Why choose a trust?
There are various reasons why an individual might wish to place their plan into a trust or invest through a trust into a plan. The most common reasons are listed below.
To avoid Isle of Man Probate
Any polices issued in the Isle of Man are classed as Isle of Man assets and Isle of Man Probate will be required on the death of the last policy holder before either proceeds can be paid out or the policy is re-registered into the name of the new owner. Grant of Probate/Letters of Administration refers to the situation where, on a person’s death, the court must confirm that the executors are entitled to deal with the deceased’s estate before any assets can be distributed.
If a policy is placed into trust, legal ownership lies with the trustees and Isle of Man Probate will not be required on the settlor’s death.
As long as there is a surviving trustee, proceeds of the policy can therefore be paid to the beneficiaries without delay.
To control family assets
Trusts have an advantage over an outright gift as the donor can exercise a degree of control and can still have access to capital in some limited cases. Many investors wish to set aside assets for the future benefit of members of their family whilst restricting beneficiaries’ access until it is thought appropriate that those assets should be distributed. If the policy is written in a discretionary trust, the trustees can be instructed to hold the policy until the beneficiaries reach a certain age or for future children or grandchildren.
Inheritance Tax planning for UK domiciled individuals
For individuals who are domiciled or deemed domiciled in the UK, Inheritance Tax applies to their worldwide assets and would therefore include Isle of Man investments. By arranging for the policy to be held under trust, all or part of the proceeds from the policy may be removed from the settlor’s estate for Inheritance Tax purposes depending upon the type of trust chosen.
Inheritance Tax planning for non-UK domiciled individuals
An individual who has been a long term resident of the UK for income tax purposes but is not UK domiciled or deemed UK domiciled may wish to consider the establishment of an Excluded Property Trust in which to hold their policy.
This is because non-UK domiciled individuals who are likely to remain in the UK in the medium to long term can mitigate future liability to Inheritance Tax on non-UK assets if those assets are placed in trust prior to becoming resident in the UK for 15 out of the last 20 tax years (i.e. whilst the individual is still non UK domiciled).