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Probate Bare Trust

All types of policies can be written under a probate bare trust.

On the death of an investor, it can take a minimum of about six months to obtain probate, without which the policy proceeds cannot be claimed.

However, if a policy is under trust, in the event of a death claim, the insurance company would simply need a copy of the death certificate for the life assured and a completed claim form for the trustees to receive the proceeds – this could take a matter of weeks.

The terminology used is based on the process for England and Wales and this is broadly similar to Scotland and Northern Ireland. The process and terminology in other jurisdiction will vary.

As an international investment bond is issued by a non-UK life company and is held in a separate legal jurisdiction, the asset forms part of the deceased’s estate in that jurisdiction.

As such, probate needs to be obtained in that jurisdiction in addition to UK probate for the rest of their estate, to enable the executors to deal with the bond. This can be costly, take time to obtain and is quite unnecessary as most life companies offer a version of a probate trust to avoid this requirement, often with no cost.

When a person dies, someone has to deal with their ‘estate’ (that is, money, property and possessions) by collecting all the assets, paying any debts and distributing the estate to those people entitled to it. The estate beneficially belongs to the people named in the deceased’s will. If the deceased did not leave a will, it belongs to the widow, widower or relations, in accordance with the rules of intestacy laid down by law.

The deceased person may, by their will, have appointed one or more persons to deal with the estate, called ‘executors’. If they have not appointed any executors, or if the executors cannot or will not act, the High Court may appoint an ‘administrator’ to deal with the estate.

If the deceased person has not made a will, known as dying ‘intestate’, then the Court may also appoint an administrator.

The executors appointed by the will may be confirmed in their position by the Court: the document by which the Court does so is called a ‘grant of probate’ (Confirmation in Scotland) of the will. The document by which the Court appoints an administrator is called a ‘grant of letters of administration’. Each document is called a ‘grant of representation’ (sometimes the term ‘probate’ is used loosely to refer to either kind of grant of representation). The Court itself does not insist that a grant has to be made.

Organisations holding money belonging to the estate (for example, banks, building societies and life offices) need to know that the people to whom they pay the money are really entitled to have it. Organisations call this process ‘giving a good discharge’ because if they pay the wrong people, they may have to pay the money all over again to the correct individuals. A grant is proof that the people named in it are entitled to receive the money and they can then distribute it to the people who inherit the estate, during their lifetime.

A probate bare trust is a trust where the investor is the absolute beneficiary; however the underlying policies are owned by the trustees rather than the investor and is therefore outside of the investor’s estate when considering the need for probate.

There are no inheritance tax (IHT) benefits with a probate bare trust; it is solely for the purpose of avoiding a delay on death, as the full value of the policy will be inside the investor’s estate at all times.

The investor is the absolute beneficiary under the probate bare trust. As absolute beneficiary, the investor is entitled to receive all future benefits from the policy including withdrawals or partial surrenders.

On the death of the investor, providing they are the last life assured to die, the life company will not need to see a grant of representation because it can pay the surviving trustees as legal owners.

Once the trustees have received the proceeds they have to decide on their next course of action as the beneficiaries of the investor’s estate will now become the people who are the beneficiaries of the trust.

The trustees may decide to reinvest the proceeds until a grant has been issued, unless they intend to assign the policies to the beneficiaries. They could distribute the proceeds to the beneficiaries of the estate, or make a loan to them, but that may be inadvisable (before a grant is issued) unless they are also the proven beneficiaries of the estate.

The trust is for the benefit of the investor and there is no flexibility in this.

The life company will require the signatures of all trustees for transactions relating to the policy. To protect the investor and the life company from financial crime, the life company may need to verify the identity and address of all owners, including newly-appointed trustees.

If the investor is the only (or the last) assured life, the death benefit will become payable to the trustees, and not the personal representatives. The trustees will give the insurance company discharge for the policy monies and will hold them absolutely for the persons entitled to them under the investor’s will.

Otherwise, the policy remains in force until the death of the last surviving life assured or prior surrender, but the trustees may choose to assign the policy before those events occur.

Where a death benefit is payable the trustees may be asked to pay the policy proceeds to the investor’s personal representatives (PRs) once probate has been obtained, so that the PRs can then deal with it in accordance with the investor’s will.

In addition, the trust deed allows the trustees to lend money to the persons entitled to the trust benefits. They may choose to do this if funds are needed urgently, before probate is granted, and they are cautious about legal entitlements.

England & Wales

  • Does not exceed £5000 - £0
  • Exceeds £5000 - £215

Scotland

Northern Ireland

      • Does not exceed £10,000 - £0 • Exceeds £10,000 - £200 • Source: Courts and tribunal services – Court fees (link to https://www.courtsni.gov.uk/en-GB/pages/default.aspx)

If an investor holds investments in the Isle of Man or Ireland then it may be necessary to obtain probate, or the equivalent of, in that jurisdiction as well as in the UK.

Isle of Man – only asset is an IOM policy where the deceased died outside of the IOM:

Ireland – personal applications for grants:

    • Does not exceed €75,000 - €200
    • Between €75,000 and €287,500 goes up in €12,500 bands
    • Exceeds €287,500 but not €300,000 - €606
    • For every €31,250 or fraction thereof which the value exceeds €300,000.00 a further fee of €24
    • Source: Courts service Ireland

These may include:

  • Paying the death claim payment quicker
  • Removing the policy from the estate for probate purposes
  • Reducing the probate fees payable on the estate
  • Alternative source of funds to pay the IHT bill before probate

This briefing note is also available as a PDF document

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Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority.

Canada Life International Assurance (Ireland) DAC is authorised and regulated by the Central Bank of Ireland.