Relevant Life Cover Policies for 2 Directors (or a Couple)

[arpat123]

Dear Experts.. I would sincerely appreciate your help here.

I have a limited company with only 2 directors; me and my spouse. I noticed that going for a relevant life cover, premiums paid by company bank account is tax efficient. Therefore, I am thinking of taking a relevant life cover for me for which trustee will be Company and my wife.
I am also thinking of taking another relevant life cover for my wife for which trustee will be company and me.

However, I am purplexed with 2 questions:

Q1. Am I okay in buying 2 separate relevant life covers as above? Would it help me get away from IHT? The reason for asking is below lines from "Adviser Guide to the Discretionary Trust - PruProtect"
Care should also be exercised if a couple each wish to create a Trust and contemplate including their spouse/partner as a Beneficiary of their respective Trusts. Such an arrangement (sometimes referred to as “mirror trusts” or “tandem trusts”) is likely to fall foul of the gift with reservation of benefit provisions and thus make the Trusts ineffective for IHT purposes.

Q2. In the unfortunate event that me and my spouse die at the same time, what would happen to the relevant life cover amounts? Will my child get that amount, I am worried because he is a minor and not a Director of the company? What more can I do proactively to help him in such unforeseen situation?

Your help and guidance would be immensely useful.


Regards,
Tom

[SteelyDan]

Dear Experts.. I would sincerely appreciate your help here.

I have a limited company with only 2 directors; me and my spouse. I noticed that going for a relevant life cover, premiums paid by company bank account is tax efficient. Therefore, I am thinking of taking a relevant life cover for me for which trustee will be Company and my wife.
I am also thinking of taking another relevant life cover for my wife for which trustee will be company and me.

However, I am purplexed with 2 questions:

Q1. Am I okay in buying 2 separate relevant life covers as above? Would it help me get away from IHT? The reason for asking is below lines from "Adviser Guide to the Discretionary Trust - PruProtect"
Care should also be exercised if a couple each wish to create a Trust and contemplate including their spouse/partner as a Beneficiary of their respective Trusts. Such an arrangement (sometimes referred to as “mirror trusts” or “tandem trusts”) is likely to fall foul of the gift with reservation of benefit provisions and thus make the Trusts ineffective for IHT purposes.

Q2. In the unfortunate event that me and my spouse die at the same time, what would happen to the relevant life cover amounts? Will my child get that amount, I am worried because he is a minor and not a Director of the company? What more can I do proactively to help him in such unforeseen situation?

Your help and guidance would be immensely useful.


Regards,
Tom

I have one of these RLIs, paid for via myco, but you really need to approach an IFA to sort this out, rather than asking 'randomites' on a web forum, and also ensure your accountant is aware.

[northernladuk]

Speak to a contractor specialist like Freelancer Financials. They should be well versed in these scenarios.

[eek]

Speak to a contractor specialist like Freelancer Financials. They should be well versed in these scenarios.

I just took out the IPSE version. That was cheaper than the figure any broker could find...

[arpat123]

Thank you

Thank you everyone.

I am seeking advice of an IFA as well but he does not sound confident about the clarification around these questions (with all due respect to him, I don't have confidence in him). I don't want to end up signing up to something because of a wrong piece of advice by someone. But as an adult, I think it is my responsibility as well to do research and try to find out the answers.

With this purpose, I posted these questions in the forum and as said earlier, I appreciate your inputs so far.
If someone has more clarity around this matter, then I would request him/her to share the knowledge for the benefit of wider community.

Thanks a lot.
Tom

[WordIsBond]

Some discussion:
Relevant Life Plans - 10 facts for contractors

Mentioned here:
EIM15021 - Employer-financed retirement benefits schemes: definition of 'relevant benefits' and 'excluded benefits'

Discussions from some providers:
http://scottishprovident-businesspro...ide-to-RLP.pdf

http://www.brightadviser.co.uk/downl...r-advisers.pdf

[Mark McBurney@CMME]

Be very careful which policy your adviser is applying for; as an example Legal & General offer a product called 'Business Term Assurance' as well as 'Business Relevant Life Plan' which will be identical in price and structure, with the difference being that the Business Term Assurance effectively acts like a 'Key Man' insurance, i.e. the company is protecting itself against the loss of its employee, and any payout would go to the company in order to do whatever it wants with.

With an RLP, it's provided as a benefit to the employee, as a 'Death in Service' benefit, and you can nominate via trust whoever you like as beneficiaries in the event of a payout - this can be either shareholders of the company or otherwise.

It's easy to confuse the two if you don't deal with this type of cover very often, but it could make a massive difference at the point of payout if the adviser gets it wrong.

With regards your first question; there is usually a limit of between 15-25 times your remuneration (including dividends, excluding expenses) through the company, which few people ever get near breaching, but this will be over all policies, so you'd still have the same limit even with two policies with different providers. Essentially they're trying to make sure you're not worth more dead, than alive, as crude as that sounds.

It is also my understanding that having mirrored policies would be fine, provided both policies are insuring just one person (i.e. the employee of the company), of course both need to be employees of said company. The fact that there is a relationship between the two applicants is irrelevant as the company is providing the death in service benefit on their behalf, who they nominate within the trust as the beneficiaries are a separate matter. You may find that wording with PruProtect (now Vitality Life - not the most user friendly company to deal with) is aimed more at discretionary trusts for 'standard' life cover rather than cover through a LtdCo - I'd double check as it will be a different trust that is formed for each policy.

Best wishes,

Mark

[arpat123]

Thanks but...

Hi Mark,

Thank you very much for your response.

Logically I agree with you. The 2 employees for which RLPs are taken happen to be husband and wife but the policies are taken for them by the company because they are employees of the company not because they are husband and wife.
The way I am planning to get it done is through 2 separate trusts; one for each policy. From the Inhertance Tax perspective, I had doubt because, husband would happen to be the beneficiary in the trust set up for wife's policy and wife would happen to be the beneficiary in the trust set up for husband's policy. If IHT exemption gets lost due to this structure, then it would be good to know that now.

Also in general, what happens if the policy holder dies and the beneficiary also happens to be not alive (accidents for example). The life cover amount then goes to the minor child of the beneficiary by default or it is better to have minor child as the beneficiary (if possible) in the policy?


Regards
Tom

[Mark McBurney@CMME]

Hi Mark,

Thank you very much for your response.

Logically I agree with you. The 2 employees for which RLPs are taken happen to be husband and wife but the policies are taken for them by the company because they are employees of the company not because they are husband and wife.
The way I am planning to get it done is through 2 separate trusts; one for each policy. From the Inhertance Tax perspective, I had doubt because, husband would happen to be the beneficiary in the trust set up for wife's policy and wife would happen to be the beneficiary in the trust set up for husband's policy. If IHT exemption gets lost due to this structure, then it would be good to know that now.

Also in general, what happens if the policy holder dies and the beneficiary also happens to be not alive (accidents for example). The life cover amount then goes to the minor child of the beneficiary by default or it is better to have minor child as the beneficiary (if possible) in the policy?


Regards
Tom

Hi Tom,

It depends which provider you're using, some will allow you to effectively allocate 200% of the proceeds within the trust to allow for that scenario, i.e. you put Mrs Tom as 100% beneficiary and then specify that should she not be alive at the time of the policy paying out then Tom Jnr receives 100% - there should be a number on the form that you have, give the provider a call and ask how they would require this annotated, but it's certainly possible.

The two trusts will work as with life cover related trusts, there is usually one per policy in any case so that appears to be the right solution for your requirements there.

Best wishes,

Mark