Trusts: the knowledge

It’s important that you understand trusts so you can recommend the best possible solution for your clients. It also gives you more potential solutions to offer.

 

Trusts can even help you win new business because the trustees and witnesses that your clients call on to help arrange the trust may also be interested in buying business protection.

 

What is a trust?

Business protection is often (although not always) written under trust. In simple terms, a trust is a legal device by which one person, known as the settler, transfers assets to another person or people, known as the trustee(s), to look after on behalf of another person or group of people, known as the beneficiary(ies).

 

How can policies be set up?

Our business protection application form (Ref: W10264) can be used for all of the following policies:

• Joint life (including written in trust)
• Own life (including written in trust)
• Life of another (where the life assured is different to the policy owner)

 

Why put a business protection policy into trust?

A trust may be appropriate when the business does not have a separate legal personality. However, not all businesses have the same legal structure, therefore different types of trust are needed for different types of business. Bear in mind that the examples below may not apply to all clients.

 

Companies
Owned by shareholders. A company has a separate legal personality to its shareholders.

 

Partnerships (in England & Wales)
Owned by the partners and the partnership does not have a separate legal personality to its partners.

 

Limited Liability Partnerships (LLPs)
Owned by the partners and the LLP has a separate legal personality.

 

Key Person Protection

Where the employer is a company, the company may apply for a policy on the life of the employee so that the company is the policy owner. A trust is not generally required since any policy proceeds would belong to the company.

 

Partner/Director Share Protection

Where the partners/directors wish for the benefits of a policy to go to the other partners/directors rather than the business itself, it sometimes makes sense that each choose to write a policy under trust.

 

Business Loan Protection

Where the borrower is a company, the company may apply for a policy on the life of the individual concerned so that the company is the policy owner. A trust is not generally required since any proceeds will belong to the company. A lender may need such a policy to be assigned to them as security for the loan.