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Probate Bare Trust

Where an offshore investment bond is not in trust and is owned by a UK resident individual, following the death of that individual the life company would need to deal with the executors of the estate.

However, as the offshore investment bond will be issued by a non-UK life company and will be held in a separate legal jurisdiction, the asset forms part of the deceased’s estate in the offshore 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 a while 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.

What is probate?
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 or widower or relations, in accordance with the rules of intestacy laid down by law. Separate guides to the laws of intestacy for England and Wales, Northern Ireland, as well as intestacy and succession for Scotland are available on request.

The deceased person may, by his/her will, have appointed one or more persons to deal with the estate, called ‘executors’. If he/she has not appointed any executors, or if the executors cannot or will not act, the High Court (or the local District Probate Registry) 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’ 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.

Why is a grant necessary?
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.

Is there any way to avoid the need for a grant?
It is possible to create a trust during lifetime so that the legal entitlement to the asset is owned by the trustees and the life company will have trustees with whom it can deal, provided they survive the death of the original investor.

What is a trust?
A trust is a way of arranging property for the benefit of people without giving them full control over it.

The essence of the arrangement is that the trustees have the legal ownership of the property but cannot use it as their own personal property. Rather, they have to use it for the benefit of the beneficiaries.

In every trust there is, therefore, this partition of ownership. The trustees will be the legal owners and would, for example, be entitled to claim against the life office if the trust property included a life policy. The beneficiaries have the equitable or beneficial ownership which means that, although they cannot claim against the life office, they can claim against the trustees in accordance with the terms of the trust. It is possible for the same person to be a trustee and beneficiary.

To create a trust, three certainties must be present;

  • Certainty of intention
  • Certainty of objects, that is, beneficiaries
  • Certainty of subject matter, for example, the property to be transferred

The majority of trusts are created by the property owner executing a deed and assigning the property to the trustees.

What trusts are available?
A valuable feature and specialist area of offshore life companies is the provision of trust arrangements that can be used to wrap your client’s investment for the efficient and timely transfer of wealth.

Trusts can be used for a variety of reasons including tax planning, choice of beneficiaries, avoidance of probate and the making of gifts. Offshore life companies offer draft wordings for a variety of trusts to meet all your clients’ needs.

The offshore life companies realise that trusts are often viewed as complicated, so they produce literature that is easy for your clients to understand. Some offshore life companies also support advisers by providing technical assistance for them, to help steer them through effective trust planning.

One of the simplest offshore trusts is the probate trust. This is an arrangement designed to give an investor (or donor) control over the future distribution of the trust assets through their will.

What is a Probate Bare Trust?
The purpose of this is to transfer the policy into a trust where the donor is the absolute beneficiary. As absolute beneficiary, the donor is entitled to receive all future benefits from the policy including withdrawals or partial surrenders.

By using this trust, the transfer of the policy into the trust will have no consequence as far as inheritance tax (IHT) is concerned. So, at all times, the full value of the policy will be inside the donor’s estate and will be potentially subject to IHT on death. To pay a claim, the life company will not need to see a grant of representation because it can pay the surviving trustees as legal owners.

When the settlor(s) have died, the trustees have to decide on their next course of action as the beneficiaries of the donor’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.

What is the basis of the trust?
The trust is for the absolute benefit of the donor. This means that once the trust has been established, the trustees cannot change the beneficiary. The beneficiary (donor) can demand their share of the trust fund at any time. This includes being able to ask the trustees to assign the policy to them.

What are the practical effects of putting the policy into a Probate Bare trust?
The client assigns the policy to the trustees. The client is therefore the donor of the trust. The trustees that they appoint to act with them become the legal owners of the policy together with the client, who would usually automatically be a trustee.

The life company will require the signatures of all trustees for transactions relating to the policy. To protect the client 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.

Every offshore bond should be in trust
It has been said that every offshore bond should be in trust, either because the client is doing estate planning or to avoid the unnecessary additional cost and administration of obtaining a non-UK probate.

What is the cost of probate?
And as can be seen from the table the cost is not insignificant.

Example Fees
 Isle of Man
Does not exceed £10,000 - £27
Exceeds £10,000 but not £50,000 - £160
Exceeds £50,000 but not £250,000 - £250
Personal applications for grants:
Does not exceed €75,000 - €200
€12,500 bands up to €300,000 - €606
For every €31,250 or fraction thereof a further fee of €24

Further information is available from the following links:

This briefing note has been produced for professional adviser use only. 

The information regarding taxation is based on our understanding of current legislation, law and HM Revenue Customs practice, as at September 2015, which may be altered and depends on the individual financial circumstances of the investor. We recommend investors take their own professional tax advice.

This briefing note is also available as a PDF

This website is for UK professional advisers only and is not approved for use by private customers.

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.

Stonehaven UK Limited and MGM Advantage Life Limited, trading as Canada Life, are subsidiaries of The Canada Life Group (U.K.) Limited. Stonehaven UK Ltd is authorised and regulated by the Financial Conduct Authority. MGM Advantage Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority.