Why business policies go into trust
Imagine you hold shareholder protection on your own life, meant to give your co-owners the money to buy your shares. If the policy sits outside a trust, the payout lands in your estate. Your executors then need probate before they can release it, and the money could be claimed by your family or used to settle your debts.
Placing the policy in a business trust from the start means the trustees own it on behalf of your fellow owners. When you die, they claim directly and pass the money to the people who need it to complete the share purchase.
Which trust goes with which policy
Insurers provide their own trust forms, and the right one depends on the job the policy does. Using the wrong form can send money to the wrong place or create tax issues, so it pays to choose carefully at the start.
Most business trusts are flexible, meaning the trustees have some choice over which beneficiaries receive the money. That helps when owners join or leave. Discretionary trusts can face inheritance tax charges in some circumstances, which your accountant or solicitor can explain for your situation.
- Shareholder protection: business trust for the other shareholders
- Partnership or LLP protection: business trust for the other partners or members
- Relevant life cover: relevant life trust for the employee's family
- Key person cover: owned by the company, normally no trust
- Personal life cover for a director: personal trust for their family
Choosing trustees
Trustees are the people who will make the claim and hand over the money. For a business trust, they are usually the other owners, sometimes with an outside professional such as the firm's solicitor. Pick at least two, and make sure they would still be around and willing if one owner died.
Review the trustees when owners change. A trustee who has sold their shares and left the business may no longer be the right person, and new owners will want a say. Trustees can usually be added or removed by deed.
Common trust mistakes to avoid
Most problems with business trusts come from paperwork done late or never updated. A policy that starts outside trust and is moved in later can raise tax questions, so set up the trust on the day the policy starts.
Trouble also arises when an owner leaves but stays listed as a beneficiary, or a new owner never joins the arrangement. Keep a simple record of each policy, its trust and its trustees, and check it whenever the ownership of the business changes.
- A policy issued before the trust form is signed
- Beneficiaries left unchanged after owners come and go
- Only one trustee, who then dies or leaves
- Trust wording that does not match the cross-option agreement
How Hi Tomorrow helps you set up business trusts
We match each policy to the correct trust form, help you choose trustees and complete the paperwork when the policy starts, so there is no gap where a policy sits outside trust. We explain in plain terms what each trust does.
We do not give legal advice, so for bespoke wording or questions about inheritance tax on a trust we work alongside your solicitor or accountant. When owners join or leave, we help you update the trustees and beneficiaries.