Q. Can my client change the trustees once the trust has been set up?

The Bright Grey trusts are flexible enough to allow existing trustees to be removed or new trustees to be appointed. The settlor has the power to remove a trustee by giving them at least 30 days' written notice. They can do this as long as at least 2 trustees remain, one of which is not the settlor.

Bright Grey can supply the following forms to help administer existing trusts:

• Deed of appointment trustees
  This deed can be used to appoint a new trustee to act with the current trustees.
• Deed of appointment and retirement of trustees
  This deed can be used when the settlor has requested the retirement of one or more of the trustees and wants to appoint other trustees at the same time. To request the retirement of trustees, the settlor must serve a Notice of Removal.
• Deed of appointment and retirement of trustees (voluntary)
  This deed can be used when one or more of the trustees are retiring voluntarily and the settlor is appointing other trustees at the same time.
• Deed of retirement of trustees
  This deed can be used when the settlor has requested the retirement of one or more of the trustees but is appointing no other trustees.
• Deed of retirement of trustees (voluntary)
  This deed is used when one or more of the trustees are retiring voluntarily and no other trustees are being appointed. To request the retirement of trustees, the settlor must serve a Notice of Removal.

Q. What are the main duties of a trustee?

The trustees' main duties are as follows.

• To invest the trust fund.
• To act impartially, if providing different benefits to each beneficiary.
• Trustees may delegate their powers of investment and management to someone else.
• To obtain and consider proper advice before exercising powers of investment.
• To secure the trust property.
• To keep records of any decisions and actions, as they may need to prove they are managing the trust fund properly.
• To not use the trust to benefit themselves. If the trustee is also a beneficiary, then they must not use their powers as a trustee to gain any benefits over the other beneficiaries.

Q. Can a client's spouse be a named beneficiary?

Business trust

Your client’s spouse should not be included as a beneficiary under the business trust unless they are also a partner or shareholder. It is essential that any business protection arrangement be entered into on a totally commercial basis. The inclusion of people who are not also owners of the business would mean that this is not the case. This can lead to adverse tax consequences.

Q. What happens if a client adds more covers to their plan?

Any new cover added to a plan is automatically subject to the existing trust arrangements. It will therefore automatically become either a gifted benefit or a retained benefit depending on what kind of cover it is. For example a new Life Cover will automatically be a gifted benefit but a new Income Cover for Sickness will be retained.

When we cannot add a new cover to an existing plan, we will offer your client a new plan for the new cover. If this new cover is to be placed under trust, your client would then have to complete a separate trust form for the new plan.

Q. Can a client change a gifted benefit to a retained benefit?

No. If your client was able to do this, the trust would have no effect for inheritance tax purposes.

Q. Can a client change a retained benefit to a gifted benefit?

No. The trust form sets out which of the covers are gifted and which are retained and this cannot be changed once the trust is completed.

Q. How are the funds from a trust distributed?

Any monies from the protection plan will always be paid to the trustees. The trustees are then responsible for paying the money to the beneficiaries but must complete the Bright Grey 'Deed of appointment to benefit (absolute)' form before distributing any benefits.

Q. Can a client use a Bright Grey trust with a plan from another company?

We don't recommend using the Bright Grey trust with another company's plan. The Bright Grey trust forms have been designed with the terms and conditions of a Bright Grey plan in mind and the words we use within the trust fit with our plan terminology. To use it with another plan would be dangerous as the words we use in the trust are unlikely to be exactly the same as those used by another company. This could mean the trust is invalid or could have adverse tax consequences. If your client wants to put another company's plan in trust, we recommend that they ask the other company or their solicitor to supply the appropriate form.

For the same reasons, we also don't recommend that you use other companies' trust forms with a Bright Grey plan.

Q. Will any inheritance tax be payable in the event of a claim?

Although the plan is in trust, inheritance tax could still be payable in some circumstances.

If the claim is for Income Cover for Sickness no inheritance tax is payable as this has no value in your client’s estate when they die.

If the claim is on death or diagnosis of terminal illness, a critical illness or Total Permanent Disability, there will be no immediate liability to inheritance tax as this will not be part of your client’s estate. However if the proceeds of the plan remain in trust past the next 10-year anniversary of the date the trust was created, a liability can arise.

The liability is calculated by looking at the value of the trust fund on the 10-year anniversary, any chargeable lifetime transfers your client made in the 7 years before the trust was created, and any amounts that have been taken out of the trust before the 10-year anniversary. If the total of these amounts is more than the nil rate band for inheritance tax at the 10-year anniversary, tax is payable on the excess. Tax may also be payable if money is given to a beneficiary after a 10-yearly charge has arisen.

An example

John took out a Bright Grey Business Protection Menu plan, which provided £300,000 of Life or Critical Illness Cover. He wrote this in trust on 4 Feb 2008. In 2003 he made a gift to a discretionary trust of £50,000. This created a chargeable lifetime transfer of £44,000 as he had made no other gifts and was therefore able to deduct 2 years annual exemption of £3,000.

On 1 June 2016 John suffers a critical illness and the plan pays out. No immediate tax is payable. John recovers and decides not to exercise his option to sell his shares in the business. The trustees decide to leave the money in trust as the beneficiaries are intended to be John’s co-shareholders and because of his illness John can not get any replacement cover. On 4 Feb 2018 the trust fund has grown to £320,000 and the nil rate band has risen to £350,000. No money has been taken out of the trust. Inheritance tax is now payable out of the trust fund and is calculated as:

On 1 August 2019 John decides to retire and agrees with his co-shareholders that they will purchase his shares using the money held in trust. The trustees decide to give John’s co-shareholders £350,000 to purchase his shares. The nil rate band for inheritance tax is still £350,000. There would now be an exit charge calculated as: