Putting life insurance in trust for IHT purpose

poseidon1

lake888 said:

poseidon1 said:

lake888 said:

May I ask which type of trust is more suitable to hold the life policy in our case, discretionary or absolute?  I have also read about exit charge and 10 year anniversary charge on trust and just want to understand whether the type of trust chosen would make a difference.

Undoubtedly an absolute trust. Here the policy has a single task which is to pay IHT ASAP on behalf of the beneficary the estate 

Discretionary trusts are for funds to be tied up for many years and distributed over the trust period at the trustee's discretionary to a class of beneficiaries which might include future unborn. Such trusts have no part to play for your specific requirements.

I understand that beneficiary cannot be changed under an absolute trust. What if the beneficiary pre deceased us?

Joint benefit of niece and nephew since both will be executors? Would be enormous bad luck if both predeceased you.

lake888

poseidon1 said:

lake888 said:

poseidon1 said:

lake888 said:

May I ask which type of trust is more suitable to hold the life policy in our case, discretionary or absolute?  I have also read about exit charge and 10 year anniversary charge on trust and just want to understand whether the type of trust chosen would make a difference.

Undoubtedly an absolute trust. Here the policy has a single task which is to pay IHT ASAP on behalf of the beneficary the estate 

Discretionary trusts are for funds to be tied up for many years and distributed over the trust period at the trustee's discretionary to a class of beneficiaries which might include future unborn. Such trusts have no part to play for your specific requirements.

I understand that beneficiary cannot be changed under an absolute trust. What if the beneficiary pre deceased us?

Joint benefit of niece and nephew since both will be executors? Would be enormous bad luck if both predeceased you.

Can both niece and nephew become trustees as well as beneficiaries? 

Regarding type of trust used, will discretionary trust also serve the same purpose of getting insurance pay out ASAP and may be the flexibility of changing beneficiaries if necessary? 

poseidon1

lake888 said:

poseidon1 said:

lake888 said:

poseidon1 said:

lake888 said:

May I ask which type of trust is more suitable to hold the life policy in our case, discretionary or absolute?  I have also read about exit charge and 10 year anniversary charge on trust and just want to understand whether the type of trust chosen would make a difference.

Undoubtedly an absolute trust. Here the policy has a single task which is to pay IHT ASAP on behalf of the beneficary the estate 

Discretionary trusts are for funds to be tied up for many years and distributed over the trust period at the trustee's discretionary to a class of beneficiaries which might include future unborn. Such trusts have no part to play for your specific requirements.

I understand that beneficiary cannot be changed under an absolute trust. What if the beneficiary pre deceased us?

Joint benefit of niece and nephew since both will be executors? Would be enormous bad luck if both predeceased you.

Can both niece and nephew become trustees as well as beneficiaries? 

Regarding type of trust used, will discretionary trust also serve the same purpose of getting insurance pay out ASAP and may be the flexibility of changing beneficiaries if necessary? 

Yes niece and nephew can be trustees as well as beneficiaries. Their interests as proposed sole beneficiaries of the estate, ensures their position as policy trustee/beneficiaries are aligned.

As for the flexibility of discretionary trusts, in my view and in your circumstances the IHT discretionary trust regime outweighs that benefit.

You indicated you have heard of 10 year IHT reporting and potential exits charges related to discretionary trusts, these can be a specific risks for whole of life policies designed to build up potential high 6 figure death benefits, and of course makes such trusts more 'high  maintenance ' in terms of ongoing compliance and administration- see technical note below -

https://www.ftadviser.com/tax-efficient-investments/2019/07/31/pitfalls-to-look-out-for-with-whole-of-life-assurance-policies/

None of the above considerations apply to absolute trusts.

lake888

poseidon1 said:

lake888 said:

poseidon1 said:

lake888 said:

poseidon1 said:

lake888 said:

May I ask which type of trust is more suitable to hold the life policy in our case, discretionary or absolute?  I have also read about exit charge and 10 year anniversary charge on trust and just want to understand whether the type of trust chosen would make a difference.

