For scoTland, england & Wales
It is recommended that you consult your legal or financial The FlexIble TruST
adviser before completing this trust deed.
At the outset, the settlor selects a wide group of people who they
might wish to receive the trust capital at any time in the future.
TruSTS exPlaIned The range of potential beneficiaries can be very extensive, giving
A trust is a legal arrangement under which property (e.g. a great flexibility in the distribution of the benefits (Schedule I).
life assurance policy) is held for the benefit of others (the The settlor then specifically appoints one or more members
“beneficiaries”). The person who creates the trust and gifts of this group as “default” beneficiaries for the time being and
assets to it is known as the “settlor”. The people appointed by specifies how the benefits are to be shared out between them
the settlor to look after the “trust funds” in accordance with the (Schedule II). These beneficiaries will benefit unless the trustees
trust document are called the “trustees”. By also being a trustee, use their powers to reappoint, elsewhere, as outlined below.
a settlor can retain some control over how the gift is used.
The settlor(s) are expressly excluded from benefiting from the trust.
Usually the settlor or, for a policy owned jointly, the settlors, will
appoint themselves as trustees and ask other people to act The trustees can subsequently execute a deed to
with them as additional trustees. They will administer the trust reappoint the trust benefits between the range of
and follow the terms of the trust deed in distributing the assets potential beneficiaries. They may want to do this, for
between the beneficiaries. example, if one of the default beneficiaries should die
or if there is some other change in circumstances.
A beneficiary’s entitlement is under the terms of the trust and
not under the life assurance policy. This trust deed may be used for single or joint, new or existing
policies. It is not suitable for pension term assurance, for
business protection assurance or for policies combining death
reaSonS For PlacIng a PolIcy and disability benefits.
The main reasons for placing a policy in trust are: aPPoInTIng TruSTeeS
n Paying the benefits to the ‘right’ people The settlors are not automatically trustees. They should
The trustees will pay the policy benefits to beneficiaries seriously consider appointing themselves and at least one
chosen by the settlor. additional trustee. The trust declaration provides for this.
n Paying the benefits at the ‘right’ time The selection of the trustees should be carefully considered as
LV= will pay the benefits to the trustees within days of receiving they have complete discretion over who will eventually benefit
the various title documents and, where relevant, the death from the trust. This discretionary power extends for up to 24
certificate. The trustees can then, if applicable, distribute the months following the death of the settlor(s)/life (lives) assured
proceeds to the beneficiaries. If the settlor(s) has died, there – as appropriate.
are no months of waiting for Grant of Probate or Letters of
The appointment of a trustee living overseas may affect the
Administration, providing there is a surviving trustee.
taxation of the trust funds.
n Paying the benefits Inheritance Tax efficiently
The trust funds are outside the settlor’s estate and should
be payable free from Inheritance Tax (please refer to the ‘Tax
Why aPPoInT addITIonal TruSTeeS?
implications’ section in these notes). The advantage of paying the benefits at the ‘right’ time will be
lost if there is no surviving trustee to receive payment of the
policy proceeds. If the settlor dies as sole trustee, their personal
TruSTS are noT For everyone representatives would then have to wait until Probate or Letters of
If, for example, the settlor may need personal access to the Administration have been granted before appointing new trustees.
funds in future – either as income or capital, or as security for a
Appointing an additional trustee, therefore, increases the chance
loan – then use of a trust is not appropriate.
of having a surviving trustee at the time of a claim and, where
Alternatively, some policies are also designed to provide benefits required, allows the policy benefits to be redirected between the
for the enjoyment of the policyholder, e.g. on diagnosis of a potential beneficiaries.
critical illness – again, a trust may not be suitable if advantage
For Flexible Trusts governed by Scottish Law, the trustees can
needs to be taken of these.
make decisions by majority vote. This includes the decisions
regarding the reappointment of the trust benefits.
Tax ImPlIcaTIonS Who pays the Inheritance Tax?
IHT due on the gift can be paid by the trustees or by the settlor.
For a policy subject to a Flexible Trust, there are both Inheritance
If the settlor pays, the tax itself represents an additional gift by
Tax and Income Tax issues to consider.
the settlor and increases the value of the transfer made.
InherITance Tax death of the settlor:
This type of trust is affected by the changes in the Inheritance The trust fund does not form part of the settlor’s estate for IHT.
