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

Writing a life policy in trust means the proceeds are owned by the trust, not the deceased's estate. This avoids the delay of probate, potentially avoids inheritance tax, and allows for quicker payment to beneficiaries.

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 settlor is the person who creates the trust — in a life assurance context, this is typically the policyholder who assigns the life policy into the trust.

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

Trustees are the legal owners of the trust assets. They hold and manage the policy and, on a valid claim, collect and distribute the proceeds to the beneficiaries in accordance with the trust deed.

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

Under a discretionary trust, the trustees have discretion to decide how, when, and to whom the proceeds are paid from among the class of potential beneficiaries, giving maximum flexibility.

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

Under a bare trust, named beneficiaries have an absolute and indefeasible right to the trust assets. The trustees hold legal title only — the beneficial ownership belongs entirely to the named beneficiaries.

CII R05 Practice Test

CII R05 Practice Test

CII R05 Trusts for Life Assurance