The Financial Group
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THE EDUCATION SECTION January 2012 Every month we look at a particular financial topic in a little more detail. This month it is Trusts. ____________________________ What are they? A trust is a way of transferring ownership of your assets - such as life cover policies. However, trusts are usually set up on an irrevocable basis, which means they cannot be torn up and rewritten like a will. You can however, under certain circumstances, amend beneficiaries. Who is involved? There are three sets of people involved in a trust: The settlor – that’s you: the person who sets up the trust. The trustees these are the people you entrust to administer the trust and look after the interests of the beneficiaries. It requires a degree of responsibility and the settlor would usually be one of the trustees. The beneficiaries – these are the people who will benefit from the trust. When setting up a trust you need to choose these people carefully. What is the benefit of putting life insurance policies in trust? The key & most important point is that the right people get the right money at the right time. In the event of your death, your life cover can be distributed more quickly to your beneficiaries, rather than going into your estate, where it could not be distributed until probate had been granted. (This is as long as you appoint at least one additional trustee, who survives you and so can administer the trust after your death.) You could drastically reduce potential IHT, yet still keep some control. This is because the proceeds of your policy in trust will not normally form part of your estate. If the intended beneficiary is a minor or someone unable to look after his or her own finances, a trust will help ensure that he or she will receive control of the funds only when the time is right. With ‘Flexible Power of Appointment Trusts’, the trustees have some flexibility to change the beneficiaries if circumstances change in the future. Are there any disadvantages to putting a policy in trust? You must have the correct type of trust to make sure that it will do what you want it to do. You must make sure that the trust is written correctly otherwise benefits such as critical illness or termonal illness could go to the beneficiaries instead of you. Once a trust has been set up, it can be difficult to change, especially if you’re no longer in contact with one or more of the trustees. In certain unusual circumstances, the trust could become subject to IHT at up to 6%. For further information on this issue, please seek specialist advice from us. What if you have life policies that you think should have been placed in trust? It’s not too late….did you know that existing life policies can be placed in trust with the completion of just a few simple forms? If you would like to discuss any existing life policies to see if they should be placed in trust, do not hesitate to contact us for further advice. The value of any tax advantages will depend on your personal circumstances which may be subject to change in the future. Remember tax rules can also change. The Financial Conduct Authority does not regulate Taxation Advice.