AGEAS PROTECT FINAL SLIDES

Learning Outcomes• Understand basic features of trusts • Identify benefits of putting life insurance into trust • Recognise the difference between bare, discretionary and split trusts •

Trusts and life insurance

• Protection Challenges 2014

• Key parties and responsibilities

• Right money, right hands, right time

• Types of Trust

• Common queries

• Ageas Protect and trusts

Learning Outcomes

• Understand basic features of trusts

• Identify benefits of putting life insurance into trust

• Recognise the difference between bare, discretionary

and split trusts

• Understand the responsibilities of the parties involved

• Have an overview of the Ageas online trust process

Protection Challenges 2014

• Price driven market resulting in lack of perceived

value around advice process

• Lack of customer loyalty & high lapse rate

• Lack of customer referrals

• Regulatory requirements to demonstrate good

customer outcomes

Potential Solution -Trust Planning

What is a Trust?

• A formal transfer of property

• Any type of property

- Shares

- Buildings

- Cash

- Life insurance policies

• For the benefit of another person or people

• Similar to a will but specific to an asset or assets

• A way of choosing who will receive the benefit of a

certain asset, without giving them full and immediate

control

• Protection Challenges 2014

• Key parties and responsibilities

• Right money, right hands, right time

• Types of Trust

• Common queries

• Ageas Protect and trusts

Beneficiaries

Trusts – Key parties involved

Trustees

The trustees are the legal owners of the property held in a trust

Their role is to:

• deal with the assets according the settlor’s wishes

• manage the trust on a day-to-day basis

• decide how to invest or use the trust’s assets

If the trustees change, the trust can still continue, but there must always be at least one trustee.

* Their main duties are set out in Section 1, Trustee Act 2000

Responsibilities – the Trustees

Trustees

The person/people who will receive the assets from the trust

There might be more than one beneficiary, such as a whole family or defined group of people They may benefit from:

held in a trust

reach a certain age

Responsibilities – the Beneficiaries

Beneficiaries

• Protection Challenges 2014

• Key parties and responsibilities

• Right money, right hands, right time

• Types of Trust

• Common queries

• Ageas Protect and trusts

Why use Trusts? – right money, right hands, right time………….

• Its estimated the government raised £3.3 billion in IHT

revenue in 2013/14

• The inheritance tax threshold is currently £325,000

• Frozen until at least 2017/18

• Any assets left to a spouse or registered civil partner,

provided they’re UK-domiciled, are exempt from

inheritance tax.

• A spouse’s inheritance tax allowance is increased by

their partner’s unused allowance

Right money

• However….

• Life assured is single

• Jointly-owned by an unmarried couple

• Jointly-owned and the couple die together or soon after each another

• Could potentially be IHT to pay at 40% on some or all of the life cover

Right money

Right hands - Intestacy laws

Estate value Have a lawful

spouse with no surviving relations

Spouse and children Spouse no children

but with surviving relations

Not married + children Not married with relatives Not married with no

relatives

£250,000 or

less Spouse gets everything Spouse gets everything Spouse gets everything Partner receives nothing Partner receives nothing The CrownMore than

£250,000 Spouse gets everything 1 Spouse gets:£250,000 + has a life

interest only on half of the remaining sum (it must be invested and they can only spend the interest earned

on it)

2 Children get:

Anything over £250,000 immediately + their remaining parent’s share upon the parent’s death

Spouse gets everything Children receive

everything

If the children die before the parent, then the grandchildren would inherit their share

The estate is shared equally amongst the surviving relatives in order of HMRC beneficiary listed priority

Parents /Siblings

Children receive everything

If the children die before the parent, then the grandchildren inherit their share

The estate is shared equally amongst the surviving relatives in order of HMRC beneficiary listed priority

The Crown

• Spouse potentially gets less of the life cover than

anticipated.

• No provision for an unmarried partner

• Unintended recipients which could potentially cause family disputes

• Can leave undesirably large sums of money to children

who can access when they become adults

Right hands

• Probate is a legal document Receipt of probate

is the first step in the legal process of

administering the estate of a deceased person

about six weeks but often takes significantly

longer

• If a life assurance plan is in trust, it is no longer

part of the settlor’s estate so therefore probate is not required as the funds are paid directly to the trustees to distribute the funds

Right time

• Protection Challenges 2014

• Key parties and responsibilities

• Right money, right hands, right time

• Types of Trust

• Common queries

• Ageas Protect and trusts

Types of trust

Settlor interested trust

Settlor interested trust

Spousal bypass trust

Spousal bypass trust Reversionary trust

trust

Interest in possession

trust

Discretionary

trust Discretionary

trust

Bare trust

- Simple, plain or absolute

–Who the beneficiaries are

–What they will receive

of all other trustees

Bare trust

Discretionary trust

– The beneficiaries can be changed (add or remove)

– The trustees can be changed (add or remove) – must be

at least one other than the settlor(s)

– The gift can be spread amongst various people in different proportions

• Trustees may be able to decide:

– how much income and or capital is paid out, if any – which beneficiary to make payments to

– how often the payments are made – what, if any, conditions to impose on the recipients

Discretionary

trust

Discretionary

trust

Split trust

• Does exactly what it says - it splits out the different types of cover within a single policy

• Normally only used with a life and critical illness policy

• Any claim from the policy whist client is alive (critical or terminal illness cover) will be paid to them

• Also known as retained or gifted benefits

• Other retained benefits are likely to be things like Income Protection, Optional Unemployment; covers that are designed

to help protect the settlor’s lifestyle

Split trust

• Protection Challenges 2014

• Key parties and responsibilities

• Right money, right hands, right time

• Types of Trust

• Common queries

• Ageas Protect and trusts

How do I ensure the money goes to the right people?

