Life insurance policy payout

DRS1

Since the life insurance is written in discretionary trust, I understand the beneficiaries can be changed at the trustees discretion, even if the original deed had different beneficiaries.

Not entirely sure what you mean by beneficiaries here. Is the Aviva document linked in @poseidon1 's post up above the same document as you have? If so then you will see a definition of Potential Beneficiaries and of Default Beneficiaries. If you are asking whether the Trustees can appoint capital to a Potential Beneficiary even though they are not a Default Beneficiary then the answer is yes. A caveat - the clause 5 power is given to the Appointor and the Appointor is only the Trustees if there is no Settlor of full capacity so if the parent is still alive and still has their mental capacity then it is the parent who has the power to appoint not the Trustees.

What the Trustees cannot do is make someone a beneficiary who is not in the class of Potential Beneficiaries. But a Settlor can nominate someone to be included in the class of Potential Beneficiaries. That has to be in writing to the Trustees. That may be where a settlor's letter of wishes comes in.

Your discretionary trust may say something different of course so you need to check the document as it was signed.

itwasntme001

Thanks DRS1.

Yes the first Aviva document that poseidon1 linked is the one that I have.

Since the child is already included in the class of potential beneficiaries, it would seem the beneficiaries can be changed from the default, without settlor letter of wishes etc. So a simple deed of appointment would suffice.

I am confused by the clause 5 you refer to - does this mean that the settlor actually has the power to decide who the money goes to and not the trustess (assuming mental capacity)?

DRS1

Clause 5 a in the document I am looking at says " … the Appointor may by deed … appoint the whole or any part .. of the Trust Fund for such one or more of the Potential Beneficiaries in such .. shares .. as the Appointor shall in their absolute discretion think fit."

Appointor is defined as … if there is only one Settlor of full capacity that Settlor or if no Settlor is of full capacity the Trustees…(and you need two Trustees).

I have assumed there was only one Settlor not two although the document caters for two.

So on that basis if the Settlor is still of full (mental) capacity then the power rests with them not the Trustees.

But as I said you need to check your document. It may look similar to the one @poseidon1 found but that does not mean it is word for word the same.

itwasntme001

I have checked and the documents are word for word the same.

So since the settlor is alive and with mental capacity, based on the document it will be the settlor that has power to decide who the money goes to. And the second link poseidon1 posted for the deed of appointment, it would be the settlor who would need to sign the apppointer section once decided on the beneficiaries.

If a % of the money does go to a child/minor (grandchild of the settlor), can the money be paid to the child's bare trust account once the trustees receive the money?

And since this is money that would not come directly from the child's parent I assume the tax treatment (income tax etc) on this money will be on the child?

DRS1

Yes it does sound like the Settlor is the one who needs to decide on the appointment and sign the Deed of Appointment.

I do think the money could be paid to a bare trust account for a minor child but you may want to ask a lawyer to look at that (and the deed - you may need to make amendments to the draft deed linked in @poseidon1 's post - eg the "revocable" bit should probably be "irrevocable"?). I say this because a minor cannot give a valid receipt for money and so you would typically expect to see something called an infant receipt clause which allows a parent to give a valid receipt for the money to the trustees. I don't see such a clause in either of the Aviva drafts. Someone more up to date than me may know if that is not something to worry about.

If you are worried about the income tax being a parent's income tax where the child's income is over £100 then yes I believe that does not apply where the money is given to the child by a grandparent. And this would seem to fall in that category. I am not sure what happens if you mix it in with money derived from a parent though - best to keep this money separate from that sort of money. There may be other tax issues of course. IHT perhaps?

itwasntme001

Thanks again DRS1.

Yes having the deed as irrevocable makes sense so will correct it on the deed as per Aviva's guidelines.

The existing money in the bare trust account has not been given by the parents so fine to mix. I am a trustee of this bare trust account also (as well as trustee of the life insurance policy). Since I will be receiving the claim money and paying out to beneficiaries (Aviva say they only send to one trustee), is simply making payment to the child's bare trust account ok legally and tax speaking? Would there be any confusion as to who the money was actually given by; from me as a trustee for the bare trust account or from me as a trustee for the life insurance policy? The former I imagine would be seen as a gift from me and hence IHT implicattions. The latter is what is actual intent, and I suppose the Deed of Appointment would confirm as evidence - and thus no IHT issues as money sent via disc. trust and not from anyone's estate?

DRS1

No-one on here can give you legal advice so you really do need to talk to (and get paid advice from) a lawyer about all this.

It seems odd to me that Aviva pay only one trustee when there are two of them.

I would have thought that you would need a trust account to receive the proceeds of the policy with both trustees as signatories. An alternative might be a solicitors client account where the trustees are the client.

Aviva would pay the money into that account and then the trustees would transfer the relevant part of the money to the bare trust account for the child. Personally I think that would be OK and I don't think it would be seen as a personal gift from you to the child. But it would have to be done properly. The money going from Aviva into your personal account would not fit the bill in my view. And as I have said the lack of an infant receipt clause worries me.

Discretionary trusts have their own IHT regime so the mere fact the money comes from the discretionary trust to the child doesn't mean there are no IHT implications. It is a complicated area and you really need advice - advice you can rely on because you paid a professional to give it.