What is a split trust?
For protection policies only14 February 2017
A split trust effectively combines two separate trusts in one:
- First, the terminal illness or death benefits are held by the trustees for beneficiaries other than the settlor. These benefits are known as the ‘gifted benefits’. The only exception would be a joint-life first death policy, where a joint settlor will be able to benefit from these gifted benefits, if the joint settlors elected for the survivorship option to apply, when the trust is set up and the surviving settlor survives by 30 days following the first death.
- Second, any income protection benefits and any benefits paid in the event of critical illness or total permanent disability are held for the absolute benefit of the settlor. These benefits are known as the ‘retained benefits’. The settlor can choose to have the retained benefits treated as gifted benefits by initialling the relevant box on the trust deed, when the trust is set up. If the settlor chooses to initial this box they’ll be giving up all rights of access to these benefits in the future.
Trusts establish legal rights and entitlements and might have material financial and tax implications for the Settlor, Trustees and Beneficiaries. Aegon UK is not 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 requirements. Our trusts have been drafted for use by UK domiciled individuals.