The PPP - Trusts

Trusts

This blog is all about the newest episode of the Practical Protection Podcast. It’s now episode 5 of season 6, and this time Kathryn is joined by Roy McLoughlin and special guest Ruth Gilbert from Insuring Change, to discuss trusts.

A quick jargon summary to help:

• Trusts – a legal document that tells the insurer who will be responsible for paying a claim on your insurance policy, to the person that you want them to.
• Trusttee – the person(s) that has legal ownership of your insurance policy and who will arrange the claim payout to go where it is intended.
• Beneficiary – the person(s) that you want to receive the money from your insurance policy at the point of a claim.

   

Ruth completed a law degree and developed herself as the go to expert on Trusts, and has since worked within the insurance industry for all of her adult life. 

Trusts are a key part of a recommendation of protection insurance, but there is a lot to know about them and they can sometimes be a little bit confusing. There are many different types of Trusts and they can be used in a range of different ways. For example, it could be that you have a trust in place to arrange where a terminal illness payout might go, or for a policy being used for IHT and gift planning.

Kathryn explains that one of the reasons why trusts can be complicated is because trusts can vary from insurer to insurer. Some insurers might require you to complete an absolute Trust, whereas others might make use of a payout planner or a split Trust.

Ruth then goes on to explain what this means, and gives a basic guide to the different types of Trusts. Some of the terminology used can mean the same thing and some words might actually refer to a number of things. For instance, an absolute Trust and a bare Trust are usually the same thing. With this type of Trust, you choose who will be the Trustees and Beneficiaries and that’s that, no changes can be made.

Discretionary Trusts and flexible Trusts often get mixed up. A discretionary Trust doesn’t require a Beneficiary to be chosen straight away, this can be decided at a later date and allows for flexibility. A flexible Trust will usually have the Beneficiaries chosen from day one. Ruth also explains why she thinks this is often the best option, and it can be easier for the Trustees if it comes to making a claim on the policy, and the process shouldn’t be quite as long. Life can change and you can never be too sure about what the future will bring, which is why flexibility can be good.

For those who might not be sure, a Trustee is a person who is nominated to be responsible for your protection insurance policy. They will have legal rights to the policy and should make sure that it pays out to the right beneficiaries. Choosing a Trustee is really important, as it really does have to be somebody that you can trust immensely. As the policyholder, you will automatically be a Trustee, and often people might choose a partner or sibling as a second Trustee. A Beneficiary is then the person who would benefit from the policy.

Trusts for joint life policies can be difficult too but aren’t quite as crucial, though they can sometimes still be important. Ruth explains why, talks about some of the implications of having this type of policy in Trust and also mentions some of the benefits of having a joint life policy in place.

Payout planners can also be good options, and are quite self explanatory. This is a way of planning who the policy will payout too. In the policy, you simply say who is to be paid whilst you are actually completing the insurance application. A Trust can be done at any point through the policy, but a payout planner is done at the start of a policy, it is super quick and simple.

Consumer duty might increase the number of policies going into Trust, something that will be highly welcome. Work can be done from insurers and advisers to help this number increase, and Ruth gives examples of how. A key thing that is discussed is how important Trusts are for people that are not married, but want the claim to pay to each other. There are so many things that can go wrong if a Trust isn’t in place and in a future podcast episode we will be talking with someone who unfortunately experienced this.

To catch up with this episode, you can listen below or on the Practical Protection Podcast website.

Kathryn will be joined by Matt Rann for the next episode to talk about high net worth and higher value protection insurance policies.

Check out the Practical Protection Podcast website to listen to more episodes.

Remember, if you have listened to this as part of your work, you can claim a CPD certificate on the website, thanks to the podcasts sponsors Octo Members.

If you would like to know more about how to arrange protection insurance, take a look at Kathryn’s Protection Insurance in Practice course.

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