Undoubtedly an absolute trust. Here the policy has a single task which is to pay IHT ASAP on behalf of the beneficary the estate 

Discretionary trusts are for funds to be tied up for many years and distributed over the trust period at the trustee's discretionary to a class of beneficiaries which might include future unborn. Such trusts have no part to play for your specific requirements.

I understand that beneficiary cannot be changed under an absolute trust. What if the beneficiary pre deceased us?

Joint benefit of niece and nephew since both will be executors? Would be enormous bad luck if both predeceased you.

Can both niece and nephew become trustees as well as beneficiaries? 

Regarding type of trust used, will discretionary trust also serve the same purpose of getting insurance pay out ASAP and may be the flexibility of changing beneficiaries if necessary? 

Yes niece and nephew can be trustees as well as beneficiaries. Their interests as proposed sole beneficiaries of the estate, ensures their position as policy trustee/beneficiaries are aligned.

As for the flexibility of discretionary trusts, in my view and in your circumstances the IHT discretionary trust regime outweighs that benefit.

You indicated you have heard of 10 year IHT reporting and potential exits charges related to discretionary trusts, these can be a specific risks for whole of life policies designed to build up potential high 6 figure death benefits, and of course makes such trusts more 'high  maintenance ' in terms of ongoing compliance and administration- see technical note below -

https://www.ftadviser.com/tax-efficient-investments/2019/07/31/pitfalls-to-look-out-for-with-whole-of-life-assurance-policies/

None of the above considerations apply to absolute trusts.

Thanks for the information. So how will the anniversary charge or exit charge be collected if any? Will there be no such charge for an absolute trust?

poseidon1

lake888 said:

poseidon1 said:

lake888 said:

poseidon1 said:

lake888 said:

poseidon1 said:

lake888 said:

May I ask which type of trust is more suitable to hold the life policy in our case, discretionary or absolute?  I have also read about exit charge and 10 year anniversary charge on trust and just want to understand whether the type of trust chosen would make a difference.

Undoubtedly an absolute trust. Here the policy has a single task which is to pay IHT ASAP on behalf of the beneficary the estate 

Discretionary trusts are for funds to be tied up for many years and distributed over the trust period at the trustee's discretionary to a class of beneficiaries which might include future unborn. Such trusts have no part to play for your specific requirements.

I understand that beneficiary cannot be changed under an absolute trust. What if the beneficiary pre deceased us?

Joint benefit of niece and nephew since both will be executors? Would be enormous bad luck if both predeceased you.

Can both niece and nephew become trustees as well as beneficiaries? 

Regarding type of trust used, will discretionary trust also serve the same purpose of getting insurance pay out ASAP and may be the flexibility of changing beneficiaries if necessary? 

Yes niece and nephew can be trustees as well as beneficiaries. Their interests as proposed sole beneficiaries of the estate, ensures their position as policy trustee/beneficiaries are aligned.

As for the flexibility of discretionary trusts, in my view and in your circumstances the IHT discretionary trust regime outweighs that benefit.

You indicated you have heard of 10 year IHT reporting and potential exits charges related to discretionary trusts, these can be a specific risks for whole of life policies designed to build up potential high 6 figure death benefits, and of course makes such trusts more 'high  maintenance ' in terms of ongoing compliance and administration- see technical note below -

https://www.ftadviser.com/tax-efficient-investments/2019/07/31/pitfalls-to-look-out-for-with-whole-of-life-assurance-policies/

None of the above considerations apply to absolute trusts.

Thanks for the information. So how will the anniversary charge or exit charge be collected if any? Will there be no such charge for an absolute trust?

Both questions covered in the article if you read it..

No IHT anniversary exit charges for absolute trusts ( referred to as 'bare trusts' in the article).

Discretionary trustees will have no liquid cash to cover IHT charges, so they will be looking to original settlors  ( if still alive ) to make new gifts into trust to cover any  IHT liabilty. See Box 1 example in the article.