HNW: People Are Increasingly Looking at The Trust Option on Life Cover

Some useful feedback here from Stonebridge;

Nearly THREE times as many protection policies are being placed in trust compared with five years ago, as advisers increasingly help prevent payouts becoming stuck in probate, Stonebridge reveals.

Life policies can be worth hundreds of thousands of pounds to beneficiaries but, unless they are held in trust, the payouts enter probate with the rest of the policyholder’s estate.

This has led to a concerted effort by some forward-thinking industry players to increase use of trusts to prevent this from happening, where appropriate to client circumstances. They are particularly useful where immediate access to funds will help a beneficiary avoid hardship or financial difficulty.

Mortgage and protection network Stonebridge has been educating its members on the value of using trusts for some time and has seen the number of life policies written in trust rise from 5.3% to 14.3% in the last five years with one of its six key providers, according to analysis of sales data. And the rate of adoption still appears to be rising, climbing from 13.1% a year ago.

While the proportion of policies placed in trust can’t always be compared between providers because of demographic and product variables, the trend is the key factor here. Stonebridge’s advisers network-wide place closer to 25% of policies in trust on average.

The findings come after the FCA’s Pure Protection Market Study final report reiterated how the regulator wants to encourage greater use of preparatory tools including trusts and nominated beneficiaries, which allow claims to be paid out more quickly². It calls foreseeable friction at the claims stage the ‘beneficiary gap’, where funds fail to reach the intended recipients quickly and effectively.

John Scrivens, Sales Director at Stonebridge, said: “When people choose policies, they are often solely focused on the amount of cover, but their loved ones need the money in their pocket in order to benefit from it. Time can be a real factor.

“Using trusts protects beneficiaries from the nightmare of vital funds being locked up in probate, which makes them a crucial pillar of the advice brokers should be giving consumers.

“All too often, funds are withheld from the bereaved in their time of need because a trust wasn’t considered when the policy was taken out. Fortunately, times have changed and advisers are increasingly conscious of the circumstances in which trusts are most appropriate and their benefits.

“We’ve been banging this drum for a long time, and it has rightly been identified by the FCA as an important focus area. The industry will be better for it, and consumers won’t be left needlessly vulnerable. Policies shouldn’t be placed in trust automatically, but we’re pleased that our network members are identifying increasing numbers of cases where trusts should be used.”