Join Gregor Sked and Shelley Read discuss how trusts both demonstrate quality advice and help get the right money into the right hands at the right time.
Hello – and welcome to our podcast. My name is Gregor Sked – and in this session I’m joined by Shelley Read. Today we’re going to be looking at trusts and, really, why you should be considering putting your client’s protection policies into trust, what does this mean for them and what are the advantages to you and your business?
So, according to Swiss Re’s 2021 Term and Health Watch report, looking at activity in 2020, we saw the number of Level Term Policies written into trust increase to 14%– which was up from 11% the previous year, and the number of Level Term Policies with Critical Illness Cover again being written into trust increase to 16% - so, up from 12%.
Now, Shelley, this is obviously great news to hear that more protection policies are being written into trust, so hopefully this is a strong indicator that advisers are feeling more confident about bringing trusts into their protection conversations.
But for advisers who may be unsure about how to talk trusts with clients, what would you say are the main reasons that advisers might want to consider bringing trusts into their sales process?
So, it’s definitely great news that we’re seeing more policies written into trust but there is still so much more room to grow the trust conversation.
But to address your question Gregor, I think we need to talk about why trusts should be a key thing to talk to clients about, and to do that we need to know why a client would benefit from a trust being used.
And one of my favourite lines in our industry is right money, right hands, right time. It’s a phrase that the industry has used for the last 20 or so years but it really does nail the reasons that a trust can help a client.
So, right money – what we’re talking about here is writing a policy in trust, and when a claim sadly has to be made, the money paid out is outside of the deceased person’s estate therefore mitigating the IHT liability.
Right hands – because beneficiaries can be nominated to receive the money from the trust, it means the proceeds will go to the right people.
And, finally, right time, so, when a claim needs to be made on a protection policy that’s written under trust, there’s no need to have a Grant of Probate (or a Certificate of Confirmation if you’re in Scotland) which, we know, can be a lengthy process to go through.
So, definitely clear advantages there for why clients would consider, and really should consider using trusts. But for advisers listening today whom writing policies in trust doesn’t form part of their normal sales process, what are some of the benefits to their business?
I think first and foremost talking about trusts demonstrates higher quality advice. For advisers who do talk about trusts, I think this puts the advice they give head and shoulders above the majority of the market. They’re demonstrating holistic, robust financial advice which means should the worst happen clients and their families receive the best possible outcome.
And, naturally if we’re looking at building trusts into a protection conversation we might see the result being an ever so slightly longer process. Do you think there's risks to the client’s engagement throughout the process?
There’s no doubt talking to clients about putting their protection policies in trust will necessitate a little longer meeting, but perhaps that’s not a bad thing? We feel this fundamental discussion not only puts your advice ahead but will also aid better client engagement. Trust advice will educate, inform and make the client aware of the many advantages they just wouldn’t have, in the main, known about. I’m confident this will result in better client engagement, professional respect and help develop a long-term client relationship.
Of course, trusts can also create new client opportunities too. So, when we’re placing policies in trust, we’re going to tend to need three key groups of people. We need the settlor (or the donor as they’re sometimes referred to as). This is the person (or maybe people) who are setting up the trust, and we need the trustees as well (or maybe just trustee), so the people responsible for looking after assets that are going in the trust. And of course we need to know who the beneficiaries are, so who is going to benefit from the assets held within the trust? So really, we’re going to be dealing with a few different people along the way, why not look to the clients trustees or even their beneficiaries as potential clients in the future?
Chances are, if a client has maybe given you the name of two or three trustees, they’ll have spoken to them about being a trustee which might get them thinking about their own situation – do they have protection now? Was a discussion about the importance of trusts ever had? You never know it might be a fantastic door opener.
Absolutely! And another extended benefit of the client being more engaged is that the chance of the policy staying in force for the duration of the term increases. Broadly speaking policies in trust have a much higher persistency rate than those not in trust. This may be due to the client having a much better understanding of the importance of their policies maybe, and the involvement of their chosen trustees further endorses this principal part of their family’s protection plans.
Thank you Shelley. I think there’s some powerful reasons there why trusts shouldn’t be overlooked within the protection conversation. And hopefully that’s got you thinking about where trusts could fit into your sales process too.
So, that’s it for this week – thanks for tuning in!