Jennifer Gilchrist, senior product development manager at Scottish Provident, explains the benefits of writing a life policy in trust.
Protection is predicted to be the biggest growth market over the next few months, according to a recent adviser survey. How then can advisers differentiate themselves from the rest of the market and make sure they have the competitive edge over their rivals?
One way is to talk to clients about the benefits of putting a life policy in trust. It is something that will not cost clients any money and will mean that, when they die, the right money will end up in the right hands at the right time.
Dealing with money issues after the death of a loved one will be extremely distressing. It certainly is not the time when someone will want to deal with complicated financial issues. But probate is a complex and time-consuming process and, for the average estate, can take up to 12 months to complete.
Why writing life policies in trust is beneficial to client and adviser
There are two main benefits of putting a life policy in trust.
Firstly, the provider will be able to pay a claim more quickly as they will just require a death certificate before paying out which means there is no wait for probate. If someone dies and their plan is not in trust, their representatives will have to obtain a grant of representation before they can deal with the policy.
Secondly, the policy may be free of inheritance tax (IHT). At the moment, IHT is payable at 40% on any part of an estate valued over £325,000 (2011/12). But a trust can be used to gift some or all of the benefits on the policy to other people.
The gifted benefits would no longer be part of your client’s estate if they die, which means those benefits would not be subject to inheritance tax. Without a trust in place, up to £4 in every £10 could end up in the taxman’s pocket rather than that of the people who need it most.
Writing a life policy in trust may seem like an obvious step to take but only around 6% of protection policies in the UK are written in trust. This low take-up may be dependent on several factors.
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