Beneficiary nomination or trust? A practical guide for advisers
As you know, each client's situation is different and whether they go down the beneficiary nomination or trust journey depends on individual circumstances.
The following table will help with the conversation.
Beneficiary Nomination |
Trust |
|
Plan |
Available as part of the application process for a single own personal menu plan that includes life cover. | Available for single own, joint life first death and joint life second death personal menu plans either as part of the application process or for in force plans. |
Simplicity |
Part of the application process – no extra form needs to be completed. | Although, a trust form needs to be completed Royal London offers tools and guides. |
Speed of Payment |
On death any benefit is paid to the nominated beneficiary(ies) without the need to wait for probate. Up to 5 beneficiaries can be named as part of the application process. | On death any benefit is paid to the surviving trustees without the need to wait for probate. |
Flexibility |
Ability to update and change nominated beneficiaries at any time. Where the plan has more than one cover flexibility to nominate different beneficiary for each cover. Each year we will remind clients that they can change their beneficiaries. |
Flexibility depends on the type of trust. With an absolute trust clients cannot change the beneficiary. With a discretionary trust clients can inform the trustees of any changes, but the ultimate decision on who to pay to rests with the trustees. |
Inheritance Tax (IHT) |
In the event of death, the benefit is paid to the nominated beneficiary instead of the plan owner’s estate and is not included in it for IHT. Any terminal illness claim would be paid to the owner and if not spent before death would form part of the taxable estate. |
With Royal London’s protection trusts both the death and terminal illness don’t form part of the taxable estate for IHT. |
Control |
During their lifetime clients’ control who will receive the death benefit. On death this control ceases and the nominated beneficiary can deal with the benefits as they wish. Where the nominated beneficiary is a minor their parent/legal guardian will |
By using a discretionary trust, the trustees can control which beneficiaries receive the proceeds, and when, after the client has died. |
Ownership |
Beneficiary is only entitled on death and isn’t an owner of the plan. | Trustees, client normally being one, become the legal owners and in certain circumstances their agreement may be required (alterations to the plan). |
Disclaimer
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.