be able to take any money out of it at a later date. They wouldn't be able to receive an income from it either. Any income or withdrawals will be paid to the trustees to manage on behalf of, or pass on to the beneficiaries.

Who controls the assets?

Once you put something into trust it's owned by the trustees. So if your client wants to keep some control over what happens to the contents of the trust, they should appoint themselves as a trustee. For example, if you put a life protection policy into trust, and your client wants to increase the cover later on, we’ll only be able to do this with agreement from the trustees, and we’ll send details of the changes straight to them. Our draft fixed trust deed automatically makes your client a trustee, so that they still have some say over what happens.

How many trustees should there be?

If all the trustees die before the trust contents are paid out, there could be a delay in getting the money quickly to the people who need it. So it makes sense to appoint at least two trustees. As your client will be a trustee, you should appoint at least one other person they trust too.

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?

Maybe, it depends on whether your client's gift is exempt or not.

Premiums your client pays for a life insurance plan held in trust will usually be exempt, because the premiums are paid from their normal income. Exempt gifts aren’t subject to inheritance tax (IHT).

However, putting an existing policy into trust may not always be exempt, but the value of the policy will be minimal (unless your client is terminally ill at the time, in which case the policy may be deemed to have a value).

So in this case if they die within seven years of making the gift, the amount they gave away will be considered when calculating IHT on their estate.

To make sure you understand how IHT will apply to the gift, you should get legal advice before you set up a fixed trust.

Is there any inheritance tax to pay if a beneficiary dies?

If a beneficiary dies before the policy pays out, the proceeds still have to be paid to the estate of the deceased beneficiary. This can cause complications and this is a disadvantage of a fixed trust. So if this is a concern, a flexible trust is more appropriate.

Who's 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.

Will income tax apply?

This depends on what your client puts into trust. For gifts such as life protection that only pays out on death, income tax won’t apply. But it could apply to some other types of gift, such as an investment bond. You should get legal advice to find out if income tax could apply.

Who's responsible for paying the income tax?

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

Can Scottish clients use a fixed trust?

Yes, they can. Scots law will apply to this trust if the address of each settlor is in Scotland when the trust is created.

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

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