What if an owner leaves the business and has an own life policy in our business trust?
For protection policies only. This information is for intermediaries only. It mustn't be distributed to, or relied on by, customers.14 January 2019
General partnerships and limited liability partnerships (LLPs)
If a partnership, including a limited liability partnership, is dissolved other than because of the partner or member's death, or the partner or member resigns or retires from the business before a death or critical illness claim, then the policy and any subsequent claim proceeds will be held under the business trust for the absolute benefit of the relevant partner or member, as settlor of the trust. Where the trustees hold the policy for the settlor absolutely, the value of the policy will form part of the settlor's inheritance tax (IHT) estate. The trustees can assign the life policy to the departing partner or member (as settlor of the trust) and the departing member or partner may subsequently decide to assign this to another trust such as our Flexible Trust(Opens new window) to help mitigate the risk of IHT. The beneficiaries of the Flexible Trust(Opens new window) include the family members of the settlor, so the departing partner or member could use the life policy for personal protection.
If a shareholder no longer owns shares in the company, for any reason other than their death, and before a death or critical illness claim, then any subsequent claim proceeds will be held under the business trust for the benefit of that shareholder absolutely, as settlor. The trustees can assign the life policy to the departing shareholder and, as above, they could subsequently decide to assign the policy into a Flexible Trust(Opens new window).
Revolving door clause - general partnerships, LLPs and limited companies
The ‘revolving door’ clause means that the departing owner will automatically be removed as a beneficiary of the business trusts set up by the other owners. If the departing individual is a trustee of the other owners' policies, it would be usual for them to retire as a trustee. We can provide a sample deed(Opens new window) for this purpose.
Trusts establish legal rights and entitlements and might have material financial and tax implications for the settlor, trustees and beneficiaries. Aegon UK isn't authorised to provide legal advice, so you should take your own legal advice before setting up a trust, to make sure that it meets your clients' requirements. Our trusts have been drafted for use by UK domiciled individuals.