Tax (IHT) treatment of trusts introduced by the Finance Act 2006 However, any immediately chargeable transfers (and PETs that
and will be taxed in the same way as a discretionary trust. become chargeable) made in the 7 years before death will be
taken into account, in chronological order, for IHT calculation
As a result, there are possible charges to IHT when making gifts purposes. These gifts may then be subject to IHT at 40%. Any
to the trust, on every 10th anniversary of the trust and whenever IHT paid at the time of a gift will be deducted from any further
capital leaves the trust. In certain circumstances, returns will liability arising on it. Taper relief may also be available to reduce
have to be made to HM Revenue & Customs (HMRC). any tax payable.
However, in reality, an IHT liability is not expected to arise in
most instances, especially where the only asset of the trust is a changing the default beneficiaries:
protection policy. There is no transfer of value if the trustees use their power
of appointment to change the default beneficiaries or their
A summary of the current position follows.
If the gift, together with any similar gifts made by the settlor,
death of a beneficiary:
Since the trust fund is not in the estate of any beneficiary, there
exceeds £10,000 in any tax year or exceeds £40,000 over a 10
are no IHT implications when a beneficiary dies.
year period, a return has to be made to HMRC within 12 months
of the transfer being made. The settlor can obtain the relevant
forms direct from HMRC (IHT 100 & 100a). Periodic charge:
The trust fund is potentially subject to a periodic charge of up to
Returns will also need to be completed at the time of a potential 6% every 10 years. This calculation can be complex and takes
Periodic Charge (every 10 years) or Exit Charge (when capital is several factors into consideration. For this exercise, the trust
paid out of the trust) even if no tax is due. has its own nil rate band.
In simple terms, a periodic charge will only occur if the value of
Transfers into the trust:
the trust fund immediately before the 10th anniversary, plus the
All gifts to a Flexible Trust created on or after 22nd March 2006
cumulative total of any chargeable transfers made by the settlor
are treated as immediately chargeable transfers.
in the 7 years before creating the trust, and any distributions
Premiums to life assurance policies are gifts for IHT. However, made from the trust in the last 10 years exceed the then current
regular payments will usually be covered by exemptions (e.g. nil rate band. Any excess will be taxed at 6%. Chargeable
normal expenditure out of income and/or the annual £3,000 transfers include immediately chargeable transfers and any PETs
allowance) and should not give rise to an immediate IHT charge. that subsequently become chargeable.
Lump sum payments may also be totally or partially exempt. If assets are added to the trust, the previous periodic charge will
be re-calculated to reflect this.
If the value of the current transfer (after allowing for available
exemptions) and the total of all other immediately chargeable Other trusts set up on the same day as this trust can also result
transfers in the previous 7 years exceeds the (then) current nil in a higher periodic charge.
rate band, IHT is payable on the excess at 20%.
If the settlor survives an immediately chargeable transfer by exit charge:
7 years, the gift becomes fully exempt and falls out of the If the trustees decide to exercise their power of appointment and
settlor’s estate. distribute capital to a beneficiary between 10 year anniversaries,
an exit charge (also known as the proportionate charge) may
Joint settlors each have their own exemptions and gifts will be arise. This will be based on the tax rate applicable at the last
treated as being made on a 50:50 basis. periodic charge but will be scaled down according to the number
Placing an existing policy into the trust is also a gift for IHT. of quarterly periods (3 months) that have expired since then. If
For a non term assurance policy, the value for IHT will be the the tax rate at the last periodic charge was zero, there will be no
market value (normally the surrender value) of the policy or exit charge.
the premiums paid to date, if greater. In the case of a term Special rules apply if capital leaves the trust before the first 10
assurance, the market value applies and will be minimal unless year anniversary. Provided the total of chargeable transfers made
the life assured is in serious ill health at the time. by the settlor in the 7 years up to the date of the trust is within
the nil rate band, no exit charge should arise. This is because
the rate of tax for this purpose is determined by the value of the
trust fund immediately after it was set up.
2 Flexible Trust
Qualifying policies (e.g. an endowment policy)
Provided that premiums are maintained for ten years or three-
quarters of its premium paying term (whichever is less) the policy
proceeds will be free of any further liability to income tax.
non qualifying policies (eg an investment bond)
For a non qualifying policy, a ‘chargeable event’ such as full
encashment, withdrawals in excess of the 5% annual allowance,
or death of the life assured can trigger a ‘chargeable gain’ that
is potentially liable to higher rate income tax.
Who pays the income tax?
The following summary is based on the assumption that the non
qualifying policy has been issued by a uK life office and the settlor
and the trustees are regarded as uK resident for tax purposes.
The settlor is alive:
If the settlor is alive, any chargeable gain is assessable on the
settlor for higher rate tax. If appropriate, top slicing relief may
reduce or even eliminate a potential charge to higher rate tax.
Any tax paid can be recovered from the trustees.
A chargeable gain can also affect the settlor’s eligibility to age
allowance or Government tax credits.
