Split
Trust

An independent review by our team of experts

They can be established so that if the policyholder, who is also the settlor, dies, the life insurance pay out is distributed via their trust.

However, if they suffer a critical illness and live, then they will retain the benefit from the critical illness policy.

The first trust would contain the terminal illness or death benefits held by the trustees for beneficiaries other than the settlor.

An exception to this rule is if the policy is a joint life, first death policy, where a joint settlor may benefit from the gifted benefits, if the joint settlors elected for the survivorship option, to apply when the trust was established and the surviving settlor survives by 30 days following the first death.

These benefits are known as the gifted benefits.

The second trust would deal with any income protection benefits and any benefits paid in the event of critical illness or total permanent disability. These would be held for the absolute benefit of the settlor.

These benefits are known as retained benefits.

The settlor can choose to have the retained (critical illness) benefits treated as gifted benefits when the trust is set up, but in doing so, they give up all rights of access to these benefits in the future.

NOTE:

We would highly recommend reading the 'expert verdict' section of this review to make an informed decision.

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The Pros

> Option to change who will actually benefit from the trust

> Decisions about who will benefit can be changed

> A client can keep the right to receive critical illness and terminal illness benefits, whilst ensuring the benefits payable on their death are dealt with efficiently

> It can help your client to reduce any potential Inheritance Tax (IHT)

The Cons

> The trust may be subject to entry, periodic and exit charges

Can a settlor be a trustee?

Yes.

Once you put something into a trust, it's owned by the trustees. So if you want to keep some control over what happens to the contents of the trust, you should appoint yourself as a trustee.

For example, if you put a life protection policy into trust, and you want to increase the cover later on, this can only be done with agreement from the trustees.

Will inheritance tax (IHT) apply?

Maybe.

It depends on whether your gift is exempt or not.

Premiums you pay for a life and critical illness insurance plan held in trust will usually be exempt, because the premiums are paid from your normal income.

Exempt gifts aren’t subject to inheritance tax (IHT).

Putting an existing policy into trust may not be exempt, but the value of the policy will be minimal (unless you are critically ill or terminally ill at the time).

To make sure you understand how IHT will apply to the gift, you should get legal advice before you set up a split trust.

Expert assessment of a split trust

A split trust can be a useful solution, but whether it is applicable has to be determined on a case-by-case basis, as does the case for using trusts in general.

If you already have a trust structure in place and would like a Second Opinion - or, if you are wondering whether the utilisation of a trust could be of benefit to you, contact us.

NOTE: Because trusts are so unique to each individual, it’s impossible to give them a rating for their overall performance and suitability. Therefore these reviews do not come with a star rating.

The information in this material is intended for the recipient’s background information and use only. It is provided in good faith and without any warranty or, representation as to accuracy or completeness. Information and opinions presented in this material have been obtained or derived from sources believed by AES to be reliable and AES has reasonable grounds to believe that all factual information herein is true as at the date of issue. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorised reproduction or transmitting of this material is strictly prohibited. AES accepts no responsibility for loss arising from the use of the information contained herein.

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RISKS

Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investment, when redeemed, may be worth more or less than the capital invested. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful. For further information, please click here.

A split trust effectively combines two separate trusts in one.

A split trust does exactly what it says - it splits out the different types of cover within a single policy.

It allows a settlor to retain the benefits of an insurance policy pay out under certain specific conditions.

Split trusts are common in the case of life and critical illness policies.

Split
Trust

An independent review by our team of experts

REVIEW SUMMARY