Hi everyone, I am taking another focus on Trusts this week. This time I am looking specifically at critical illness cover, as there are some potential issues that could be faced for vulnerable clients, including people who are experiencing economic abuse.

There is a huge drive in our industry to place policies into Trust. It’s the kind of thing where I might potentially do a compliance fail with my team if a policy hasn’t been put in Trust where there’s a really simple online system to do so. (I know, I’m a battle-axe!) But, they are really so important and there are not many occasions when a Trust isn’t relevant or easy to do.

However, there’s an emerging problem with critical illness policies placed into Trust.

The key takeaways:

• To make a claim on a critical illness policy, all trustees must sign the claim form
• A critical illness policy placed within a Trust could be a vehicle for an abusive Trustee to prevent a client from receiving vital financial support
• Insurers are aware of this issue, but there are no ways to improve the process, with current Trust formats

Next time Alan will be back with me and we are going to be going through protection insurance options for people living with cystic fibrosis. If you have tried to get cover for clients in the past with cystic fibrosis, you’ve probably seen how difficult it can be. We’re going to be taking you through the different options that you can consider.

Remember, if you are listening to this as part of your work, you can claim a CPD certificate on our website, thanks to our sponsors NextGen Planners.

Kathryn Knowles  00:11

Hi everybody. We are on season 11, episode three, and today I’m going to be talking about critical illness policies and placing them into trust, obviously the positives, but also some issues that we’ve come across as well. This is the practical protection podcast.

Kathryn Knowles  00:39

So I’m doing what I think is a first today. It might be a second, but I think it’s a first, but I am recording this episode again because you might or might not be able to tell that my voice isn’t at its best. I’ve had that horrific call that’s going around, and for the last three or four days, I’ve really, really been out of it. And yesterday, I thought, You know what, I’m coming out of it. I’m okay. My voice might sound a little husky, but I can do this. And about a few times as I was doing the recording, I was thinking, What on earth am I saying? I’m just repeating myself. I’m going around in circles. I’m not sure that this is the best quality that I’ve done. And today I’ve woken up feeling far more alert in my head. And I’m very, very sure that what I recorded, yes, it was not of the quality that you guys want to listen to, so we’re doing it again.

So policies into trust, usually life insurance, critical illness cover, we can put into trust whether or not it’s standalone or linked with life but a lot of the time critical illness cover is automatically linked with life insurance, so we are going to probably be putting into trust anyway. There is a huge driver in our industry to put policy into the trust. It is seen as the thing to do. It makes it easier at points of claim, because there’s no kind of quibbles over, well, who did they trust to handle the money? Who did they want the money to go to is all there in a legal document. So it really helps in that kind of regard. But also, if there’s things like, IHT, you know, we really want that policy to trust. We want it set up in the right way, in the trust. So being in trust in itself isn’t necessarily good enough. There’s lots of extras, and I have done quite a few episodes on trust for you to listen to if you want to. But with critical illness cover, we have noticed a little bit of an issue.

So we’ll start off with the reasons that we do want to put things into trust. So if anybody has listened to the podcast for a while, season seven, Episode Five, we had Charlotte Rogers join us, who is an advisor in our industry, and she explained how things went very, very wrong for her when she had set up the insurance for herself and her partner. They weren’t married, and the policies weren’t in trust. The trust, I believe the trust funds were ready. They’re on the side to get sorted. And unfortunately, her partner had passed away before the trust was done, and everything that you can imagine to go wrong with those funds did, and Charlotte didn’t receive the money. It went to his next of kin. And it’s something she’s incredibly passionate about now for very, very obvious reasons. And the same for the rest of us, it’s really a story for us to, just like take on board this. This can massively change people’s lives. And you obviously, you can go back and listen to Charlotte story.

