You don't need to have been in the protection industry for long to have had even the slightest exposure to Trusts. It's a love-hate relationship for many in the industry. But they're one of the most important financial planning tools at your fingertips.
Why put protection plans into trust?
Despite their complexity, writing protection in trust should, in most situations, be the final step to strengthen your protection advice, the pièce de resistance if you wish.
Firstly, when a policy is placed in Trust, it keeps it outside of the client's estate, mitigating a potential Inheritance Tax (IHT) charge on death.
Secondly, Trusts give your clients more control over their assets, putting them in the driving seat. They're able to appoint the Trustees and Beneficiaries to ensure that the policy proceeds aren't just used to repay debts, as what the sum assured is used for will generally all be laid out in the Trust Deed.
Finally, by using a Trust the sum assured is paid out as quickly as possible without having to wait for Probate (if you live in England, Wales, or Northern Ireland) or Confirmation (if you live in Scotland) to be granted; a lengthy process that on average takes 9 months1 to go through.
So why are so few protection policies currently in trust? Well, I think the big challenge comes down to complexity.
A simpler solution?
What if there was an alternative to using a trust for some of the more straightforward cases you're dealing with? An alternative that still means that we can achieve the good customer outcomes discussed above.
Well, Beneficiary Nomination is one solution that ticks those boxes by providing a simpler alternative to using a trust.
When applying for a Royal London Individual Life or Life or Critical Illness policy, if eligible, you'll be asked "who should we pay?" followed by three options; ‘beneficiaries', ‘a trust' or ‘your client', essentially meaning we'll pay the proceeds into their estate.
Your clients can nominate up to five beneficiaries to receive the benefits from their policy on death. The proceeds are outside the life assured's estate so we're again able to mitigate a potential IHT charge, and there's no need for probate or the completion of a trust form.
Royal London will then pay any benefit from the policy to their nominated beneficiary, once the customer passes away, and we see a full death certificate.
Doing the right thing
The new Consumer Duty rules set out a framework that means providers and adviser firms of all sizes need to measure whether they're delivering good outcomes for their customers and clients across several areas. Surely then it's beneficial that you're talking about either Trusts or Beneficiary Nomination with clients?
Visit our website to find out more about the benefits of Beneficiary Nomination or Royal London Trusts, and how we can make the process easy for you and your clients.
