13th June 2019

2020 Conundrum. Trust registration

The onerous registration rules would take dealing with trusts from complex to almost impossible, writes Ruth Gilbert

In 2017, an obscure beneficiary registration trap was brought in for life policy trusts. It’s pointless, complex and best ignored, which is what life companies and advisers have sensibly done. After all, the much more important thing to do is to ensure life cover reaches the intended loved one. Especially with the growing numbers of unmarried couples risking total loss of the cover meant for them.  

But now it looks like trust registration for life policies can’t be ignored. Even worse, it threatens to kill off nearly all use of trusts for new business and place the industry in an impossible position for existing business.  

Anti-money laundering / financing terror

This new threat to protection is hidden deep in HM Treasury’s consultation (ending next Monday) about keeping us up to international standards for the prevention of money laundering and financing terror. The general thrust of the overall proposals is laudable and necessary, when you think of the crimes of greed, theft and violence this is all designed to prevent.  

But when it comes to protection. it makes no sense at all. Life insurance is acknowledged as “low risk” in the UK’s risk assessments. Of life insurance types, pure protection, both individual and group must be lowest risk of all as they have their own built-in money laundering deterrent. Someone has to die for the money to wash through, and baddies doing life of another have the insurable interest hurdle, whilst both suicide and murder are at high risk of no payout.  

What’s more, other countries aren’t targeting life policy trusts, or even thinking of them, because for most countries, they’re unnecessary. Despite this, the consultation explicitly states there will be no exemptions or de minimis thresholds. 

The proposed new rules

The new law is due to be brought in by 10 January 2020. 

From 1^stApril 2020 (appropriately enough) ALL life policy trusts will have to start being registered with the government by the trustees or their agents.   

So all new trusts on or after 1st April would have to register within 30 days. Existing trusts already in place at 10th March 2020 by would have until 31^stMarch 2021. Or face a fine for being late. What we don’t know yet is what the fines would be. 

Everybody to do with the trust will have to be identified, including classes of beneficiaries. Specifics will be required about every individual involved. It’s not explicitly stated, but common sense implies this doesn’t extend to individuals who happen to be just covered by a “class”….hopefully? (A narrow class could be thought a loophole though.) 

The required details for the settlor, trustees, beneficiaries and any “protector” would be name, date of birth, nationality, country of residence and role under the trust. There’s also mention of toying with asking for national insurance number or passport number! 

How bad would this be?

Very bad. For all involved with single life policies. Except, of course, for customers of Guardian who have brilliantly already managed to avoid the need for trusts with their Payout Planner solution. 

For everyone else, from customers, to advisers, to insurers with extensive back books, to the industry as a whole, this is all a bit of a mess. Or rather, a personal disaster for the extra future claimants who now won’t get their intended payout because doing a trust seemed too onerous. 

The numbers showing the scale of this problem for new and existing business can be found in the rest of the Cover article where it was first published

Ruth Gilbert heads up insuringchange.co.uk 

This article was first published in Cover.

Partner Lead Story, Regulation