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Protecting protection

Helen Pow looks at why only a small proportion of advisers are writing life business under trust

New research from Standard Life shows that 82 per cent of life insurance policies sold are not written under trust.

The survey shows that only 10 per cent of advisers put most of their protection business in trust while 60 per cent say they put less than half of their protection business in trust.

Standard Life protection marketing manager Mick James says: “For the vast majority of clients, the conversation is not even happening. At the end of the process, the customer is tired so many intermediaries do not bring it up at all. It is down to intermediaries and how they position it and sell it to the customer. If you do not sell it well, people will not understand the importance of it.”

Lifesearch head of protection Kevin Carr says there are major benefits in writing policies under trusts, with the potential avoidance of inheritance tax.

He says: “Your life insurance policy is likely to push you over the £285,000 inheri-tance tax allowance but with a trust the person you name as the beneficiary imme-diately takes ownership of the asset and because you do not own it any more, it is not added to your estate.”

Scottish Widows senior technical manager Anne Young points out that in the process of reducing inheritance tax, you could increase your beneficiary’s liability and says: “The trustee could lend part of the money to the beneficiary, which does not increase the value of the estate because it is a loan that is repayable. The money is available immediately to the trustee.”

Another advantage of placing life cover in trust is that an estate can be settled within days rather than having to wait for HM Revenue and Customs to assess the estate.

With their advantages, why are trusts not used more widely by IFAs?

Carr says: “It means extra work for the adviser at the post-sale stage. It is an afterthought which is seen as a pain for advisers.”

Highclere Financial Services partner Alan Lakey believes many clients do not realise the advantages. He says: “We live in an instant society. If something takes 10 minutes, people say yes, if it takes an hour and 10 minutes, they say no and the forms can be painful. Trusts are very, very involved.” Young considers that many people do not realise they have an inheritance tax problem but property values mean many people will be over the £285,000 threshold.

James says: “Some intermediaries do not advise writing policies under trust because they are worried about being sued but if you do not know enough about it, you should introduce the client to a solicitor. It is not good financial advice and definitely not good tax planning for the individual.”

Carr says websites and supermarkets selling life insurance will not mention trusts at all or perhaps give just basic information.

He says: “Sainsbury’s says the policy can be written in trust. They need to say how and why.”

Sainsbury’s Bank declined to comment on the issue but Virgin Money, another direct seller, says its clients are given information on trusts.

Virgin Money PR manager John Franklin says: “When we send out the information pack, we send out information about putting it in trust. We give customers as much information as we feel they need.”

James says supermarket brands are often criticised but many are providing clients with more information than some IFAs.

Young suggests that the Government’s changes to trusts this year could be another reason why customers are hesitant.

She says: “Due to the rules introduced by Gordon Brown this year, trusts are now subject to periodic charges of 6 per cent each 10-year anniversary.

“The value of the assets is very small when the individual is alive but when they die or get sick it is much bigger.”

But Standard Life estate planning specialist Julie Hutchison says for most people this charge would have no effect.

James believes that a solution could be in making placing a life policy in trust be a regulated process similar to pension term assurance, which is automatically written under trust.

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