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Setting up a trust for your life insurance

What is a trust?

A trust is a legal arrangement that allows the owner of assets such as land, buildings, money or a life insurance policy to ‘gift’ them to a loved one without giving them full control.

Tesco Bank trusts for life insurance are provided by Aviva Life & Pensions UK Limited.

Trusts involve:

  • A settlor – this is the person who sets up the trust and transfers their life insurance policy into it. As the settlor you decide who will manage the trust on your behalf (the trustees) and who will benefit from it (the beneficiaries).
  • Trustees – these are the people who manage the trust. It becomes their responsibility to look after the trust, according to the terms outlined.
  • As a settlor you automatically become a trustee so you may want to instruct at least one other trustee to help you manage your affairs.
  • Beneficiaries – the people who will benefit from the trust.

Why set up an Aviva trust?

Life insurance customers who set up an Aviva trust enjoy a number of benefits:

  • As the settlor, you can choose who you wish to receive the money from the policy.
  • If a claim is made under your policy, the trustees should receive the money quickly. Following acceptance of a claim, we ensure that the money from your policy is handed over to the trustees, who will then pass it on to your beneficiaries or, if it’s the case that they’re not yet old enough, hold on to it until they are.
  • As the settlor, you’ll automatically become one of the trustees so you’ll maintain an element of control over your policy.
  • Your life insurance policy is considered a separate entity to your estate when you die, which means the policy benefits may be exempt from inheritance tax. Bear in mind, however, that liability for tax is dependent on personal circumstances and rules regarding tax can always change. It’s always worth consulting a professional advisor to discuss any concerns about this.

Aviva trusts are not currently available for Free Parent Life Cover customers.

What types of Aviva trust are there?

We offer two types of trust for you to choose from:

Discretionary Gift Trust (Protection)

This is Aviva’s flexible trust that gives you the freedom to choose from a wide range of beneficiaries, who can include children and grandchildren – even those who are born after you set up the trust.

If your situation or personal circumstances change, you may be able to arrange with your trustees to change the trust’s beneficiaries. Trustees must be informed in writing about any changes you would like, such as how you’d like the funds from your policy to be divided between beneficiaries. You can change your mind at a later date.

Survivor Trust

If you’ve taken out a joint life insurance policy that covers both you and your partner, this type of trust could be more suitable for you. While joint policies are common there can be difficulties if:

  • You both die at the same time – should this happen, the money is paid to the representatives of the youngest partner and it is then made part of their estate. It is likely there will be a delay before the beneficiaries of the estate receive a pay out, and that they will have to pay inheritance tax on it.
  • A surviving partner dies very soon after the other – in this instance, the money automatically goes to the representatives of the person who died last. The pay-out will again become part of that person’s estate, so as beneficiaries they may face delays and have to pay inheritance tax on it.

The Survivor Trust helps overcome these difficulties. Providing your partner is still alive 31 days following your death, the trustees can pay the money directly to them within that time frame.

If your partner passes away at the same time as you or within 31 days of you, the trustees will pay your life insurance money to the beneficiaries as outlined in the terms of your trust – and quickly.

In both circumstances it is unlikely your beneficiaries will have to pay inheritance tax on any funds they receive.

Which trust is right for you?

Tesco Bank and Aviva Life & Pensions UK Limited are unable to make recommendations as to which trust is right for you. Which trust you take out will depend entirely on your own personal circumstances, which is why you may want to seek independent legal and financial advice before making any decisions.

You may want to consider:

  • When setting up a trust there are tax and legal consequences involved.
  • Once established, a trust cannot be cancelled.
  • Trustees have a huge amount of responsibility when it comes to beneficiaries and will be held personally liable for any loss a beneficiary may suffer due to their actions.

Where can you find more information?

It’s important you’re confident when it comes to making any decisions about life insurance trusts, which is why you may want to seek independent and professional financial, tax and legal advice so you’re fully informed about your options.

You might find and useful sources.

Applying to set up a trust

There are a wide range of different types of trust available, so take your time to consider these, and that those on offer from Aviva may not be appropriate for you.

Whether or not a trust is appropriate for you is dependent on your circumstances. You must make sure the trust you choose meets your needs, and should seek professional legal, tax and financial advice if you have any doubts.

You may want to download one of our trust application forms and discuss it with an independent financial advisor to address any questions you may have.

Completed forms to be returned to:

Aviva BCC, PO Box 520, Norwich, NR1 3WG