The settlor is dead:
Any gain arising in the tax year of the settlor’s death will still be
assessed on the settlor. Otherwise, the trustees will be liable to
higher rate tax on the gain. However, the first £1,000 of income
taxable on the trustees in any tax year is taxed at only basic rate
and therefore gains up to this level will not suffer any further tax.
Policy is assigned to an adult beneficiary:
If the trustees decide to assign a policy to a beneficiary in
satisfaction of an entitlement, this is not a chargeable event.
Any gain arising on its subsequent encashment will be taxed
with reference to the beneficiary’s own tax position rather than
that of the settlor or the trustees. An assignment may, however,
generate an IHT exit charge.
Normally membership rights in the Society apply to the
policyholder (or policyholders in the case of joint life policies).
On transferring ownership of a policy by assigning that policy to a
trust, membership rights do continue, but are transferred to the
first named trustee on behalf of the beneficiaries of the trust.
These notes reflect the Society’s understanding of current
legislation and HM Revenue & Customs practice; these may
change in future.
These notes are provided for general guidance only. Please
contact your financial adviser or solicitor if you need advice on
trusts which are specific to your circumstances.
Flexible Trust 3
a guide To compleTing
The Flexible TrusT
Policyholder and trustee details
n Where the policy is yet to
Do not date n This declaration of trust is made on the day of
start, do not insert the date Leave blank unless the trust
day month year
– LV= will do this afterwards, is for existing policies. If n
(Full names of first policyholder)
of (Address of first policyholder)
when the policy commences. your policy has started, and (Full names of second policyholder)
insert date you complete of (Address of second policyholder)
n Where the policy has already
this Declaration. (‘the Settlor’)
started, insert the date of AND 2
completing the Trust Declaration.
(Full names of first trustee)
n of (Address of first trustee)
n Insert the name(s) and address(es) Give details of the and (Full names of second trustee)
of (Address of second trustee)
of the policyholder(s). Where there policyholder(s).
and (Full names of third trustee)
are two policyholders, both must
of (Address of third trustee)
complete the Trust Declaration. Original trustees and (Full names of fourth trustee)
of (Address of fourth trustee)
Enter the names of the
n Insert the full name(s) and policyholder(s) unless they (‘the Original Trustees’)
address(es) of the policyholder(s) are not to be included as
if they are to be trustee(s) and trustee(s). Give details for
each individual who is to act each individual who is to
as an additional trustee. act as an original trustee.
Page 2 NOW THIS DECLARATION OF TRUST WITNESSES AS FOLLOWS
1 In this deed ‘the Trustees’ means the trustee or trustees for the time being of this settlement (which at the date of this deed are
the Original Trustees) and ‘Trustee’ means each and any of the Trustees.
2 The Settlor as bene cial owner hereby assigns the Policies and all bene ts payable thereunder to the Original Trustees to hold
the same on the trusts described below and subject to the Trust Provisions described in Schedule IV.
3 The Trustees shall hold the Policies and all bene ts and monies payable thereunder, and all investments and property for the
time being representing the same (‘the Trust Property’) upon trust for such one or more exclusively of the other or others of
n Schedule I is the place for the persons referred to in Schedules I and II as the Trustees in their absolute discretion shall appoint by Deed revocable or
irrevocable and executed at any time or times not later than 24 months after the date of death of the life assured under the
Policies, or the death of the second life assured to die if there is more than one life assured under any of the Policies.
listing the full range of potential
4 Subject to and in default of any appointments under clause 3 above or insofar as any appointments shall not fully dispose of
the Trust Property the Trustees shall hold the Trust Property upon trust for the person or persons described in Schedule II in the
shares therein stated or in the absence of any shares being stated in equal shares absolutely.
beneficiaries. It already includes the
5 It is hereby certi ed that this instrument falls within category N of the Schedule to the Stamp Duty (Exempt Instruments)
Regulations 1987, as amended.
In witness whereof the Settlor and the Original Trustees in acceptance of their appointment have hereunto set their hands to this
Declaration of Trust in the presence of the attesting witnesses on the day and year rst above written.
close family members most likely SCHEDULE I (Persons in favour of whom an appointment may be made)
to be considered. There is space,
1 Any widow or widower of the Settlor (provided such widow or widower is not also a Settlor)
All potential beneficiaries n 2
Any Civil Partner of the Settlor immediately prior to death (provided such Civil Partner is not also a Settlor)
Any child or grandchild of the Settlor
on line 5, to add other potential Insert details of anyone you 4
Any person named in Schedule II below
beneficiaries to the list – for example, may ever wish to benefit, (Insert details of any persons you may ever wish to bene t, who are not already included in the schedule)
nieces, nephews, brothers, sisters who is not already included SCHEDULE II (Persons entitled if no appointment is made)
Full names Share entitlement Full names Share entitlement
in the list. n 1 2
or named individuals. Full names, 3 4
(Insert full names of the current bene ciaries, ie the person or persons whom you would wish to bene t if you were to die now,
indicating the proportion of the proceeds they should receive.)
including the maiden names of SCHEDULE III (Life Policies)
Default beneficiaries Policy number(s) Effected with (name of company) Dated
married women, should be stated.
