Discretionary Trusts
Trusts have been used alongside life assurance for many years because they offer three important benefits:
- They ensure payments are made without any probate delay;
- They can help mitigate the effects of inheritance tax, as proceeds fall outside the deceased's estate when the planholder dies;
- They can make sure the proceeds will be paid to whoever the planholder nominates or would have chosen.
Problems created if plans are not written in trust
A good example is where a life assurance plan is taken out to provide a cash lump sum in the event of death for the benefit of the surviving spouse or civil partner, and family.
If the person whose life is assured is also the owner of the plan, when he or she dies, the proceeds from the plan will be added to the value of everything else they own - their 'estate' - creating four possible problems:
- The Legal Personal Representatives of the estate, who are responsible for sorting out the affairs of the person who has died, won't be able to obtain the proceeds of the plan until probate has been granted. this may take up to six months, sometimes longer.
- All or part of the plan proceeds may be reduced by inheritance tax, unless they are passing to the planholder's spouse or civil partner.
- If there is no valid will, the estate, including the plan proceeds, will have to be distributed according to the laws of intestacy. This may be very different from the way in which the deceased had intended.
- The surviving spouse's total estate will be subject to means testing, should they have a need for 'Long Term Care' in the future. Using a 'Discretionary Trust' can avoid the proceeds becoming part of the claim by a Local Authority.
To download an example of a Discretionary Trust document, please click here.
In Adobe Reader (.pdf) format
We do not charge for the provision of the Discretionary Trust as we are paid a commission by the life assurance provider on any new policy written.
