How do trusts work?
Writing a protection policy in trust means the right people receive the right money – at the right time.
Trusts and Business Protection:
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Trusts and Business Protection
A trust is a legal arrangement that allows the owner of the insurance policy (the settlor) to gift the proceeds paid under claim to someone else (the beneficiaries). It’s helpful with Business Protection as it helps keep businesses running normally, without being impacted by changes in power or finances.They offer more control – helping speed up the claim process, and usually avoiding inheritance tax. Trusts usually can’t be changed or cancelled - your clients will need to understand this when nominating their beneficiaries.
- The settlor gives the policy to trustees.
- It’s usually best practice for the settlor to also be a trustee.
- The trustees would make a claim and pay the proceeds to the beneficiaries.
- Usually for Business Protection the trustees are the business owners, but for Relevant Life Cover they would also include family member, or close family friends for example.
- Trustees can be changed through the insurance provider – this must first be agreed by all other trustees.
- The settlor selects the trustees – there should be a minimum of two in addition to the settlor for all cases.
- Trustees legally own the policy and look after it on behalf of the beneficiaries.
Trustees must be over 18 years of age (or over 16 years of age in Scotland), and be of sound mind.
- For business protection cases that need to be written in trust, the trustees are usually the shareholder or partners within the firm.
- If a trustee dies, a replacement may be needed.
Online Trust Tool
With our online tool writing a business protection policy in trust easy.
Find the most appropriate trust form, fill in the details and send. Settlors, trustees and witnesses can then sign it electronically – we’ll check it over, apply it to the policy and send it back to your client for their reference.
Find out more about our Online Trusts tool
Writing Business Protection in trust
How you write business protection depends on what the cover is for, the set-up of the business, and who the claim would be paid to.
The settlor needs to complete and sign a trust deed, which is also signed by the trustees. All signatures also need to be witnessed. Your clients can use an LV= trust deed (or a bespoke form arranged by their solicitor) which should be sent back to us. We recommend your client arranges the trust during the application stage, ensuring their wishes are met if a claim is made.
Read about our Business Protection Trust Process.
Below you’ll find information on writing our business protection cover options in trust.
Relevant Life Cover in Trust
- Relevant Life Cover must be written in trust.
- The employer is automatically a trustee.
- Up to four additional trustees can be named - one of these can be the employee.
- The employee will select their beneficiaries (it’s usually their family or next of kin).
Shareholder and Partnership Protection
- Each business owner takes out a life insurance policy (with the option of critical illness cover) on their own lives, written in trust.
- The beneficiaries are the other business owners – they should be the trustees.
- Smaller businesses – with just two owners – can set up policies under a life-of-another arrangement, without the need of a trust.
- Writing business protection for these smaller businesses doesn’t allow for flexibility if the business changes ownership.
- A cross option agreement would normally be included as part of a Shareholder or Partnership protection arrangement.
Key Person Cover in trust
Partnership
If the key person is an employee, the policy is taken out by one (or all) of the business owners. The policy is written in trust, and the business owners named as the beneficiaries.If the key person is a business owner, each partner takes out a policy on their own life, which is written in trust. The remaining business owners are named as the beneficiaries.
Sole traders
If the key person is the trader, the policy is written in trust, and the sole trader’s next of kin named as the beneficiaries.If the key person is an employee, the policy is written on a life of another basis and no trust is needed.
Limited company or liability partnership
No trust is needed as the business owns the policy.Partnership
If the key person is an employee, the policy is taken out by one (or all) of the business owners. The policy is written in trust, and the business owners named as the beneficiaries.If the key person is a business owner, each partner takes out a policy on their own life, which is written in trust. The remaining business owners are named as the beneficiaries.
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