Head of Compliance Stephen Adams explains when and why advisers should talk to their clients about the benefits of placing a life policy into Trusts.

With so many protection challenges facing advisers today, we know how difficult it can be to find time to discuss every possible element of Life Assurance with your clients. But according to one leading provider, only about 10% of life policies are currently written in Trust, which suggests that in some cases consumers are not aware of the potential benefits.

In some situations a Trust is likely to be neither relevant nor advisable. However, there will be times when the best consumer outcome will point towards a Trust and clients must be aware of all the potential benefits or disadvantages relevant to their circumstances.

When should I talk about Trust to my client?

Essentially it will be down to the adviser to recommend what is in the best interest of the client. However, as a very general rule: Joint life policies are less likely to require Trusts , as are Single Life Policies where the client is married (but note this is dependent on the level of cover and the latest intestacy rules). But with a Single Life Policy where the client is not married, Trusts can play a very important part and should therefore necessitate a conversation with your client about writing their policy into Trust and ensuring the correct distribution of pay-out.

How can clients benefit from putting their policy into Trust?

Avoiding probate: A legal process which confirms an executor’s authority to deal with possessions. This lengthy process currently takes, on average, six weeks and for more complicated cases can be many months. Putting a policy into Trust will avoid this and any even lengthier connotations such as intestacy, which can be a stressful time for your client’s family and loved ones. If a Life Assurance plan is in trust, it is no longer part of the settlor’s estate so therefore probate is not required as the funds are paid directly to the trustees to distribute the funds.

Helping to reduce Inheritance Tax (IHT): By putting a policy into Trust, your client may avoid the policy being absorbed into the deceased’s estate and being liable for Inheritance Tax. The Government raised £3.3 billion in IHT revenue in 2013/2014 and admits that this number would be significantly reduced if more polices were written in Trust. Any assets left to a spouse or registered civil partner, provided they’re UK domiciled, are exempt from inheritance tax. But this can be often down to whether the policy is kept in Trust until its next 10th Anniversary.

A note from the Compliance Team…

It is important to remember that the above is a very general guide and specific thought needs to be given to each individual customer circumstances. Advice can also be sought from legal helpdesks of product providers. If in any doubt, then an adviser must guide the customer to seek legal advice and record this in the Reason Why Letter.

If you would like to join our award-winning Mortgage Network as an appointed representative or become a member of our Mortgage Club, contact our Broker Support Team on 0845 130 7446 opt 1.