Insert full names of all n
Enter in Schedule II the full names of the people you want to
(Insert the details of the policies which are to form the trust assets.)
n (‘the Policies’)
the beneficiary or beneficiaries, who benefit if you were to
are appointed at the start, (these die now, indicating the
proportion of the proceeds
are the people who will benefit from
they should receive.
the trust in the absence of any later 2 Flexible Trust
redirection of benefits) together
with the proportions of the policy Enter the policy number(s)
proceeds which are to go to them. and start date(s) of the
policy(s), if you know
Policy details them. If you don’t, then
n In schedule III enter the policy LV= will do this later.
number(s) and start date if this
is for an existing policy(s), and
you know them. If it is for a new
policy, and you don’t know the
details, LV= will do this later.
4 Flexible Trust
Page 3 SCHEDULE IV (Trust Provisions)
n Schedule III (trust provisions) 1 The provisions of section 31(1)(i) of the Trustee Act 1925
shall not apply. The Trusts hereof shall carry any intermediate
income and subject to and in default of any appointment any
such income accruing in the hands of the Trustees shall be
d) To loan the whole or any part of the Trust Property to
any one or more of the persons set out in Schedules I
and II on such terms as to interest and security (if any)
and otherwise generally in all respects as they in their
paid to or applied for the bene t of the person or persons absolute discretion think t.
who would be entitled to the Trust Property if no further
This sets out the operation of the trust.
e) To recover receive or give valid receipts for all monies
appointment under this trust could be made, provided that due or to become due under any of the policies so
the Trustees may until any bene ciary who is a minor attains that the receipt by the Trustees of any monies under or
the age of majority pay or apply the whole or such part (if deriving from any dealing with any of the Policies shall be
any) as they think t of the income of the Trust Property and a full and nal discharge to the company the policy was
appropriate to that bene ciary’s interest in the Trust Property effected with and it shall not be concerned to see to the
If the trust is to be governed by Scottish
or towards the maintenance, education or bene t of such application of any such monies.
bene ciary and shall accumulate the surplus, if any, of such
f) By deed or deeds revocable during the perpetuity or trust
income and the resulting income thereof holding the said
period or irrevocable to delegate to any person (including
income for the sole bene t of such bene ciary absolutely.
to any single Trustee other than those mentioned in
Law the settlor(s) should initial the 2 The statutory power of appointing or discharging trustees
shall where necessary be modi ed as follows:
a) The power of appointing new or additional trustees shall
clause 3) the exercise of any power or powers (other
than the power conferred by this clause) in making
managing realising or otherwise dealing with any property
box(es) at the end of the page. Otherwise
be vested in the Settlor or in the survivor of them if more comprised in the Trust Property.
than one and after the Settlor’s death in the Trustees g) To employ and pay at the expense of the Trust Fund
b) A Trustee may be discharged by the other Trustees where any agents (other than those mentioned in clause 3)
the Trustee who is being discharged cannot be found, to transact any business or do any act in the execution
the trust will be governed by the Law of provided that:
i) none of the other Trustees have been in contact with
the Trustee to be discharged within the preceding
of the trust and no Trustee shall be liable for any loss
arising from the fraud or negligence of any such agent
employed in good faith even though the employment of
such agent was not strictly necessary or expedient.
England and Wales.
twelve months and
ii) the other Trustees (or one or more of them) have h) To pay or transfer any capital or income to be paid
made reasonable efforts to make contact with the to or applied for the bene t of a bene ciary who is
Trustee to be discharged and under a legal disability to any parent or guardian of
that bene ciary or to such person on behalf of such
iii) the discharge is made by deed executed by all of the
bene ciary as the Trustees shall think t and the receipt
continuing Trustees being at least two in number and
of such person shall be a complete discharge to the
including one person who is not the Settlor.
