Life assurance trustees not reaching decision quickly

System

This discussion was created from comments split from: Life assurance and IHT.

Kindness_costs_0

As an executor of my friend's estate from Jan 2024, I informed the company dealing with the 10 life assurance policies, of the death within 1 month. They were held under a discretionary trust. The policy owner submitted an Expression of Will many years ago. The policies which were very old were misplaced by the company and the Trustee did not reach their discretionary decision within their own 6 month deadline. The money now needs to be paid into the estate which incurs 36% Inheritance Tax, and a deed of variation of the will must be made. Is this situation common? I engaged a solicitor, but I have just been told that nothing can be done. Is there any recourse?

MSE_ForumTeam5

Hi @Kindness_costs_0 - we've split your question into its own thread

Marcon

Kindness_costs_0 said:

As an executor of my friend's estate from Jan 2024, I informed the company dealing with the 10 life assurance policies, of the death within 1 month. They were held under a discretionary trust. The policy owner submitted an Expression of Will many years ago. The policies which were very old were misplaced by the company and the Trustee did not reach their discretionary decision within their own 6 month deadline. The money now needs to be paid into the estate which incurs 36% Inheritance Tax, and a deed of variation of the will must be made. Is this situation common? I engaged a solicitor, but I have just been told that nothing can be done. Is there any recourse?

It's hard to comment helpfully on a situation based on a few sentences and zero paperwork, especially when a solicitor (who presumably has all the relevant facts) has already told you that 'nothing can be done'. Have they explained why nothing can be done?

Although it can sometimes take a while for an insurance company to do the necessary, it isn't common for the process to take so long that the payment becomes taxable. Why did the Trustee not reach their decision within 6 months - because they couldn't find the EOW form, or because they couldn't find the policies (or both)? Why must it be paid to the estate - because those are the terms of the policies? If that's the only reason, and doing so would incur a tax charge which would otherwise have been avoided but for their maladministration, then I'd be making a formal complaint to the insurer asking how this squares with the FCA requirement to treat customers fairly and suggesting the insurer picks up the tax bill. If the onus was on your late friend to keep copies of the policies (which is usually stipulated by the insurer) and EOW, it may be more difficult to prove that the insurer was wholly to blame for the delay and subsequent payment to the estate/possible IHT charge.

Are you sure it will be subject to IHT, if the payment has been made at the discretion of the Trustee? If the delay meant that there is a binding commitment in the policy which means it must be paid to the estate (ie the payment is no longer at the discretion of the Trustee), then IHT will apply - but do check the point if it hasn't already been established beyond doubt.

Kindness_costs_0

Marcon said:

Kindness_costs_0 said:

As an executor of my friend's estate from Jan 2024, I informed the company dealing with the 10 life assurance policies, of the death within 1 month. They were held under a discretionary trust. The policy owner submitted an Expression of Will many years ago. The policies which were very old were misplaced by the company and the Trustee did not reach their discretionary decision within their own 6 month deadline. The money now needs to be paid into the estate which incurs 36% Inheritance Tax, and a deed of variation of the will must be made. Is this situation common? I engaged a solicitor, but I have just been told that nothing can be done. Is there any recourse?

It's hard to comment helpfully on a situation based on a few sentences and zero paperwork, especially when a solicitor (who presumably has all the relevant facts) has already told you that 'nothing can be done'. Have they explained why nothing can be done?

Although it can sometimes take a while for an insurance company to do the necessary, it isn't common for the process to take so long that the payment becomes taxable. Why did the Trustee not reach their decision within 6 months - because they couldn't find the EOW form, or because they couldn't find the policies (or both)? Why must it be paid to the estate - because those are the terms of the policies? If that's the only reason, and doing so would incur a tax charge which would otherwise have been avoided but for their maladministration, then I'd be making a formal complaint to the insurer asking how this squares with the FCA requirement to treat customers fairly and suggesting the insurer picks up the tax bill. If the onus was on your late friend to keep copies of the policies (which is usually stipulated by the insurer) and EOW, it may be more difficult to prove that the insurer was wholly to blame for the delay and subsequent payment to the estate/possible IHT charge.

Are you sure it will be subject to IHT, if the payment has been made at the discretion of the Trustee? If the delay meant that there is a binding commitment in the policy which means it must be paid to the estate (ie the payment is no longer at the discretion of the Trustee), then IHT will apply - but do check the point if it hasn't already been established beyond doubt.

Thanks for your comments and advice. Apologies for not responding sooner, but the estate and life assurance policies have taken up a lot of time. The Trustee did not reach their decision because the original policies were archived by the company, Standard Life, and the EOW was not initially found. I sent the EOW letter within the 6 month period. The Trust Deed states that the Trustee decision must be made within 6 months. After the 6 months, I arranged an online call with the company managing the policies, and the Trustee's solicitor also attended. I asked who had been contacted about the EOW so I could establish what work had been carried out by the Trustee. They had only contacted the solicitor who did the will, and they were told that they were not managing the estate. When I engaged another solicitor to challenge the decision about having to go to the estate, I was initially told that we could potentially sue the company managing the policies, because mistakes were made. After chasing the solicitor, I was told that "What is done is done" and we should accept that nothing can be done. The executors are very frustrated that there could be 36% IHT, which should have been avoided. I have since contacted HMRC and I was advised to write a letter with supporting documents to ask if the additional benefits must incur IHT, given it was managed by a Discretionary Trust. I will wait and see.