Life insurance trust questions

tee_3

I am in the process of seeking quotes for a policy for myself, and am keen to write it in trust, however I have a few questions in this regard if anyone could help.

1. Are there any income tax/cgt implications from writing life insurance in trust, as I am aware that there were historically rules around some types of trust which saw entry/exit charges, and 10 year charges to income tax? I simply want to ensure that I am not exposing the trust to a potential raft of other taxes by seeking to avoid the IHT pitfall

2.How many trustees do you generally need for a trust - is there a stipulated minimum, and can they also be beneficiaries?

3. My best quote at the moment is from a company called Bright Grey - I have never heard of them - any opinions?, and do people know whether they offer the facilty of writing in trust FOC like others do?

Any help gratefully appreciated

tee

dunstonh

1. Are there any income tax/cgt implications from writing life insurance in trust, as I am aware that there were historically rules around some types of trust which saw entry/exit charges, and 10 year charges to income tax? I simply want to ensure that I am not exposing the trust to a potential raft of other taxes by seeking to avoid the IHT pitfall

Not unless you are using an investment backed life assurance or an unlawful trust.

2.How many trustees do you generally need for a trust - is there a stipulated minimum, and can they also be beneficiaries?

1 is minimum but more is common sense. Typically use parents as well as spouse or someone else close.

. My best quote at the moment is from a company called Bright Grey - I have never heard of them - any opinions?, and do people know whether they offer the facilty of writing in trust FOC like others do?

Bright Grey is the trading name of Royal London for their protection business. Its a bit strange as Royal London use other names for the business (they use Scottish Life for their new pension business for example).

Like most providers they have a selection of off the shelf trusts available to cover the most common needs.

weighty1_2

Actually there is a potential IHT tax liability that can arise when a plan is written into trust.

Once a trust is set up there is a "periodic charge" every 10-years. Depending on the value of the trust at each 10-yr anniversary an IHT liability could arise, however, the periodic charge is 6% instead of the usually 40% IHT charge.

The only time that this is likely to arise is if the life insurance pays out and the proceeds are left within the trust and not withdrawn (maybe to safeguard against bankruptcy or divorce issues), or if a client dies immediately before a 10yr anniversary. "Potentially" a liability may also arise is a client is very seriously ill at a 10yr anniversary as even a term assurance plan may be deemed to have a value at that point.

One consideration is that each trust has its' own nil-rate band of £325,000, so unless the value of the life policy is above this then there wouldn't be an issue anyway. This is why multiple trust planning can be extremely useful for client who wish to leave the proceeds of a plan in the trust.

All in all the advantage of a potential 6% IHT liability instead of a 40% one is still pretty good.

magpiecottage

weighty1 wrote: »

Once a trust is set up there is a "periodic charge" every 10-years. Depending on the value of the trust at each 10-yr anniversary an IHT liability could arise, however, the periodic charge is 6% instead of the usually 40% IHT charge.
All in all the advantage of a potential 6% IHT liability instead of a 40% one is still pretty good.

All the while you remain in good health a term assurance policy on you is worthless, so 6% of its value would not be very much!

weighty1_2

Bit late in the day for a reply, but nonetheless, I think Magpie Cottage is missing the point I was making.

The fact of the matter is that if the policy pays out on death and proceeds remains in the trust then the 6% periodic charge would still apply, each 10th anniversary from when the trust was set up. So , YES, a term assurance plan written in trust (who's life assured is in good health) may be pretty much worthless and therefore not subject to a charge, but once the plan pays out and passes a 10th anniversary the 6% periodic charge would apply. 6% of a trust that has £500,000 in it would result in a signficant tax liability.

Everyone seems to think that trusts are free from tax and this is not the case, they are just more tax efficient than not having a plan in trust