Gift With Reservation - Life Assurance Trusts

bradley_

Hi,

Me and my partner are about to take out separate life assurance policies and have been planning to write them both in trust (we are unmarried and also have children).

I am aware (to some extent) of the "gift with reservation" and "associated operations" rules for tax. What I don't understand is how we are supposed to avoid breaking them

If you take either policy in isolation then we would want it under trust, so just because the very fact we each want a policy which would benefit the other partner (and children) it seems a bit unfair to call it an associated operation. Although it could look that way, there's absolutely no reservation or "contract" being formed between us to reciprocally cover each other (i.e. they are individual entities and not a reward or pay back for a policy in return)

As an analogy, if I mistakenly received my neighbours post and returned it to them, it's only because it's the right thing to do, not that I'm wanting a reward. The following day, they might do the same for me. Both acts are individual, isolated actions though it's possible somebody could argue the neighbours actions were associated to mine and done to return a previous favour. However, in truth they would have probably done it anyway regardless.

Is it just not possible to do this? Do we have to only have one policy in trust to avoid the issue? Are there some options I can explore which don't break the tax rules?

Thanks for any advice

yelf

i think you're getting confused. GWR only applies to IHT. Not only that but as the policies will be written in trust for the children and spouse there will be no GWR.

bradley_

Thanks for the reply. I've been away all week so only just read your answer.

I was mainly basing it on some information included in an AXA discretionary trust guide (I'm not taking out a policy with AXA but have read through different trust documentation as part of my research)

This is what it states :-

"

Reciprocal Discretionary Trusts created by husband and wife or civil partners

Care should be taken if a husband/civil partner effects a policy/cover subject to a Discretionary Trust and his wife/civil partner also effects a policy/cover
subject to a Discretionary Trust as HM Revenue and Customs would view such arrangements as ineffective for IHT purposes under the ‘gift with reservation’
provisions due to the application of the ‘associated operations’ provisions. This is because both the husband and wife/civil partners are included as
beneficiaries under each other’s trusts and therefore could both benefit. Similar implications may occur if widow/widower/surviving civil partners are

included under reciprocal trust arrangements.
"

After that I did a bit more looking into gift with reservation and associated operations and most information covers property and gifting away houses whilst still living in them. I couldn't find much relating to life assurance and nothing at all to give me any ideas how I might avoid the situation AXA are warning against

Thanks in advance for any further help

bradley_

Don't seem to be able to find that statement anywhere on AXA's site, just a PDF stored on another site (though created by AXA in 2008).

Perhaps they have changed their opinion on the matter after review so no longer give that warning?

yelf

bradley_ wrote: »

Thanks for the reply. I've been away all week so only just read your answer.

I was mainly basing it on some information included in an AXA discretionary trust guide (I'm not taking out a policy with AXA but have read through different trust documentation as part of my research)

This is what it states :-

"

Reciprocal Discretionary Trusts created by husband and wife or civil partners

Care should be taken if a husband/civil partner effects a policy/cover subject to a Discretionary Trust and his wife/civil partner also effects a policy/cover
subject to a Discretionary Trust as HM Revenue and Customs would view such arrangements as ineffective for IHT purposes under the ‘gift with reservation’
provisions due to the application of the ‘associated operations’ provisions. This is because both the husband and wife/civil partners are included as
beneficiaries under each other’s trusts and therefore could both benefit. Similar implications may occur if widow/widower/surviving civil partners are

included under reciprocal trust arrangements.
"

After that I did a bit more looking into gift with reservation and associated operations and most information covers property and gifting away houses whilst still living in them. I couldn't find much relating to life assurance and nothing at all to give me any ideas how I might avoid the situation AXA are warning against

Thanks in advance for any further help

Thats because GWR aplies to assets etc that you can benefit from. it doesnt apply to life ssurances as they only pay out on death as as such provide no benefit whatsoever when the life assured is alive.

Now forget about it

magpiecottage

Quite right yelf.

It is worth considering an additional Trustee who is not a beneficiary partly in case you both die at the same time and partly because a sole surviving Trustee cannot change the beneficiaries to their own advantage.

Remember too that if you are the only Trustee on a policy that covers your life, you are not going to be able to administer the proceeds of any claim!

bradley_

Thanks.

I assume that AXA were looking at it under associated operations that each party would benefit from the reciprocal policy (I.e by taking out my policy, I benefit in return from the policy I'm a beneficiary of - IF the 2 were done to return the favour of each other)

Out of the 10 or so companies I've read trust documentation for they were the only ones to mention it and even they don't seem to any more.

Also, I'm sure the knowledgeable people on here like yourself would also be well aware of it if it was a real potential issue. Therefore, I'm going to forget about it as you suggest.