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Life policies should be written in trust to benefit client
There are no definitive statistics available, however industry experts and providers believe as few as 6-7% of policies are written in trust.
If true these are incredible statistics due to the fact that it is more often than not in the client’s interest to have the policies written in trust. There are not only direct benefits to the client but also indirect benefits for the adviser arranging the policy.
The trust transfers legal ownership of the policy from the policy holder to the trustees. Now why is this a good thing? Well in short it removes the policy from the holder’s estate. This could save the beneficiaries from paying IHT on the amount, if estate is larger than £325,000.
As the policy is no longer owned by the holder it need not wait for a grant of probate to be paid out. Grants of probate can take considerable time depending on the estate and it is not unusual for it to take up to a year. A trust allows policy to be paid out at time of claim.
Just because the client is giving away ownership does not mean they have less control.
Another bonus to the client is that they can define exactly who benefits from the policy; even state percentage stakes each beneficiary would receive. Especially if there is no will in place the policy may benefit a former partner or an undeserving family member.
The direct benefit to advisers and providers are obvious that the policy is more likely to persist. It is so much harder and costly to source new business than it is get renewals from current clients. The persistency rate dramatically increases if the policy is in trust.
Claw back on commission can be a real pain for financial advisers and many keep high reserves in case the policies are cancelled prior to the term of the policy. This can damage the relationships between the client and adviser especially if the adviser takes action for loss of earnings. They risk alienating future clients by damaging their reputation or a large financial loss.
Recently an adviser, who decided to stay anonymous, settled with a client for £3,000 over this issue. However, legal costs and Fos case fees left him out of pocket. The likelihood of this happening is significantly reduced if the policy is written in trust.
The indirect benefits from writing policies in to trust are that advisers get access to more potential clients. Each trustee is a potential new client. A simple call to explain the expectations of a trustee could be used as a marketing tool.
Breeze and Wyles have developed an online tool, the Trust Wizard, for writing life policies in to trust. It develops a bespoke trust in a matter of minutes based on simple responses during the short fact find. The liability for the wording of the trust is with the law firm. The trust form and return letter can be sent to the client. The forms need relevant people to sign and date. The form is then sent to the provider.