THE TRUST DRAFTING SERVICETM · SUBMISSION PROCESS
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What is a Trust?
A trust is a legal arrangement whereby one person (the Donor) transfers legal ownership of an asset to other people (the Trustees). Trustees act as ‘guardians’, holding the asset(s) for one or more other people (the Beneficiaries), who are the beneficial owners (the persons who are, or may become, entitled to receive the assets).

The provisions of the trust dictate when and to whom the benefits of the trust will be payable. The provisions also set out the way in which the Trustees can invest or deal with the assets while they have charge of them. The document containing the trust provisions is generally referred to as ‘the Settlement’ or ‘the Trust Deed’.

What type of Trust?
The type of trusts generally used with the Inheritance Tax (IHT) products are:

• Absolute Trust
  
• Interest in Possession Trust
  
• Discretionary Trust

The Assurance Trust is a special type of Discretionary Trust that has been designed by Andrew Bowman, our consulting Solicitor from Bowman & Drew Solicitors and settled by counsel.

There are a number of problems associated with Absolute and Interest in Possession Trusts, which can be avoided by a Discretionary Trust. The Absolute Trust sets out specific instructions to the trustees that cannot be varied. This can be very dangerous, as it is unlikely that we will know what the circumstances will be in the event of our death. To tie the hands of our trustees may mean that they must follow the terms of a trust even when it is not appropriate.

The Interest in Possession Trust goes part way to resolving some of these problems by allowing the trustee some flexibility in passing assets to the chosen beneficiaries. However, the beneficiaries are stated within the trust deed. This can make it very difficult for the trustees in times when problems arise for the beneficiaries. One of the most common is where the trustees need to move assets away from beneficiaries in the case of divorce, bankruptcy or incapacity. If someone is a beneficiary of an Interest in Possession Trust, they have a right to benefits. This can be a problem if there is a bankruptcy as creditors can make a claim of the assets. Like wise with divorce. In the event of incapacity, the rights to assets within a trust may affect state benefits.

The answer to all of these problems is a Discretionary Trust.

A Discretionary Trust gives the trustee the “discretion” between beneficiaries. The trust is set up with the standard three classes of party. The person creating the trust is the settlor, the person or persons who are due to receive the proceeds are the beneficiaries and the person holding the assets is the trustee.

Under the Discretionary Trust, the settlor sets out “classes” or “categories” or people who will benefit. These can be “My brother” “My children”, “My wife” etc. but can also be corporations or companies. It will be the trustees job to decide who gets what from the trust within the categories.

For example, if you left the proceeds to “my children” the trustees would have to pass the benefits to your children. However, it would be up to the trustee to decide how much each child received and when. It is the “discretion” that give the flexibility that is usually required in the event of death, simply because you do not know what will be happening at that time.

The Assurance Trust has been specifically designed by Andrew Bowman to meet the criteria of our clients. Each trust is individually drafted by our sister company Wills & Trusts Independent Estate Planning Ltd and certified by Andrew. This means that, unlike using an insurance company’s own “fill in the blank” style trust you will have a fully bespoke trust that meets your requirements and is certified with independent legal comment.

The Assurance Trust is designed to hold the benefits from insurance company contracts that include life insurance. The trust pulls the benefits away from your estate so that the benefits are held by the trust, and not by the estate. This means that, in the event of your death the proceeds can be paid out without the grant of probate. Even more important is that fact that the funds will be outside of your estate and so not liable for Inheritance Tax.

However, another very important point is that the proceeds held within the trust can be retained outside of the beneficiaries estate. This means that, in the event of death of the person insured, the proceeds will be held in the trust and used by the beneficiaries, but without the proceeds falling into their estate. This can potentially avoid another layer of Inheritance Tax which is payable in the event of the beneficiaries death.

Trustees
As you can see the appointment of trustees is very important. The trustees will not only have control of the funds from the policies upon a death claim, but will also decide when the beneficiaries receive the funds. You need to think long and hard as to who you would feel comfortable appointing.

Beneficiaries
When deciding on your beneficiaries it is important to remember the control that the trustees will have. You will be deciding on classes of beneficiaries from which your trustees will decide.