The importance of putting life policies in trust

Despite this, only a small number of policies actually end up in trust. Could the industry therefore do more to address this? Are there other solutions that could avoid the need for trusts altogether?

When setting up a trust, careful consideration is needed. The duties of a trustee are potentially onerous. Clients must therefore be confident that whoever they select is both competent and able to act in this capacity.

Further consideration must also be given to distribution of benefits. Decisions such as these cannot be made on the spur of the moment. Consequently, clients often end up completing forms under their own initiative, and with increasingly busy lives it is easy to see how other priorities take precedence.

Online trust solutions

When paraplanning, if tasked with sending trust forms, I would invariably spend time meticulously pre-filling and marking up paperwork with annotations specifying how and where to complete. However, despite my best efforts, of those I did successfully receive back, many forms had all manner of mistakes, which of course meant repeating the entire process. So if clients who have assistance struggle, how do those without support fare? It’s little wonder that despite many trust forms being sent, very few are ever returned.

So what can be done to solve this issue? Some providers now offer online trust generators or hubs that work by asking the user a series of questions to help determine the most suitable trust for their needs. The relevant information is completed online, with the information pre-filled into printable forms that just require the relevant signatures.

From the ones I investigated, the benefits of such systems are clear. They provide jargon-free guidance and give users step-by-step instructions about how to complete the forms. They allow the client to go away and consider who they want to select as trustees and beneficiaries, then provide a quick and simple way for advisers to transfer relevant information to forms. Such initiatives can certainly help simplify the process, but with only a handful of providers offering such tools, it would be great if more could follow suit.

Another problem exists in that each provider has its own set of trust wording and accompanying paperwork. When searching for trust forms on adviser facing websites, users are commonly confronted with a long list of forms, from ‘Deeds of Assignment’ to ‘Double Cross Option Agreements’. Some provide accompanying guidance documents. However, of those I have seen, many are in excess of ten pages long, which is an intimidating prospect if you have several to read.

A further problem exists as some providers term their trusts differently. With names ranging from ‘Flexible Trusts’ to ‘Discretionary Trusts’, it is little wonder that confusion arises when trying to decipher the appropriate trust and accompanying paperwork.

However, there is already a practical solution. Some providers who do not offer certain types of trust, will accept forms from those that do: for example, in the case of Scottish Trusts. More providers should create reciprocal arrangements of this nature.

IHT threshold to rise

With the inheritance tax threshold set to rise to £500,000 per individual, significantly fewer estates will be taxable. For them, the benefit of trusts appear purely to be getting claims paid more quickly.

A handful of providers offer a service that pays a nominal amount of the claim on death, with the remainder payable once probate has been completed. This not only offers funds for funeral expenses, but can also cover expenditure in the first couple of months. Initiatives such as this can help significantly at a very difficult time for families. 

Clearly, solutions to the issues outlined above will not be achieved overnight. However, provisions already exist that can assist with these problems. Whether it be simplifying the process of writing policies into trust, or employing more initiatives to help families get the financial support they need directly after a death, it is clear that more could and should be done by the industry as a whole to achieve this.