Who do you trust?

For those advisers that think trusts are a complicated and dusty old corner of the law, it is now time to take a fresh look at this area of the market.

And as the advice process in financial services comes under growing scrutiny, the appropriate use of trusts with protection policies will increasingly come under the spotlight.

There are a number of key reasons why a trust is a sensible option for use with a protection policy: °Ω Funds can be made available more quickly after the death of the life assured.

• A trust can be used to earmark funds for particular beneficiaries.

• Inheritance Tax (IHT) can be saved.

• The various benefits under the policy can be divided-up for different groups of beneficiaries.

Without a trust, these four bene fits could not be achieved.

Looking at the role of the adviser in 2005, and the advice that is being given as part of a compliant sale, perhaps the safest approach for all advisers to ask now is the question: why not use a trust? Rather than the other way around.

Only by documenting the reasons why a trust is inappropriate can an adviser start to protect against a possible future negligence claim.

This comment is not made lightly.

A bereaved family would not be pleased to find that some of the payout from their late loved one's life assurance policy has to be handed over to the taxman when advice at the outset about a simple trust could have avoided that.

Yet anecdotally, the evidence seems to suggest that very few policies across the industry are actually written in trust, maybe as few as 10%.

The case study below illustrates the difference writing a policy in trust can make.

Clear benefits The benefits for Susan and her family are clear.

Even if Susan did not have an IHT problem, the key benefit of the trust is that the trustees can give instructions to the life company about payment of the policy proceeds immediately after Susan's death.

Without using a trust, there would probably be a delay in paying out the funds for up to six months or more since the family will need to apply for probate, or confirmation in Scotland, before the life company would pay out the claim.

In the case study, Susan has a will.

This is unusual however.

It is not safe to assume all clients do have a will and recent research from Standard Life revealed 76% of UK adults do not have a will or have not reviewed their will following a change in life circumstances.

This is all the more reason to use trust which effectively writes a 'miniwill' around the policy, especially where the beneficiaries are children.

Some of the reasons for the relatively low use of trusts with protection policies include: °Ω They are difficult to set-up °Ω There could be an extra cost in setting-up the trust °Ω The adviser might not be confident about explaining how the trust works These concerns can be dealt with however, given the material and support from many life companies which is aimed at advisers.

Yes, an additional document will need to be signed by the client, but life companies generally make their standard forms of trust wording available free of charge.

The different forms of trust wordings might also come with explanatory notes giving guidance on completion of the trust document.

A frequently asked questions form might be available and sets out the answers to the most commonly asked questions about the trust, helping the adviser to build his knowledge while also providing information to the client.

Clients will usually only have to turn to a law firm for a trust (with the associated fees) where their needs are not met by using a life company trust to hold the policy.

How difficult is it to set up a trust? All the client needs to decide is the identity of the trustees and the beneficiaries.

In most cases this will be perfectly straightforward.

An added comfort for some clients lies in using a type of trust where the beneficiaries can be changed later by the trustees.

Equally, if the client is anxious that the bene ficiaries should not be changed, there is a trust that can perform this job Have I left it too late to talk to my client about trusts? No.

Most life company trusts can be used to accept existing protection policies as well as new policies about to be written.

In this way, the subject of trusts can form part of an annual review of the client's financial affairs.

Perhaps now is the time to introduce the subject of trusts for clients' protec tion policies.

It would be an important part of the added value offered by the advice process.

The alternative could be devastating for clients' families and potentially damaging to advisers' reputations.

When it comes to discussing trusts for protection policies, today the focus should be to ask 'why not' rather than 'why'.

Julie Hutchison is a senior solicitor at Standard Life

COVER notes

• Anecdotally the evidence seems to be that very few policies across the industry are actually written in trust, maybe as few as 10%.

• Many life companies provide material and support on trusts to help advisers under the subject.

• Most life company trusts can be used to accept existing protection policies as well as new policies about to be written.