When you take out a death in service insurance policy (also known as group life insurance), you will need to ensure a trust is in place to manage your scheme.
You may wish to join a master trust, which is a collective trust. This is set up and run by a third party to manage and administer death in service insurance policies.
A master trust can help avoid the hassle of setting up and managing your own scheme trust.
How does a master trust work?
When an employer selects a master trust, all insured employees become scheme members. The professional trustees of the master trust will hold the policy. They will be responsible for identifying any beneficiaries who may receive the payment should a claim be made.
For registered schemes, they will also be responsible for reporting to HMRC and keeping up to date with relevant laws and regulations. In the event of the death of a member, you must submit the required information to the master trust scheme. Your provider may have a claim form for you to fill in.
If the insurance provider accepts the claim, they will process it and release the payment to the master trust scheme trustees. They will then distribute the payment to the beneficiaries in line with the master trust rules. They will consider the member’s wishes (if documented) and circumstances at the time of death.
What is the alternative to a master trust?
You can choose to take out your own trust by executing a trust deed before registering the scheme with HMRC. This is known as a ‘corporate trust’.
You may find that you do not have the expertise, or prefer not to handle the administrative aspects of establishing and maintaining a trust. You could employ a professional business should you wish to pursue this route.
A key benefit of setting up your own trust is being able to tailor it to meet your bespoke company needs. A corporate trust moves with your company if you change providers, whereas you cannot take a master trust with you. This is something you may wish to think about when making the decision on the kind of trust to set up for your business.
All the providers on our panel have a master trust that you can use for your death in service insurance scheme as a free of charge service. If you choose not to join a master trust, it will be your responsibility to register your scheme with HMRC and set up your own trust before cover can start.
Advantages of a master trust
- Setting up your own scheme can be very time consuming as you will need to do everything yourself, including registering the scheme with HMRC. With a master trust, this is all taken care of for you.
- By joining a master trust, you can reduce administration by avoiding the hassle of setting up and administering your own scheme.
- There is usually no additional cost for this service.
- As a discretionary trust, it allows the benefits to be paid out quickly, without waiting for probate and with no inheritance tax charge.
- The death in service insurance provider will assist the trustees in dealing with any disputes on your behalf.
Advantages of setting up your own trust
- A corporate trust can be tailored to your company needs.
- You can take the trust with you should you change death in service insurance provider.
- Maintaining the same trust will reduce administration if you are moving providers.
- You retain more control of the claims process.
If you’re ready, you can compare quotes for death in service insurance today. Or if you'd like more detailed information about how the process works, visit our guide on how to buy death in service.
