Understanding the importance of TRUSTS

Our research found a fifth (20%) of advisers are unaware of the benefits of writing their clients’ life insurance policies into trust.  That means that one in every five advisers could potentially be putting the pay-outs for their clients’ potential beneficiaries at risk.

A trust is an easy way to guard against this outcome and is a legal arrangement which allows the owner of a life insurance policy (the settlor) to give their policy to a trusted group of people (the trustees), who look after it. In the event of a valid claim they can pass it on to some or all the people in a group that the settlor has decided (the beneficiaries).  When a life insurance policy is looked after in this way, it is said to be ‘in trust’. The life insurance policy which is in trust, and any payment received from the life insurance policy is called the trust fund.

It should help to ensure that the money paid out from the life insurance policy will not be part of the estate of the person covered, helping to minimise Inheritance Tax liabilities.

It should also help to ensure that the money paid out from the life insurance policy can be paid to the right people quickly, without the need for lengthy legal processes. When you die, your personal representatives will need to obtain probate so that they have the authority to deal with your estate. In England and Wales either a ‘grant of probate’ or ‘grant of letters of administration’ is issued to your personal representatives. This process takes time and if you die without having made a will it takes even longer. Since the trustees are the owners of a policy placed in trust they do not have to go through this process in order to make a claim. 

By placing your policy in trust, you can indicate who you want the proceeds to be paid to. In the event of a valid claim a trust can control when the money from the life policy will be paid out. This can ensure that children receive some financial support from the money, but do not have full access to it.

Our research revealed that fewer than half (45%) of advisers always discuss the benefits of writing a policy into trust with their clients – and 18% admit that it’s not something that they prioritise talking about.

But why? More than a quarter of advisers (27%) say they simply don’t have enough time to discuss writing the policy into trust, as the policy application process takes so long.  Yet a similar number of advisers believe that over 90% of their clients should have their policies written into trust.

We’re hoping that our online Trust Hub will help to bridge this gap. This easy-to-use tool helps advisers explain the main benefits of putting a policy in trust and is designed to be used during face-to-face meetings with clients. We believe that advisers will benefit enormously from this extra education, as it will help them to ensure that their clients understand the different options available and make the best decision for their particular needs.

For today’s customer-focussed advisers, this should come as welcome news. Our previous research found that three-quarters of intermediaries say that achieving ‘quality customer outcomes’ is the most important aspect of their day to day role. That is an exciting statistic – but this goal can only be achieved if advisers are aware of all the different options available for their clients.

Notes:

Legal & General conducted research with analysts Censuswide. The data draws on a survey of 100 financial advisers/brokers who sell life insurance and 1006 consumers with life insurance. Research was carried out between 17th – 23rd November 2017.