Protection Trust Guide

ARC Protect’s Guide to Protection Trusts

Nobody likes to think about what will happen when they have gone. You’re already thinking
ahead by having a protection plan in place to help to help the ones you love after your death.

Now you need to go a step further to make sure that the money from your plan goes to exactly who
you want to receive it.

By placing your life insurance policy in trust you are helping to ensure that your policy
benefits are paid to your chosen individuals as soon as possible.

Why should you set your policy in trust?

Life insurance policies can be placed in trust so that the proceeds from the policy will not fall into your estate, which will bypass probate and will not therefore, suffer the delays involved in obtaining probate. Placing a policy will also avoid inheritance tax charge.

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What is Probate – ‘Probate’ is a term commonly used when talking about applying for the right to deal with a deceased person’s affairs (confirmation in Scotland).
How Long Does Probate Take? – This will depend on the size of the estate and how complex it is. On average, probate takes between six to nine months^.

Inheritance Tax

What is Inheritance Tax – Inheritance Tax is paid if a person’s estate (their property, money and possessions) is worth more than £325,000 when they die. This is called the ‘Inheritance Tax threshold’.
Inheritance Tax Rates – The rate of Inheritance Tax is 40% on anything above the threshold. The rate may be reduced to 36% if 10% or more of the estate is left to charity.

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Who is Involved



The settlor is the legal name given to the person who sets up the trust and the owner of the life insurance policy.

Employment Insurance


The trustees are the legal owners of the trust property. They are legally bound to look after the policy proceeds and then pass it on to the chosen beneficiaries. You will automatically be a trustee on your trust.

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The beneficiaries are the people who will receive any benefits from the trust. By placing your life insurance policy in trust you are helping to ensure that your policy benefits are paid to your chosen individuals as soon as possible.

Type of Trusts

There are four main types of trusts. Absolute, Flexible, Discretionary and Survivor Trusts.

Absolute/Bare Trust

A bare trust (or ‘simple’, ‘absolute’ trust) is the least flexible trust. The beneficiaries are named individuals who cannot be changed in the future. For example, children born later cannot be included or a spouse cannot be removed following a divorce. The beneficiaries are absolutely entitled to the trust fund, and the trustees do not have discretion on who to pay.

Flexible Trust

A flexible trust is similar to a discretionary trust, but it is more complicated. There are two types of beneficiaries. The first type of beneficiary is the default beneficiary. These beneficiaries are people who are entitled to any income from the trust as it arises. In practice, if the life policy is the only asset in the trust there will not usually be any income until after the claim is made. The second type of beneficiary is the discretionary beneficiary. These discretionary beneficiaries are people who your trustees can decide to give money to at their discretion.

Discretionary Trust

U nder a discretionary trust no beneficiaries have an automatic right to either trust income or capital and the trustees have a power to decide how much of either (if any) to pass on to each of the beneficiaries. This type of trust offers the most flexibility and can enable you to retain some control during your lifetime as to who benefits and when.

Survivor Trust

A survivor trust is used on a joint policy so that the death benefit will go to the surviving life insured/policyholder if (s)he survives 31 days. If both die within 31 days each other than the death benefit will go to the beneficiaries in equal shares. However, because the trust is flexible the beneficiaries can be changed.

They are all “split trusts” however some insurers have a separate split trust. Under a split trust any critical illness or terminal illness benefit would be payable to the policyholder whilst any death benefit would be payable to the trustees to hold on trust for the beneficiaries.

Are there any disadvantages?

Once the trust has been created it cannot usually be cancelled before it has served its purpose and the policy cannot be cancelled without the permission of the trustees.

How do I put my policy in trust?

If you have taken out a policy through ARC; hopefully by the time you read this guide, you will have already received your trust documents by email (we can post these documents if you prefer). If not, we can still help placing your policy in trust. Within the form(s), you can name the beneficiaries and additional trustees. The forms must be signed by independent witness (independent witnesses do not have anything invested in the outcome of a case, meaning the witness will not profit from the results of the policy), who have seen the act of the settlors and trustees signature.

The trust forms can still be easy to misunderstand. If you prefer assistance throughout the whole process, a member of our Customer Care Team will talk you through the whole process.

How do the trustees make a claim?

All they have to do is contact our Customer Care Team. We provide help at the time your family needs it most.

About Us

Arc Protect

ARC Protect is a team of approachable and friendly financial advisors with over 100 years of collective experience behind us.


December 2017
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