Meeting Consumer Duty obligations with trusts and advice

By Robert Betts, Market Development Manager  

Consumer Duty rules are coming fully into play in July this year, with the aim of substantially uplifting consumer standards. The rules will help firms to reduce risk, focus on where the biggest gaps are, and try to fix them first.

Trusts and your advice process 

Could you introduce Trusts into your advice process? It could be a quick, simple change that demonstrates high advice standards and delivers better outcomes for your clients. 

It’s generally agreed that putting a life policy in trust is good practice. The often-used description of the purpose of Trusts is, “Putting the right money, in the right hands at the right time.” This sums up perfectly why you might consider using trusts as part of your advice process.  

Policies not in trust, in the event of a claim 

What happens in the event of a claim, if a policy is not in trust? Does it deliver the right outcome?  

Swiss Re’s Life Cover Payouts Report* suggests that just 12.6% of new policies written in 2021 were put into a Trust.  

Low confidence and understanding of something that sounds technical could be a barrier for some advisers. A concern around getting it wrong or not being able to administer the process is an often-cited reason. But from July 2023 onwards will this still be an acceptable basis for not incorporating trusts? And will not talking about trusts mean your advice might not meet the new Consumer Duty rules?   

New best practice advising 

Advising clients to put a life policy in Trust is simple to administer and delivers a well-planned route to ensure that the payments from a claim are made as quickly as possible, enabling money to be used for its intended purpose. Which leads us back to the phrase, right money, right hands, right time 

There are many scenarios where this can benefit clients. 

How trusts can benefit different clients  

Mortgage protection claims: The trust receives the money and puts it into the hands of the beneficiary to repay the mortgage. 

Single Parent: If the worst should happen and the parent dies, the payment goes into trust for the benefit of the children, and the trustees will control the cash. The trustees may also be guardians appointed under a will and use the money to look after the children. 

Critical illness cover: The life insured may not be able to physically make the claim, so the trustees could make a claim on their behalf. An option is that the trust pays for private or alternative treatments adaptions to the home to help the life insured improve their health as much as possible.  

IHT reduction: Simply moving money from the estate of the life insured and into a trust can help shield the payments upon a claim from potential Inheritance tax charges. By understanding the purpose of the cover and what a claim payment would or could be used for, a trust is a simple way of ensuring those wishes are carried out. 

Join a webinar 

To learn more about putting policies into trust and delivering even better client outcomes – we host regular introductory webinars. Our aim? To help you add value to your overall service for the client.  Register here 




* Life Cover Payouts: Under the microscope – Swiss Re, 2023 PDF size: 660KB