For UK financial advisers only, not approved for use by retail customers. Click here for the customer website.

Probate Trust Case Study

4 min read 26 Nov 20

This is only an example of advice and isn’t based on a specific client’s circumstances. Your clients individual needs and circumstances will vary.

Alan is a 70 year-old widower remarried to Beth his second wife who owns their house valued at £220,000. They have modest joint bank accounts and the only investment in his sole name is an Insurance Bond worth £100,000 where he is the sole life assured. Alan takes withdrawals from his Bond to top up his pension. On his death he wants to leave the proceeds from his Bond equally to Beth and his daughter Carol who will use the proceeds to reduce her mortgage. Other than the house, Beth has no significant assets in her own name.

The adviser considers the situation and identifies these important facts about Alan -

  • Full lifetime access to the Bond is required.

  • Modest estate(s) well within the Nil Rate Band, so no Inheritance Tax (IHT) planning necessary.

  • Simply looking to speed up the distribution of the Bond proceeds after his death by avoiding the need for Probate.

  • Other than the Bond, he has no other assets requiring Probate (the joint bank accounts will pass automatically to Beth upon production of his death certificate).

The adviser recommends the use of a Probate Trust, and explains to him it’s for those - 

  • Requiring speedy access to Bond proceeds after death for beneficiaries.

  • Wishing to avoid the need for Probate in respect of the Bond.

  • Wanting proceeds to be paid via the trust rather than via their estate.

  • Requiring full access during their lifetime.

Alan assigns his existing bond into a discretionary Probate Trust provided by the Insurance company. Completion is straightforward and requires him to insert his particular Bond number in a space provided in the deed. Alan is automatically a trustee and appoints Beth & Carol as additional trustees. They are  aware that he wishes the proceeds to be split equally between them after his death should he die first. He can access the bond with the trustees’ consent and can change trustees in the future should that be necessary. The trust deed automatically includes Alan, Beth and Carol as pre-printed potential beneficiaries. He can add to the class of potential beneficiaries if he wants.

For Income Tax purposes, the gifted assignment into trust does not trigger a chargeable event.

For IHT purposes, the assignment gives rise to a Chargeable Lifetime Transfer and a Gift With Reservation (GWR). No lifetime tax is however payable as Alan has made no previous gifts. In addition there are no adverse tax consequences arising from the GWR as Alan is not within the IHT ‘net’.

Alan learns from his adviser that the Insurance Company does not offer a Bare Probate Trust. The reason being that although the Insurance Company could pay out the proceeds to surviving trustees without the need for Probate, those proceeds would then need to be paid to the estate of the deceased meaning that Probate would be required by the personal representatives.

During Alan’s lifetime, he has full access to the bond, and when he dies, the bond will pay out as he is the sole life assured and any chargeable event gain will be taxable on him in the tax year of death. The surviving trustees (probably Beth & Carol) can access the funds speedily with no Probate delay.

No adverse income tax or IHT implications arise for Alan setting up the Probate Trust. Upon Alan’s death, the surviving trustees can access the funds quickly with no Probate delay.

Advice Opportunities

Insight from our experts on specific generational needs, as well as the principal life events that drive intergenerational needs, helping you open up new conversations.

Go to page