What is a Group Life Insurance Master Trust?

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A Group Life Insurance scheme insures employees as a group. It pays out a lump sum on death to workers’ loved ones.

To avoid any inheritance tax implications, Group Life Insurance is placed into a trust at the outset. Any benefit is paid into that trust and is then distributed from there in the event of a claim.

Employers have the option of setting up and managing a company-owned trust. This involves keeping up with all the trust administration and staying on top of any new legislative changes surrounding trusts.

Alternatively, they can use a Group Life master trust. These are huge trusts owned by the insurer containing the policies of multiple companies.

A master trust achieves the same thing as a company-owned trust but the employer doesn’t have to do any of the administration or hold any of the responsibilities that come with setting up a trust.

What is a Group Life Master Trust?

  • For registered group life schemes, a master trust is a single trust set up and managed by a company of professional trustees, usually owned by or closely affiliated with the insurer.
  • Employers do not need to maintain their own trust or act as trustees in the event of a death.
  • Provides the same tax advantages of a Death in Service scheme as a company-owned trust but without the administration.
  • Each employer has their own policy, pricing and terms and conditions.
  • The master trust handles all associated management of the trust, including keeping up to date with trust law and managing the payment of claims.

Why Use a Death in Service Master Trust?

The main reason to use a Group Life Insurance master trust is convenience.

When using a company-owned trust, you’ll need to set it up from scratch and register it with HMRC, which can take time. The policy can’t go live until the trust is set up and all of the appropriate forms have been signed.

However, a master trust already exists and has been set up by the insurer previously so your policy can be ready to go straight away as soon as you return the relevant paperwork.

While setting up a company-owned trust is not difficult, and is something your adviser will be happy to help with, there is ongoing administration to consider.

This involves keeping up to date with all the relevant legislation surrounding trusts to ensure your Group Life Insurance scheme remains on the right side of HMRC’s rules. You’ll also be responsible for keeping the trust deed up to date.

Employers will also have to act as trustees with a company-owned trust, whereas with a master trust professional trustee services are provided.

There won’t be any need to set up a trustee bank account with a master trust, either. It’s good practise to set up a trustee bank account to pay the premiums from when using a company-owned trust, but when using a master trust this is taken care of.

Most of the major insurers provide professional trustee services via a master trust free of charge.

Nadeem Farid Head of Employee Benefits at Drewberry

To discuss the pros and cons of using a master trust vs a company-owned trust for Group Life Insurance, get in touch with one of Drewberry’s experts today.

We’re happy to talk you through which type of trust might be best for you and your business. Give us a call on 02084327333 or alternatively drop us an email on help@drewberry.co.uk.

Nadeem Farid
Head of Employee Benefits at Drewberry

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