So the whole point of the trust making sure the money goes where we want it to go through to get to go to but with a trust, if it’s if it’s not a policy isn’t trust, then the intention behind why we’re doing the insurance isn’t clear to the insurer. Isn’t necessarily clear to the estate. It isn’t necessarily clear to HMRC, depending upon how much insurance is, what we’re looking at, whether or not the estate is in IHT, too. And a lot of people can think, well, well, trust. Everybody always talks about trust, but it’s mainly for inheritance tax cover. And you know what? It is there for a big reason for that. But the other thing is, a lot of people don’t realize just how much house prices are going up, and people can find themselves quite easily going into inheritance tax levels. We’ve also got the pension changes coming up as well, where pensions can potentially be considered too. And all those things add up. And it might be that we’re going to inheritance tax brackets, and it might not be lots for tax, and it might be something that our family can just cover, but it’s better to know rather than it to be a shock when something happens. So with critical illness cover, it is usually because it’s been combined with life insurance that is placed into a trust, and there is specific trust for when it is a critical illness policy, because what we want to do is say, in the trust, right, I own this policy. This policy is on my life. I trust this person over here to do with the money as I want them to, if I pass away, they’re going to be my trustee. So they also own the policy as well, which is really important here, that they also own the policy once they’re trustee. But if I have a critical illness, I want the money to come to me. I don’t want it just going off to anybody.

So we’re going to do a specific trust to make sure that critical illness claim money stays with me life. Insurance Claim. Yep, everyone else can deal with it, which is obviously really good and with critical illness cover, standalone critical illness cover, it can be a good idea to put it into trust too, because there are reasons that we would maybe want someone to step in. Now it’s not always the case, but let’s say someone is in a coma for a while, to the point that it does mean that they’re eligible for the critical illness cover they’re not going to be able to communicate to get that claim paid. Potentially having that money release could really help them, help their family keep up to date with the mortgage repayments, or even pay, potentially towards some treatments, or pay just towards the cost of visiting and the other things that are needed when someone’s in that situation. It might be that someone’s had a stroke and it’s been very, very serious, and they can no longer sign the forms or even potentially speak to give that kind of expression as to the claim being needed and going ahead. And for some of you may know, we’ve got the seven families initiative that was in our industry.

It was done quite a few years ago now, but it’s still so relevant, and the videos are still up of the families that were helped, and that was very much in the case of income protection and not critical illness cover. But there are very specific stories on there in case there’s a people, some of them that experience strokes. And if you do watch those videos, you’ll see why for those people, it would be incredibly important that the critical illness cover did have someone else that can step in and then provide support and get that claim approved as soon as possible. But there are some potentially big, big issues that I have come across specifically in doing some stuff at cura. Now, when I say these are big, big issues, they are big issues. They’re big issues for potential groups, potential vulnerable groups within the UK. And what I would like to say is, is that whilst I’m saying these things, and whilst is me saying that there needs to be a solution and that things aren’t ideal at the moment, that’s not me criticizing anyone. It’s certainly not criticizing the insurers. It’s not criticizing the legal departments or compliance departments. It is just saying that this is the landscape, and as advisors, we need to know about it so that we can properly advise our clients, and also to just bring it to the fall to go, Well, do you know what? This isn’t ideal, and I fully appreciate that this is how it has to work, in the way the current legal wording is of trusts. But just because something is an ideal doesn’t mean that that’s what we have to keep doing going forward.

You know, we can take changes and obviously evolve as well with society and what’s happening society. So the reason that we’re putting it forward a big issue is this. So, you know, I’ve experienced it with somebody recently who has a critical illness claim, and they the trustee isn’t who’s on the policy as well. It’s not we’re not able to contact them. Now, I’m going to give some broad reasons here and examples, but let’s say someone’s estranged, someone’s divorced, maybe somebody is the victim of economic abuse, and actually, they can’t contact that trustee for them to sign the release form of the critical illness claim and the funds, because that would potentially put them in danger, or maybe it’s just very, very inappropriate, given the circumstance or whatever’s happened at this moment.

So insurers are aware of this dilemma, and the difficulty is, is that it’s the case of, you know, they will say, you know, well, absolutely, we know that this isn’t okay. If somebody is in this situation, and they can’t they absolutely cannot contact a trustee. But the problem is, is that the legal wording of the trust means that they there is nothing that can be done. The trustees must sign the form, and this presents a whole level of issues, because economic abuse to sit under financial abuse, which now sits within domestic abuse, it is a criminal act. So in some ways, putting a policy into trust could, and I say this, and I don’t want it to miss people to think I’m making some kind of extreme jump here, but it actually could be an enablement tool for somebody to prolong economic abuse.

