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


Split trusts

A split trust does exactly what it says - it splits out the different types of cover within a single policy.

A split trust is normally only used with a life and critical illness policy so any payments from the policy which are due while your client is alive (the critical illness cover) will still be paid to them. But any payments that are due when they die (the life cover) will be held in trust.

Our split trust should only be used if the amount of life cover included in the policy is less than or the same as the amount of critical illness cover. If the amount of life cover is higher than the critical illness cover then the trust won’t be effective for inheritance tax purposes. This is because when a critical illness claim is paid under a combined policy, it could be seen that part of the life cover element has effectively been paid back to the settlor (as the critical illness element is viewed as an accelerated death benefit), and that could be seen as a gift with reservation for Inheritance Tax purposes.

However, split trusts are not currently available using our Trustbuilder so if you want to include this, please ask us for a copy of our trust deed or guidance notes.

Common questions

Click on the questions below to read more.

About the trust

When can a split trust be used?

Your client could use a split trust for a combined life and critical illness policy if they:

  • want payments made to them if they suffer a critical illness
  • want the payments made to the beneficiaries if they die
  • know all the people that they might want to receive the contents of the trust when they set it up (for example, widow or widower, children, grandchildren, mother, father, brothers or sisters)
  • know who you want to benefit from the trust unless circumstances change, and
  • want the option to change who will actually benefit from the trust if things do change in the future

However, like a flexible trust, your client can’t add new potential beneficiaries 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.

What shouldn't be placed into trust?

This type of trust should only be used for combined life and critical illness policies. Any other policy should not be put into this trust.

It can however, be used on a life insurance policy if your client wishes any terminal illness payment to be paid to themselves and only death benefit to be paid into trust.

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 split 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 and critical illness 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).

Putting an existing policy into trust may not be exempt, but the value of the policy will be minimal (unless your client is critically ill or terminally ill at the time).

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

Is IHT payable if the default beneficiaries change?

No, it isn't.

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

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 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?

It’s unlikely. The split trust can only be used with life insurance which is not normally subject to income tax.

Who is responsible for paying the income tax?

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

Can Scottish clients use a split 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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