Group Life Assurance Trusts control how benefits are paid from your Group Life policy.
There are several ways a trust can be set up, and choosing the right one is important to make sure it works effectively for your business and your employees.
However, we often find that many employers are unsure which type of trust they have in place, or whether it is still appropriate.
Registered Trust
A Registered Trust is set up with HMRC and is subject to the Lump Sum and Death Benefits Allowance (LSDBA).
The employer is responsible for registering the trust and keeping the details up to date.
The LSDBA limits the total benefits payable from all registered pension schemes, including Group Life Assurance, to £1,073,100.
This includes:
- Lump sum death benefits
- Benefits from an employee’s pension arrangements
If this limit is exceeded, the excess may be taxed in the hands of the recipient.
In the event of a claim, the trustees (usually the employer) are responsible for identifying the correct beneficiaries and ensuring the benefit is paid appropriately.
Excepted Trust
An Excepted Trust is not subject to the LSDBA limits, which can make it a suitable option in certain circumstances.
However, there are some potential tax considerations to be aware of.
These may arise:
- If a member dies before the 10-year anniversary of the trust and the claim has not been paid before that date
- If, at the inception of the trust or at the 10-year anniversary, a member is known to have a life-threatening condition that is likely to result in a claim within the next 12 months
Because of this, it is usually advisable to seek legal and tax advice ahead of the 10-year anniversary to help minimise any potential issues.
As with a Registered Trust, the trustees are responsible for identifying beneficiaries and distributing the benefit in the event of a claim.
Master Trust
A Master Trust is provided by group risk insurers and is managed by an independent legal trustee.
Rather than having your own standalone trust, your policy sits within a larger trust that includes multiple employers.
One of the key advantages is that the trustees take responsibility for:
- Identifying beneficiaries
- Managing the claims process
- Distributing benefits
This can significantly reduce the administrative burden on employers.
Master Trusts can be set up on either a Registered or Excepted basis.
Where an Excepted structure is used, the trustees will also manage any actions required around the 10-year anniversary.
Choosing the right approach
Most insurers provide template trust documents for both Registered and Excepted arrangements. However, these are generic and may not always meet the specific needs of your business.
For this reason, many employers choose to seek legal advice or have a bespoke trust created.
A simple but important question
If you’re not using a Master Trust, do you have a copy of your trust document?
If not, it’s something worth addressing. Not having clear documentation in place can lead to delays or complications at claim stage, when support is needed most.
How we can help
At Clear Employee Benefits, we help businesses review their Group Life arrangements to make sure everything is set up correctly and working as intended.
If you’re unsure what type of trust you have, or whether it still meets your needs, we’d be happy to help.