Trustees who shall be under no obligation to see to the
Without limitation as to the generality of the foregoing proper application thereof.
the continuing Trustees shall be conclusively presumed
i) At any time or times by deed or deeds to revoke or
to have made reasonable efforts to make contact with
vary the administrative provisions of this trust and
the Trustee to be discharged if they have written to the
to add any further administration provisions that the
last known address of that Trustee without success and
Trustees may consider expedient for the purposes of
similarly investigated all alternative addresses noti ed to
them during the course of the enquiry.
5 The Trustees shall not be obliged to keep the Policies
3 For the avoidance of doubt, the Trustees may not exercise
in force or to reinstate them or to effect new policies in
their discretion or powers contained herein or any other
relevant powers conferred on them by law so as to bene t
the Settlor, the Settlor’s spouse or the Settlor’s Civil Partner 6 Any Trustee (other than the Settlor or the Settlor’s spouse)
(as de ned by The Civil Partnership Act 2004) in any way being a solicitor or other person engaged in any profession,
whatsoever. business or trade, may charge and be paid all usual
professional, business and trade charges for business
4 The Trustees shall have the following powers in addition to
transacted, time expended and acts done by him (or any
all relevant powers conferred by law:
employee or partner of his) in connection with the trusts
a) To invest the monies payable under the Policies or any hereof, including acts which a trustee not being in any
part thereof in any investments of whatsoever nature and profession, business or trade could have done personally.
whether bearing income or not and wheresoever situate
7 Where the proper law of this trust is the Law of England and
as freely as if they were the bene cial owners thereof.
Wales the perpetuity period applicable to this deed shall be
b) To borrow money on the security of the Trust Property for the period of 80 years from the date of this deed. Where
any purpose whatsoever including more investment. the proper law of this trust is Scottish law the Trustees shall
c) To pay or apply the whole or such part as the Trustees be permitted to exercise the powers under this trust for 80
shall in their absolute discretion think t of the Trust years from the date of this deed.
Property for or towards the advancement, maintenance, This Declaration of Trust shall be governed by and construed in
education or bene t of any person or persons having accordance with the Law of England and Wales unless the box
the bene cial right to trust income for the time being incorporated in this clause is initialled by the settlor in which
including the payment of inheritance tax and a receipt case the proper law of this trust shall be Scotland.
given by a parent or guardian of any minor bene ciary
Initials of the rst settlor where
shall be a suf cient discharge.
Scottish Law is to apply
Scottish Law n Initials of the second settlor where
Scottish Law is to apply
The Settlor(s) should Flexible Trust 3
initial this/these box(es) if
Scottish Law is to apply.
Page 4 SETTLOR(S)
Settlor(s) n First settlor
Signed as a deed by the said
executing the Flexible trust Policyholder(s) sign here, Witness to rst settlor
In the presence of
n The policyholder(s) and the newly together with witnesses. Signed as a deed by the said
appointed trustees must sign the
Second settlor Name Signature
In the presence of
Witness to second settlor Name Signature
Declaration. Their signatures have to Original trustees Address
be independently witnessed, with the People acting as original ORIGINAL TRUSTEES
Signed as a deed by the said
witnesses including their names and trustees, as shown on n First trustee Name
In the presence of
page 1, sign here, together Witness to rst trustee Name Signature
addresses as well as their signatures. Address
with witnesses. Signed as a deed by the said
Second trustee Name Signature
In the presence of
Witness to second trustee Name Signature
Signed as a deed by the said
Third trustee Name Signature
In the presence of
Witness to third trustee Name Signature
Signed as a deed by the said
Fourth trustee Name Signature
In the presence of
Witness to fourth trustee Name Signature
DELIVERY OF POLICIES – PLEASE ENSURE COMPLETION OF THIS SECTION
WHERE SCOTTISH LAW IS TO APPLY
I/We the above named Trustee(s) hereby acknowledge and accept our appointment as
Trustee(s) and request that the Policies be delivered to me/us *
as per our Agent.
* Please delete/insert as appropriate.
4 Flexible Trust LV-Trustdoc/C/0301 71714 05/07
WhaT haPPenS nexT?
Send the completed deed to LV= for
registration. We will return it to you
afterwards, for safe keeping with the
In future we will deal with the trustees
as owners of the policy(s) and may need
the Trust Declaration as proof of title
whenever a claim is made.
The address of the first named trustee
will be used for future correspondence.
5 Flexible Trust
LV= and Liverpool Victoria are trade marks of Liverpool Victoria Friendly Society Limited and LV= and LV= Liverpool Victoria
are trading styles of the Liverpool Victoria group of companies. Liverpool Victoria Life Company Limited registered in England
No. 597740, authorised and regulated by the Financial Services Authority, entered on the Financial Services Authority
Register, No. 110423. Registered address: County Gates, Bournemouth BH1 2NF. Tel: 01202 292333.