VitalityLife

Trusts and Tax

Putting a VitalityLife plan into trust has never been easier

What is a trust?

A trust is an arrangement which allows your client to gift an asset, such as a life assurance plan, to other people without giving them 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, of which your client is automatically one. Trustees will look after the asset and can use it only for the people your client wants to benefit. These people 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 that the proceeds are paid to your clients’ chosen beneficiaries.

What policies can be put into trust?
A VitalityLife policy can be put into trust whenever it suits your clients – at application or later. Existing policies and PruProtect policies can also be put into trust. Where the plan is being placed into a business trust it is essential that the trust is only applied at application, in order to avoid unwanted and potentially expensive capital gains tax implications.

Have you used our Trust Flowchart?

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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:

Tax planning

Assets held in a valid trust won't be subject to Inheritance Tax (IHT) as part of your client’s taxable estate on death. Instead, it will be subject to its own regime. If the assets aren't in a valid trust, it is included in the taxable estate and potentially up to 40% could be lost to the taxman.
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.
Protection

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

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Business Protection Literature

Explore our business protection trust literature to find out more about business protection trusts

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Signature-free online trust solution.

Our online solution makes it quicker and easier for you to place protection plans into trust, eliminating the need for written signatures. It also enables you to set up a trust as part of the protection application using our Adviser Hub self-service portal.

This solution is available for all new Personal and Business Protection plans.

Log into Adviser Hub

Still unsure about trusts? Take a look at our Trust FAQs

Unsure about some of the terms used in trusts?

We have a full glossary of all the different terminology used in relation to trusts. Download our Trust Glossary in our Trust Guide for more information.

Can a client submit one trust form for multiple policies?

Yes, multiple policies can be written into the same trust providing it is the same settlor, same Life Assured and the same terms regarding any retained benefits.

Do we require a Letter of Wishes?

No, the settlor should complete this and provide this to their chosen trustees.

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?

The owner of the policy is the settlor. For Relevant Life Policies, the settlor is the employer and they will be the initial trustee. For Inheritance Tax purposes, the life assured is treated as being the settlor.

What happens when the Life Assured's surname changes?

We require a copy of the marriage certificate or the change of name deed to store with the trust.

Who can act as a witness?

Witnesses should be over 18, independent and of sound mind. The spouse of the settlor and the beneficiaries should not act as witnesses. Also, the settlor and additional trustees should not cross-witness as their independence could be challenged which could open a question of validity.

What are the duties of a trustee?

Trustees have a variety of duties, including acting in the best interest of the beneficiaries and protecting the trust fund. Find out more by downloading our Trustee Guide.

How do you change trustees?

The settlor reserves the power to do this in their lifetime. Once the initial additional trustees have been appointed, future changes can be made in the Deed of Appointment/Retirement/Removal of Trustees.

What happens if the client does not appoint any additional trustees?

Whilst the Settlor is automatically a trustee on their death, as there will be no surviving trustee to receive the funds the speed of payment benefit will be lost as a grant of representation (probate or confirmation) will be required. However, the trust will still be valid and the favourable IHT treatment will not be impacted.

For joint life second death policies, both settlors will automatically be trustee, but they should appoint at least one other additional trustee to act with them to ensure that in the event of a claim there is a surviving trustee to pay out too.

Can a beneficiary also act as a trustee?

A trustee who is also a beneficiary can benefit from the trust providing they act with another independent trustee (who does not benefit). This requirement is to avoid a potential conflict of interest and ensure that the trustees act impartially and not for their own interest.

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?

Business Protection

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.

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Personal Protection

With our Personal Protection, we offer your clients the best cover to suit their needs, such as our award-winning Serious Illness Cover.

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Literature Libraries

We have a range of literature available to make it easier for you to do business with us.

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Online tools

Explore our wide range of online tools, designed to support your client conversations, and help to grow your business.

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Making it easier to do business with us online.

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