When you take out a group life insurance policy, also known as death in service, you will need to ensure a Trust is in place for your scheme to comply with legislation. You may wish to join a Master Trust, which is a HMRC registered scheme set up and run by a third party to manage and administer employer life insurance schemes.
A Master Trust can help avoid the hassle of setting up and administering your own scheme.
How Does a Master Trust Work?
When an employer selects a Master Trust, all insured employees become scheme members. The trustee of the Master Trust will hold the policy and will be responsible for the identification of any beneficiaries who will receive any claim benefit.
In the event of the death of a member you must submit the required information to the Master Trust scheme. If the Master Trust accepts the claim, they will process it and pay the benefits to the trustee, who will then distribute the benefit in line with the Master Trust rules while considering the member’s wishes and circumstances when they die.
What is the Alternative to a Master Trust?
You can choose to take out your own Trust by executing a trust deed before registering the scheme with HMRC. This is known as a corporate trust. You may, however, find that you do not have the expertise to deal with trust matters, or want to deal with the administrative issues of setting up and maintaining a trust, so could employ a professional business should you wish to pursue this route. Trust templates may be available for guidance with some providers.
A key benefit of setting up your own stand-alone Trust is being able to tailor it to meet your bespoke company needs, for example, Master Trusts may not cover Excepted Group Life Policies or dependants’ pension cover.
Another benefit is that a corporate trust moves with your company should you change group life insurance providers, whereas you cannot take a master trust with you. This is something you may wish to think about when making the decision on the kind of trust to set up for your business.
Most of the insurance providers on our panel will have Master Trusts set up that you can use for your death in service scheme. We will make it clear during the quote process which companies have this option available for you. If you choose to use a company that does not have a Master Trust, it will be your responsibility to register your scheme with HMRC and set up your own business trust before cover can commence.
What are the advantages of a Master Trust?
- Setting up your own scheme can be very time consuming as you will be required to do everything yourself, including registering the scheme with HMRC. With a Master Trust, this is all taken care of for you.
- By joining a Master Trust, you can reduce administration by avoiding the hassle of setting up and administering your own scheme.
- There is usually no additional cost for this service.
- As a discretionary Trust, it allows the benefits to be paid out speedily, without waiting for probate and with no Inheritance Tax charge.
- The provider deals with any disputes on your behalf.
What are the advantages of setting up your own Trust?
- Tailoring it to your company needs so, for example, employees with enhanced or fixed protection benefits do not lose their protection against the lifetime allowance charge.
- You can take it with you should you change group life insurance providers.
- Maintaining the same trust will reduce administration.
- You retain control of the claims process.
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