What is a trust?
A trust is an arrangement which allows your client to gift an asset, such as a life assurance plan, without giving the intended recipient total control and legal ownership of it.
With a trust, your client who is known as the settlor, can transfer the legal ownership of an asset to someone. This person is the trustee. Trustees will look after the asset and can use it only for the benefit of people your client wants to benefit. The people who actually benefit from the asset held by the trustees are called "the beneficiaries".
All about trusts:
What are the benefits of putting something into trust?
Writing a policy into trust is a tax-efficient and sensible way to protect your clients’ policies and makes sure it ends up in safe hands.
What policies can be put into trust?
A VitalityLife policy can be put into trust whenever it suits you – at application or at a later date. Existing policies and PruProtect policies can also be put into trust.
What are the benefits of trusts?
Setting up a trust can be easier than you think and can provide your clients with real financial and protection benefits:
Assets held in a valid trust won't be subject to Inheritance Tax (IHT) as part of your clients taxable estate on death. Instead, it will be subject to its own regime. If the assets aren't in a valid trust, up to 40% could be lost to the taxman on any part of an estate valued over £325,000.
Flexibility of gifts to future generations
When an asset is held in trust, your clients may be able to influence the way the assets are distributed, along with which beneficiaries they are distributed to - either as acting as co-trustee or via a private side letter of wishes after death.
Trusts can provide a layer of protection from third party claims. While funds are held in a discretionary trust, none of the potential beneficiaries has any right to them. The trustees can hold the funds back until a more suitable time for the intended beneficiaries to benefit.
Useful links to make trusts easier for you
Our literature libraries house our full suite of trust documents, along with a range of helpful guides and case studies.
Personal Protection Literature
Find out more about the different types of personal trusts we offer, along with supporting case studies and guides
Business Protection Literature
Explore our business protection trust literature to find out more about business protection trusts
Still unsure about trusts? Take a look at our Trust FAQs
Unsure about some of the terms used in trusts?
Can a client submit one trust form for multiple policies?
Do we require a Letter of Wishes?
A Letter of Wishes is used to guide the trustees in exercising their discretion in distributing the trust fund. The settlor can send us a copy of the letter to store with their trust if they wish. Although, they do not have to in the same way they would with the Trust Deed or Deed of Appointment of Additional Trustees.
Who is the Settlor if the Life Assured and the plan owner are two different people?
What happens when the Life Assured's surname changes?
Who can act as a witness?
What are the duties of a trustee?
How do you change trustees?
What happens if the client does not appoint any additional trustees using the Deed of Appointment of Additional Trustees?
The Settlor will be the initial trustee but on their death we will need a surviving trustee to act to receive the funds upon claim. If none, the trust will still be valid and the favourable IHT treatment will not be impacted. However, the speed of payment benefit will be lost as the grant of probate will be required to appoint trustees.
For joint life second death policies, both settlors will be the initial trustees but they will need to appoint at least one other additional trustee to act when the Life Cover pays out.
In Scotland, an additional trustee is required at inception to satisfy local validity rules which require the delivery/vesting of the policy with the trustees which is effected in the Deed of Appointment of Additional Trustees.
Can a beneficiary also act as a trustee?
What is the difference between potential beneficiaries and default beneficiaries?
The broad class of potential beneficiaries of the trust are set out in Part C(2) of the trust document. The trustees can decide who to exercise their discretion in favour of within this class during the 125 year trust period. Clients can provide guidance to their trustees as to who to benefit and when, they can do this in the draft non-legally binding side letter of wishes that we can provide. New beneficiaries can be nominated in writing to the trustees which gives flexibility to change beneficiaries.
At the end of the 125 year trust period the default beneficiaries (in practice their estates) would be entitled to any funds remaining in the trust. They cannot be changed.
What are the implications if the client has not completed the Default Beneficiaries section?
The default beneficiaries are the individuals or charities who will benefit from any remaining funds in the trust after expiry of the 125 year trust period.
If this section is not completed, the trust is not invalidated. It simply means a resulting trust may arise with adverse consequences for the Settlor’s estate.
A default position has been introduced from June 2014 to both the Discretionary trust and the Relevant Life Policy trusts to cover this remote scenario, although this may not reflect your clients wishes and they should still complete the default beneficiaries section.
What are the implications if the client has not completed the Terminal Illness Benefits section?
Your clients can decide whether to retain or gift the terminal illness benefits should an entitlement arise. Clients must initial the Retained Fund section at Part B(4a) on the trust if they want to be able to access these benefits.
A default position has been introduced from June 2014 to both the Absolute and Discretionary trusts to reflect that in the absence of an election to retain the benefits, the terminal illness benefits will be treated as gifted (unless it is a Joint Life First Death plan and the 30 day reversion to settlor wording has been selected, in which case the terminal illness benefits will be retained).
Where to next?
Good health is good business. We aim to give your clients cover that's relevant to their business needs and pays out when they need it most.
With our Personal Protection, we offer your clients the best cover to suit their needs, such as our award-winning Serious Illness Cover.
We have a range of literature available to make it easier for you to do business with us.
Explore our wide range of online tools, designed to support your client conversations and help to grow your business.