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


Flexible trusts

Also known as a power of appointment trust, a flexible trust gives the trustees some flexibility to choose who will benefit from the trust assets, and how much they’ll get.

When your client sets up the trust, they name all of the people that they want to benefit from it in the future. This can be groups of people, for example, children or grandchildren. Or they can name specific individuals. This wide group of beneficiaries is called ‘potential beneficiaries’.

From these potential beneficiaries, your client needs to also name the person or people that they would want to benefit from the trust assets if they were to be paid out straight away. This person or people are called the default beneficiaries.

Your client must also decide how they want the trust assets to be split between the default beneficiaries. For example, the default beneficiaries could be three children in equal shares. The trustees have the power to change the default beneficiaries to any of the people named as potential beneficiaries. They also have the power to change how the trust assets are split between them.

Common questions

Click on the question to read more.

About the trust

When can a flexible trust be used?

Your client could use a flexible trust if they:

  • know all the people they want to receive the contents of the trust when they set it up (for example, their widow or widower, children, grandchildren, mother, father, brothers or sisters)
  • know who they want to benefit from the trust unless circumstances change, and
  • want the option to change who will benefit from the trust if things do change in the future.

But remember, new potential beneficiaries can't be added once the trust has been set up. Trustees must be selected that can be trusted to make fair and reasonable decisions about who should benefit from the trust. For these reasons, a flexible trust isn’t right for everyone.

What should be placed into a trust?

Normally a flexible 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 flexible trust is suitable for both single life and joint plans.

What shouldn't be put into a 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 flexible 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.

What changes can trustees make to the trust?

The trustees have the power to change the default beneficiaries if they wish. They can choose any of the potential beneficiaries to become the default beneficiary and benefit from the trust assets.

They also have the power to change how the trust assets are split between default beneficiaries.

The advantage of giving trustees these powers is that if circumstances change, the trust can be changed to make sure it’s still effective.


Ian and Jayne live together and have a son, Simon, who is eight years old.

Ian takes out life cover to help protect his family financially if he dies. He wants to leave the money to Jayne. But if she dies before he does, he’d like it to be kept for Simon until he’s old enough to receive it.

Ian uses a flexible trust, and names both Jayne and Simon as potential beneficiaries. Jayne is the default beneficiary.

But if she dies before Ian, the trustees can change the default beneficiary to Simon. The money will then be held in trust for Simon until the trustees pay it out to him.

When can trustees make changes to the trust?

Under our flexible trust deed, the trustees can only make changes to the trust while the settlor is alive, or within 24 months of their death. If the trust asset is a life insurance policy then the death of the person insured determines how long the trustees have to make changes to the trust. (The person insured and the settlor aren’t always the same person).

After this, the default beneficiaries will become the legal owners of the trust property and the way that assets are split between them can’t be changed.

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 it has value).

But, if they put something of value, like an investment bond, into trust it’s unlikely to be exempt. This means that IHT could apply when they make the gift, on every tenth anniversary of the trust, and when anything is paid out from the trust. The amount of IHT payable will depend on the value of this gift and any other similar gifts they’ve made (to trusts or individuals) in the last seven years.

Also, 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 flexible trust.

Is IHT payable if the default beneficiaries change?

No, it isn't

Is IHT payable if beneficiaries die before policy pays out?

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.

Who is responsible for paying 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.

Does anyone need to know about the gift?

You might have to tell HM Revenue & Customs (HMRC). This will normally only be necessary if the gift your client makes to a flexible trust, together with any other similar gifts, is more than 80% of the nil rate band.

If you do have to report their gift, then the trustees will need to complete returns at every tenth anniversary, and when money is paid out from the trust. They’ll have to do this even if no IHT is payable.

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 flexible 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.

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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