Taxation and trusts

Published  17 March 2021
   5 min read

Dealing with taxation and trusts. It’s the sort of thinking that gets you noticed.

In putting together a recommendation for your clients you should always bear in mind any tax consequences.

Whether it's income tax, capital gains tax, inheritance tax or corporation tax. It will all depend on the exact arrangement and the type of business your clients own - a company, partnership or sole trader.

Trusts can help make sure the money from a client’s plan ends up in the right hands at the right time, quickly and tax efficiently.

There are 2 main benefits of putting a plan in trust:

Quicker payment of claims

If you put a plan in trust, we'll be able to pay a claim more quickly. If someone dies and their plan isn't in trust, their representatives will have to get a Grant of Representation before they can deal with the plan. This can take several months. Putting a plan in trust can avoid this delay.

The plan proceeds may be free of inheritance tax

At the moment, inheritance tax is payable at 40% on any part of an estate valued over £325,000. But you can use a trust to gift some or all of the benefits on the plan to other people. The gifted benefits would no longer be part of your client's estate if they die, which means those benefits wouldn't be subject to inheritance tax.

There are 3 main roles involved in a trust:

The settlor

The settlor is the person who sets up the trust. They'll appoint trustees and decide who the beneficiaries will be. They'll also provide the property that will be held by the trust.

The trustees

The trustees will manage the trust fund for the beneficiaries. This includes making any claim under the protection plan and, if appropriate, investing any money paid out from that claim.

The beneficiaries

The beneficiaries will receive the trust fund in line with the settlor's wishes.

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