The Life Insurance Trust is an insurance product based on a new concept that has been designed jointly between Middlesea Valletta and Bank of Valletta, which Trust product is available for both new and existing life policies issued by MSV.
What is a Life Insurance Trust?
It is an irrevocable legal agreement that you (the Settlor) can establish with BoV as Trustee, and is specifically designed for your Trustee to hold and manage your life insurance policies. Once a LIT is established, you may either transfer ownership of your new life policy to BoV as Trustee of the LIT or, designate BoV Trustee as the Primary Beneficiary of any existing policies.
Upon your death, all proceeds emanating from the policy are paid to BoV as Trustee who then applies these proceeds in accordance with the provisions established in the Trust Agreement for the benefit of your chosen beneficiary/ies.
Who may I nominate as Beneficiary of the LIT?
The Beneficiary is the person/s who will ultimately benefit from the proceeds payable under the policy and may be anyone from the Settlor himself, his spouse, partner, relatives, business partners, charities, foundations, associations as well as any other ascertained or ascertainable person.
Why should I consider setting up a LIT?
The benefits of a LIT are countless but some of the most important ones are highlighted below:-
Estate planning
A LIT can be used in estate planning to accomplish three primary objectives:
1. A well structured LIT can be used to incentivize beneficiaries, example children, to engage in positive behavior, since the Trustee may be granted the discretion of not making distributions from this policy until the beneficiaries reach adulthood, or unless they have demonstrated positive conduct.
2. In an estate, laden with real estate assets, a LIT can be used to pay large estate tax bills without having to dispose of any of the properties.
3. Whether your spouse is living in a special care facility, or whether you have children who are still minors or suffer from some disability that prevents them from administering your inheritance, then a LIT can be set up to make payments for education, health or other relevant needs. The income emanating from the LIT will help support your beneficiaries whilst protecting them from the risk of wrong investment choices. In these situations, the LIT can provide for proper management and conservation of the insurance proceeds for the continued benefit of the beneficiary/ies.
Asset Protection
Since the LIT forms a separate patrimony, throughout its existence the policy cannot be attacked by the Settlor's creditors (unless, of course, this was done with a fraudulent intention). Furthermore, the proceeds payable under the policy will also be protected from the Beneficiaries' creditors.
As regards children from prior marriages, the Trustee will manage and invest the distribution of the policy proceeds on behalf of the children as opposed to the legal guardian, such as an ex-spouse who may remarry or squander the proceeds.
Alternatively, if you have children from a prior marriage, but want your current partner to be the Beneficiary, then a LIT is the right option since, you may, through a Letter of Wishes guide the Trustee to appoint your life partner as a beneficiary.
Access to funds and confidentiality
When you leave money in a will, a lengthy succession process is expected to follow. LIT's enable you to bypass such procedures and moreover since a LIT will not be exposed to the public, financial privacy is assured. Discretion and confidentiality as regards Beneficiaries as well as the existence of the Trust are always ensured.
What are the repercussions of not having a LIT?
Through a LIT, a settlor may indicate to whom, how much or how frequently policy proceeds are to be distributed. Not having a LIT would mean losing on all of these benefits, in particular not having control over how the life insurance policy proceeds are spent or invested.
How does the LIT function?
A LIT is set up once a policy is placed under Trust. There is no limit as to how many policies can be settled under Trust but for each policy a new Trust needs to be created. The policy can be pledged by the Trustee against the liabilities of Beneficiaries. Although the Trust is irrevocable, upon every fifth anniversary of the LIT, the Trustee may surrender the policy, provided this option exists under the policy conditions.
Letter of Wishes
The Settlor/s may send LOW's to the Trustee to guide him on the appointment and / or removal of the Beneficiary/ies as well as to the portions to be distributed to each of them, from the proceeds payable under the policy.
Tax
A LIT will not impinge on the current fiscal benefits enjoyed by a policyholder, and thus such policies are not subject to any tax upon the payment of the death proceeds.
In conclusion
We consider the LIT to be an innovative, flexible and special kind of life insurance Trust product which should address many of our clients' needs, whilst ensuring the utmost confidentiality and peace of mind.
Bank of Valletta plc is authorised to act as a trustee by the Malta Financial Services Authority. BoV is an enrolled tied insurance intermediary of Middlesea Valletta Life Assurance Company Limited. MSV is authorised and regulated by the MFSA to carry on long-term business of insurance under the Insurance Business Act 1998.