CII R05 Trusts for Life Assurance

Question 1

What is the primary reason for writing a life assurance policy in trust?

Accepted Answer

To ensure proceeds are paid outside the estate, avoiding probate and potential IHT

Answer

To reduce the monthly premium

Answer

To increase the sum assured

Answer

To allow the insurer to invest the premiums more effectively

Question 2

In a life assurance trust, who is the 'settlor'?

Accepted Answer

The person who creates the trust by placing the policy into it

Answer

The person who receives the benefit

Answer

The insurer who issues the policy

Answer

The solicitor who drafts the trust deed

Question 3

What is the role of the 'trustee' in a life assurance trust?

Accepted Answer

To legally hold the trust property and administer it for the benefit of the beneficiaries

Answer

To pay the premiums on the policy

Answer

To assess whether a claim is valid

Answer

To underwrite the risk on behalf of the insurer

Question 4

Under a discretionary trust, who determines how the life assurance proceeds are distributed among beneficiaries?

Accepted Answer

The trustees, using their discretion

Answer

The settlor, in their will

Answer

The beneficiaries themselves by majority vote

Answer

HMRC, based on the beneficiaries' tax positions

Question 5

What is a 'bare trust' in the context of life assurance?

Accepted Answer

A trust where specific, named beneficiaries have an absolute and immediate right to the trust assets

Answer

A trust with no named beneficiaries

Answer

A trust that can be revoked by the settlor at any time

Answer

A trust used exclusively for pension purposes

Question 6

Why might a policyholder choose a discretionary trust over a bare trust for their life assurance policy?

Accepted Answer

Discretionary trusts allow trustees to respond to future changes in family circumstances without needing to update the trust

Answer

Discretionary trusts have lower administration costs

Answer

Bare trusts are only available to companies

Answer

Discretionary trusts attract lower inheritance tax rates