Group risk insurer Ellipse has launched an excepted life trust for group life customers. The new trust is suitable for excepted and single life relevant life policies and is free of charge to new and existing policyholders. However, it ceases if the customer’s excepted life policy with Ellipse is cancelled for any reason.
To access the new trust, the customer first downloads the trust deed, completes the necessary information, prints and signs it, then re-scans it and returns it to Ellipse. Existing customers go through a similar process but need to advise a start date and will usually terminate any existing trust prior to establishing the new trust.
The new trust provides a ready to use discretionary trust deed, prepared by specialist lawyers, along with professional trustee services provided by Pitmans Trustee Services Limited (PTL).
This ensures all HMRC requirements for excepted schemes are met efficiently and effectively. Ellipse says that it often finds standalone excepted trusts are poorly worded and employers are not sufficiently prepared to act as trustees. That can delay payments to beneficiaries and bring unwanted tax liabilities. It says the Excepted Life Trust provides:
* Quicker payments to beneficiaries.
* Reduced legal and tax risk from an appropriately worded trust.
* Less administration at point of claim.
* No need to act as trustees.
Every eight years, Ellipse contacts the policyholder to prompt them to wind up the current trust and replace it with a new trust. This avoids the periodic ten year test to determine whether Inheritance Tax is payable.
What They Say
CEO John Ritchie said: "We have decided to launch this trust solution in response to growing demand from advisers for excepted policies. We have found that at claim stage many trusts are not properly established and the employer is not able to exercise their duties as trustees. At the very least this delays payments to beneficiaries and can also bring unwanted tax liabilities."
What We Say
"Trusts can be a complex area and too many individual life policies do not use them – often for the wrong reasons. Group policies do, but usually use a master trust, which is a multi-employer trust.
"This new trust from Ellipse is an excepted life trust and is a trust for a single employer (although related subsidiary companies can also be included).
"One issue with all discretionary trusts is the periodic ten year test that could result in a charge to Inheritance Tax. However, that would only be the case if the policy had a value and, by definition, most life policies do not. Even so, replacing the trust every eight years effectively avoids the periodic charge.
"Isn’t that tax avoidance? Yes, but not the wrong sort of tax avoidance. The periodic charge is really designed to hit trusts that hold assets with significant values. Life cover is designed to help families and businesses and such policies only get caught if the policy has a surrender value (most don’t) or if the insured is terminally ill. In such cases, there is a theoretical value, as that policy could be sold to an investor who would look to receive a return within a few months. In practice few policies are sold in such circumstances (and some can’t be sold anyway) so the periodic charge is more an annoyance than a means for the Government to increase its IHT receipts. Even so, if an insured has a terminal illness when the trust is due to be replaced with a new one at the eight year point, it may be better to continue with the trust. Confused? Don’t be – Ellipse’s online technical information explains it all!
"The bottom line is this looks to be a very useful service that provides theoretical and practical benefits, avoid problems (most if not all) and is provided free of charge. What’s not to like?"