• The proceeds are automatically paid to the trustees

• The trustees decide who receives the money and in what proportion

• The trust form will have a list of potential beneficiaries to whom the Trustees will distribute the funds

• The default list will include…

1 Any widow, widower of the Settlor

2 Any surviving Civil Partner of the Settlor immediately prior to the death of the life assured (providing they are not also a Settlor)

3 Any Children and any other direct descendants of the Settlor or Settlor(s)

4 The parents, brothers, sisters of the Settlor(s) and the Children of the other direct descendants of these persons

5 Any person(s) entitled under the will or intestacy of the Settlor(s)

6 Any person(s) or charity other than the Settlor(s) nominated as a beneficiary by the Settlor(s) by notice in writing to the Trustees

How do I complete an Expression of Wishes?

Who should the trustees be ?

Trustees

• Similar age to the plan owners ?

• Accountant, solicitor of financial adviser ?

• A brother, sister or close family member ?

• Locally based ?

• Financially astute ?

• Someone you can trust !

• Will need full name and address of all trustees

Periodic and exit charges

• With any non-pension discretionary trust, the trust itself can be subject to inheritance tax periodic and exit charges

• Periodic charges are made if a trust has valuable assets on a 10-year anniversary

• While the employee is alive and well, the value of the trust asset (the policy) will be negligible

So any charges are unlikely to happen,

• If the life assured dies and the claim is paid into the trust just before a 10th anniversary and

there is not enough time to pay the assets out to the beneficiaries a periodic charge will arise

on the value of those assets in excess of the current nil rate band at a rate of up to 6%

• If the assets remain in the trust past a 10-year anniversary, there could be a potential exit charge when paid out This will be a proportion of the last periodic charge due, again up to a maximum of 6%

• However, where assets are paid out as soon as possible following a claim, there's unlikely to

be any significant exit charge And there won't be any exit charge if the assets are paid out within three months of a 10-year anniversary

How does the Rysaffe principle work ?

• On each 10 th anniversary of a trust’s creation, it is assessed for

inheritance tax (IHT) There will be a 10-yearly tax charge if the value

of the trust fund immediately before each 10 th anniversary is more than the prevailing nil rate band (NRB)

• A 10-yearly charge could arise if a claim arose and the proceeds were still held in trust immediately before the 10th anniversary

• The Rysaffe strategy works by creating a series of smaller trusts rather than one large single trust - where separate trusts are executed on separate dates they are treated as unrelated transactions.

However…

• An updated HMRC consultation published 6 th June 2014 found the

‘splitting’ between trusts unacceptable.

What are the Relevant Life trust requirements ?

Relevant life policies must be written in trust

•The trust benefit must be paid to an individual or charity

rather than the employer funding the premiums

•We use a split trust so the employee can retain terminal

illness benefits

• Employer AND Employee will both automatically be

trustees plus another

•Must be in trust from outset, but with Ageas Protect you can

do it using our:

- Online split trust declaration form, or

- Paper split trust declaration form

•No advice will be given but assistance will be provided in

completing the Trust form

• Protection Challenges 2014

• Key parties and responsibilities

• Right money, right hands, right time

• Types of Trust

• Common queries

We give advisers the tools to tailor the right trust to clients’ expectations…

• Guide to trusts

• Expression of Wishes form

• Split Trust form

• Bare trust form

• Discretionary Trust form

• Online system

Ageas Protect and trusts

• No signature required

• Policyholder is automatically selected as first trustee

• There can be an unlimited amount of Trustees per Trust.

• We note the policy is under trust so there is nothing to be sent in to Ageas

• The trust cannot be partially completed online therefore reduces errors.

• If trust needs to be changed, client needs to complete a paper form and send in.

On-line trusts

Can be completed at any point during the application process

Online trust journey

Online trust journey

Retained benefits as discussed earlier

Online trust journey

Online trust journey

Settlor can be first trustee if required

Online trust journey

Address auto-search – this MUST be completed to continue.

Minimum of one extra trustee required.

Online trust journey

Minimum of one potential beneficiary required

Online trust journey

PDF trust declaration can be either e-mailed

or posted to client

Learning Outcomes

• Understand basic features of trusts

• Identify benefits of putting life insurance into trust

• Recognise the difference between bare, discretionary

and split trusts

• Understand the responsibilities of the parties involved

• Have an overview of the Ageas online trust process

• Trusts can be simple

• Trust process can be straight forward

• Trusts can add value back into your protection

advice process

- Assists in building long-term relationship with clients

- Create referral opportunities

- Provides good customer outcomes

Summary

Thank you