This item is directed at Professional Financial Advisers only and it should not be distributed to, or relied upon by retail customers.
Protection Expert
Joint Life Protection – Why recommend a Protection Trust? Rory Jones, Axa’s Technical Expert for Protection discusses Protection Trusts and why recommend them. One of the dilemmas facing Financial Advisers is whether they should recommend the use of a trust to their clients who jointly own a life policy. In such circumstances, is a trust really necessary? It’s worth considering a few different scenarios. Mr and Mrs Smith have a joint life policy. They have two children. Mr Smith dies during the term of the policy. The claims proceeds are paid to Mrs Smith without the need for sight of Grant of Probate. Despite the fact that both Mr and Mrs Smith have a potential Inheritance Tax exposure, there is no tax liability attached to the payment of the proceeds to Mrs Smith. So a Trust isn’t necessary… or is it? Although the risk is limited, there may be tax implications if both owners were to die at the same time. Mr and Mrs Smith have a joint life policy. Both are killed in a tragic car accident. Their two children survive. In these circumstances, Mrs Smith – who is the youngest – is deemed to be the last to die. The sum assured will now form part of her estate for probate purposes. This could lead to an unexpected tax liability and create further complications in settling the estate. If the policy was written using a standard discretionary trust, the claim could be settled quickly without the requirement for the sight of Grant of Probate and the proceeds passed to the beneficiaries without any liability to Inheritance Tax. So a Trust may be necessary, but is this the right Trust? There is, however, a downside to using a standard discretionary trust. In the event of the death of one of the lives, the surviving owner will not be allowed to benefit from the trust. If they were to do so, HMRC would deem this a ‘gift with reservation’ and any Inheritance Tax mitigation would be lost. To address this situation, AXA has developed the ‘Survivorship Trust’ deed. Continued
This item is directed at Professional Financial Advisers only and it should not be distributed to, or relied upon by retail customers.
Protection Expert
Joint Life Protection – Why recommend a Protection Trust? (continued) To address this situation, AXA has developed the ‘Survivorship Trust’ deed. Mr and Mrs Smith have two children. They have a joint life policy that has been written under a ‘Survivorship Trust’. The Survivorship Trust contains a contingency clause that allows a surviving owner to benefit should they survive 30 days after the death of the first life assured. Scenario 1 – Mr Smith dies In this case, Mrs Smith survives for 30 days after her husband’s death and will be entitled to benefit from the proceeds of the Trust. Scenario 2 – Both Mr and Mrs Smith die In this case, the trustees can appoint the benefits of the Trust to the children. So, a Survivorship Trust gives the flexibility to cover a range of potential scenarios. Although such a trust is not unique, AXA is one of the few product providers to make a Survivorship Trust available to advisers and their clients. In the meantime, if you want to discuss any of the opportunities or issues for protection raised, please
call your Axa Protection Account Manager or call the Axa Protection line on 0845 607 1979 (option2).
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