Ellipse Excepted Life Trust
Group risk insurer Ellipse has now launched a free excepted life trust for its group life customers. The trust can be used for excepted and single life relevant life policies and is free of charge to both new and existing policyholders. It does however cease if the customer’s excepted life policy with Ellipse is cancelled.
In practical terms, the customer needs to download the trust deed, complete the necessary information, print it out and sign it. The documentation is then re-scanned and returned to Ellipse. An existing customer would go through a similar process but will need to tell Ellipse the start date of the new trust and terminate any existing trust prior to establishing the new one.
Ellipse provides a ready to use discretionary trust deed, which is prepared by specialist lawyers. The service also includes professional trustee services provided by Pitmans Trustee Services Limited (PTL) and the whole trust has been set up to ensure all HMRC requirements for excepted schemes are met efficiently and effectively.
Ellipse has reported that it often finds standalone excepted trusts are poorly worded and many employers are not sufficiently prepared to act as trustees. In such situations, delay in payments to beneficiaries can arise and there may be unwanted tax liabilities too.
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 will contact the policyholder and 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 (which applies to discretionary trusts).
Comment: Ellipse clearly has some experience of how the commonly used master trust can result in problems arising, especially when a claim is made. It also knows that, while anyone can draw up a trust, using specialist lawyers can help ensure not just that the trust works legally, but also that it works practically.
This trust is free, can be used on new and existing policies and provides professional trustee services too. Renewing the trust (that’s not technically what you’re doing, but that’s the effect) can help avoid the ten year test to see whether IHT is payable. Looked at this way, you might think ‘tax avoidance’. Technically yes, but we’d argue this is ‘good’ tax avoidance. In an ideal world, life policies in a discretionary trust would not be subject to this but the law is what it is – even if it was drafted to ‘catch’ trusts holding substantial assets rather than a life policy taken out to protect a family or a business.
In the absence of new legislation that we would see as fairer, Ellipse’s solution makes sense. There can be an issue if a member is terminally ill when the trust is due to be reborn. If that arises, Ellipse’s technical team can suggest options but separate legal and tax advice may be required – just as it would with any other form of discretionary trust. Lest all this sounds far too complex, don’t panic – Ellipse’s online technical information explains the whys and wherefores well anyway.
Overall, this is a useful development, which we are sure other insurers will (or already have?) adopt too.
Plus points: A free to use excepted life trust for excepted and RLP plans; Drawn up by specialist lawyers; Includes professional trustee services; IHT efficient; Helps resolve issues that can otherwise arise, especially when a claim is made.
Not so plus points: Having to effectively renew the trust every eight years is a pain; Issues can arise if a member is then terminally ill; Trusts are not popular with a number of advisers and so any new trust is not automatically welcomed as much as perhaps it should be.
Website: http://www.ellipse.co.uk.
Rating (max 10): Innovation: 9. Overall: 9. Platinum
Tags: Other; Ellipse