Making the most out of trusts

Kimberley Dondo   00:00 – 00:37
Hello and welcome back to Money Talks in association with Royal London. Today we are looking at why trusts are shifting from a routine administrative chore into a crucial planning conversation. From navigating modern blended families and beneficiary nominations to planning for life after a claim is paid. How can advisers make trust arrangements work harder? So, joining me today to discuss all of this is Gregor Sked from Royal London. Gregor, thank you for joining me again.

Gregor Sked   00:38 – 00:39
Thanks for having me again. Thank you.

Kimberley Dondo   00:40 – 00:48
So first I want to ask you, are trusts moving from an administration exercise to a planning conversation?

Gregor Sked   00:48 – 02:18
I'd say absolutely. I really liked how you positioned it at the beginning about an administrative chore, like kind of how it's viewed very much in the protection world. One of the themes that ran through the FCA is market study for anybody that's read it, you'll probably have noticed that something that was quite clear was that the FCA were highlighting the advisers are playing, and do play a really vital role in helping consumers navigate what can be a very complex area. And of course, trust can be quite a complex area at times. It was, I find anyway, really interesting to see in the findings that many people just don't consider their protection needs without some form of prompt or professional support.

So from my perspective, trusts are a really good example of how advice has evolved from a process discussion to something a bit more outcomes driven. And again, the FCA in their interim report, they did highlight that something they want to tackle is the claims experience with protection policies. And one of the ways that consumer experience at point of claim can be improved is to make sure that trusts are being used, to make sure that wills are being set up to make sure that powers of attorney are being looked at as well. And we are seeing that at Royal London as well, reflected in a lot of the adviser engagement that we're experiencing. So earlier this year, we delivered our protection and pensions trust webinar for the second-year running. We had over 1,000 attendees. And for me, that really tells me that advisers are really seeing trust as part of a broader planning discussion.

Kimberley Dondo   02:19 – 02:32
And there is no standard family or life circumstance, as we all know, no matter how much we plan for it. So how do trusts adapt to this?

Gregor Sked   02:33 – 03:14
Life and families change very quickly, don't they? One of the things that I do hear quite regularly when speaking to advisers is that they are having much more detailed conversations around things like trustee selection than they probably were 10-15 years ago. In the past, when we're thinking about trustee election, it might just be a close family member almost by default that they would have chosen today from what we're seeing as far as our helping clients think more carefully about who's got the right skills, the right judgment, the right understanding about family dynamics, and especially in blended families, that trustee choice can have quite a significant impact on how successfully that trust operates in the future.

Kimberley Dondo   03:14 – 03:22
And going off of that, has the rise of beneficiary nominations changed the trust conversation?

Gregor Sked   03:23 - 05:27
Yeah, you know, I would say it's a really good point bringing beneficiary nomination. I think it's made a significant difference. It's a real positive difference that we're seeing. I think it's firstly quite positive to see more insurers introducing beneficiary nomination options because if I'm honest, there has always been a sizable gap between the number of protection policies written and the number actually placed into trust. So, in the trust training sessions that I run, I often ask advisers what stops policies being written in trust more often. And the answers are usually consistent. It's time, it's a perception that they're complex, there's uncertainty around who to appoint as trustees, sometimes concerns over introducing another layer to the advice process.

Now, I don't think that changes the fact that trusts are a fantastic planning tool, because they are. They provide control. They provide flexibility. They can provide protection that in some circumstances, a beneficiary nomination option can't always replicate. But what beneficiary nomination does offer is a simpler route for clients whose maybe circumstances don't necessarily require some of the additional features of a trust. So for me, I would say the rise of beneficiary nomination is a positive development, not because they are replacing but more because they're helping more clients actively direct where the policy proceeds should go. I suppose if the alternative is a policy with no trust or no nomination, then having a straightforward nomination option can be a really valuable step forward, hope to reduce the likelihood of the benefits from that policy fallen back into the estate. And I think one of the things I've actually found is that beneficiary nominations often start a wider conversation. So once the clients begin to think about who they should be receiving the money, it can naturally lead into discussion around trust and estate planning. And I suppose even from there, whether additional control or protection might be approved for it. So definitely, I wouldn't say they're competing with trust. I think in many cases, they actually help increase engagement with the entire planning process.

Kimberley Dondo   05:28 – 05:39
And sticking around that issue of who kind of benefits from the trust, are advisers thinking about what happens after the claim is paid?

Gregor Sked   05:40 – 07:09
Yeah, I think we're seeing that as a much more prominent consideration. Again, thinking back to the FCA's, it was an interim report, but their FCA's markets study findings. One of the observations was that the actions that are taken at point of sale, like putting pauses into trust, they can make a significant difference to client outcomes when a claim eventually happens. I do think the conversation is becoming a bit more broad. Rather than just thinking about what happens at claim, the claim is paid, we are seeing more advisers, I suppose, increasingly thinking about, well, what happens once the money arrives? How quickly can beneficiaries access it?  Is it going to end up where the client intended? And I suppose even from there as well, are there any unintended consequences that could affect the value that's passed on to family?

So, against the backdrop of this change in estate planning landscape, it has certainly brought a lot more renewed focus to what are often relatively simple planning actions. So, putting a life policy into trust, for example, can help ensure the proceeds are paid outside of the estates and into the hands of the intended beneficiaries quickly and efficiently. For many clients, it can be one of the more straightforward steps that they can take. So I do think advisers are looking much further than just beyond the claim itself. That conversation is increasingly about not just getting money paid, but making sure it goes to the right people in the right way and achieves the outcome that the client wanted.

Kimberley Dondo   07:09 – 07:18
And finally, is trust planning becoming a bigger opportunity within existing client banks?

Gregor Sked   07:19 – 08:26
It's a good question. I think I always talk about opportunities in the protection plan space and in the trust plan space, there are lots of opportunities as well. Big opportunity there to review existing clients, whether they are clients already have protection or maybe now in a position to look at their protection needs. So again, going back to that, the FCA's report and findings, one of the headline findings was the existence of this significant protection gap with a lot of consumers either not having considered their protection needs or just not reviewing any existing arrangements enough from a regularity perspective. You know, advisers already have relationships with clients and I think that might actually be a really good starting point is looking at existing client banks, revisiting protection, revisiting any existing trust arrangements, because often if there is a trust in place, it's not going to be the trust itself that's wrong. The issue is that, as we said earlier, life has moved on. The trustees might not be appropriate now, maybe beneficiaries have changed, maybe the letter of wishes, if there is one, is out of date, so regular reviews do help to make sure that the arrangements that we're putting in place still stay much aligned to the client's objectives.

Kimberley Dondo   08:27 – 09:08
Right. Well, thank you for joining me today and demystifying trusts a little bit more. As family structures and tax considerations evolve, trust planning is clearly far more than just paperwork at point of sale, as you've said. It is an ongoing conversation that delivers that delivers genuine peace of mind. So, for helpful guides, tools and further resources on trust planning, head over to the Royal London website for more information. And hopefully if you enjoyed this episode, please subscribe and join us next time on Money Talks. But thank you so much for being with me today, Gregor.

Gregor Sked   09:09 – 09:10
Thanks, Kimberley.