31/10/2023

5 mins

A Group Life Insurance scheme pays out a lump sum if one of your employees dies. This lump sum is equivalent to a multiple of a worker’s earnings.

To avoid any inheritance tax implications, you place the policy into trust at the outset. The insurer pays the benefit to that trust before the trust distributes it to the appropriate beneficiaries in the event of a claim.

You have two options for Group Life Insurance trusts:

A trust you as business set up, own and administer
The insurer’s master trust.

With the first option, it’s up to you to keep up with all the trust administration involved in running a trust. You’ll also have to stay on top of any changes to trust law.

On the other hand, a Group Life master trust is a ‘readymade’ trust your insurer owns that contains the policies of multiple companies.

A master trust achieves the same result as a company-owned trust. However, the employer doesn’t have to do any of the administration or have any of the associated responsibilities that come with running a trust.

What Is A Group Life Master Trust?

A company of professional trustees sets up and manages a master trust. The insurer either owns this company or is closely affiliated with it
It means employers do not need to maintain their own trust or act as trustees in the event of a death
Provides the same tax advantages as a company-owned trust but without the administration for the employer
Each employer has their own policy, pricing and terms and conditions
The master trust handles all associated trust management, including keeping up to date with trust law and managing the payment of claims.

Why Use A Group Life Insurance Master Trust?

The main reason to use a master trust is convenience.

When using a company-owned trust, you’ll need to set it up from scratch and register it with HMRC, which can take time. The policy can’t go live until you set up the trust and sign all of the appropriate forms.

Meanwhile, an insurer’s master trust already exists. As such, your policy can therefore be ready to go as soon as you return the relevant paperwork.

While setting up a company-owned trust is not difficult, and is something your adviser will be happy to help with, there is ongoing administration to consider. This includes keeping the trust deed up to date.

Employers will also have to act as trustees with a company-owned trust, whereas a master trust provides professional trustee services.

There won’t be any need to set up a trustee bank account with a master trust, either. It’s good practise to set up a trustee bank account to pay the premiums when using a company-owned trust, but the insurer takes care of this when you use a master trust.

IMPORTANT NOTICE 🧐
Of course, a master trust is a less bespoke option than one your company sets up and administers. It may therefore not be right for your company’s specific circumstances. You should take appropriate legal advice in this area before making a decision.

Need Help? Get Group Life Insurance Advice…

We’re happy to talk you through which type of trust might be best for you and your business. Give us a call on 02084327333 or alternatively email help@drewberry.co.uk.

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