Now we do see that in insurance world with things like direct debits. So you can find it where, say you’ve got some people, they’ve got an insurance policy and maybe a joint policy, but they split up, but the they’ve kept the joint policy going for a number of different reasons, and there can be legitimate reasons for doing that, but the abuser maybe pays the diet debit but then cancels it, and then waits the three month notice period that Some insurers allow, or even the month, and reinstates it and cancels it, and they keep doing it and doing it and doing it. And it’s part of a way of to prolong that contact and engagement and abuse, because, you know, some ways, they’re probably hoping that at some point there’ll be a miscommunication and they’ll find out the ex partners new number or their new address, or anything like that, through a miscommunication, which can obviously present danger to people and. So there is a big thing about us all being incredibly heightened and aware as much as possible in terms of anything like that.

But this is the thing that’s for me, I’m finding very, very difficult, is because the trust, you know, it’s ingrained into us as advisors, put it into trust, put into trust, but we’re also potentially putting people in a situation where they can’t make a claim. So like I said before, if it’s in trust, if someone’s had a stroke, if in the queue, if they can’t communicate, it’s absolutely brilliant that we have a trustee there, provided that that trustee is definitely going to be someone trustworthy and is going to do with the funds what needs to be done with the funds.

Kathryn Knowles  10:39

But what happens if we have put it into trust, it’s so hard do we put it into trust, and then we’ve got that benefit of, yes, someone can be there to help. But then also we’ve we’ve got someone who could actually completely stop and barrier that ability to claim those funds, which isn’t okay because the policy holder has been paying for it. They are eligible, assuming that they’re eligible, we’ve got all through the claims process, they’re completely successfully able to make a claim, and they cannot get those funds because the trustee is no longer able to be contacted. So what do we do as advisors? And I think this is something where there isn’t really a right or wrong answer, I think I say there’s no right wrong answer, but for myself, I will continue to be putting policies and trust as default, because that is what the everybody suggests, the regulators, CII, all the training platforms, all your compliance people will be saying, put things into trust wherever possible. And it’s part of like, often, for many firms, for many financial networks, it can come up as kind of like, almost like, key performance indicators as to how well you are doing as an advisor, as to how many policies are put into trust, and when we go to conferences and things like that, it is sometimes a bit of a key area, a talking point, as to how well people are doing with doing that, because it isn’t easy to get people to put policies into trust and convince them To do that at the best of times.

With the improvements to insurer systems, it is becoming much, much easier to be able to do that, which is obviously great. Thank you very much to the insurers who do have brilliant online systems. There are some insurers I think could maybe use a slight nudge still to use more modern versions of things. But you know, I’m sure they know who they are, but, but there’s also the beneficiary nomination form, which is, again, really, really good, because then it is just a case of, it’s just there and it’s ready, okay? And again, we’re not putting it into trust, so it’s just kind of all sat there very, very nicely, and for us all to look at and for the insurer to know where we want the money to go for the life insurance, but that it doesn’t, then kind of trap a caveat on the critical illness side of the policy, which is really, really positive. So So maybe when there’s critical illness cover, potentially, if there’s the option between beneficiary nomination and the trust, maybe we should be more going towards the beneficiary nomination.

There is a lot of debate as to whether or not we use beneficiary nomination versus trusts, each advisor and compliance person to their own. I’m going to link back to an episode that I think people would find really helpful. If you don’t know much about that, but you know, it is a brilliant and very, very quick way set things up, and it kind of bypasses us say this issue on the critical illness side of things. So the whole thing when we do protection as an advisor is to make sure that we’re doing right by the customer, treating them fairly, knowing our customer, making sure we’re meeting consumer duty requirements as set out by the FCA. But kind of like, how can we answer that when it comes to the critical illness, cover and trust based upon this knowledge. Because if I put it into trust, then yes, I’ve it’s my knowledge. To the best of my knowledge, I have given extra protection when it comes to a claim on this policy, however, and there’s always circumstances change and everything, however, but it’s actually almost a bit of a 5050 because if you’ve got a good trustee, then, yeah, absolutely, that is the best protection going. But on the other side of the coin, if we have that trustee, that’s not the most, I was gonna say not the most best. Yeah, I’m still full of calls.

You can tell I can’t see who isn’t the best kind of person to have as a trust at trustee or circumstances have developed to make it so that they’re not the right person, then actually, we’ve not done the best long term protection for that client, because we’ve been involved in putting a barrier there that is stopping them from making a claim. And another thing about this, which doesn’t help, and again, this would be something for insurers to look at and to figure out in some sort of way as to how to more easily change trustees, because it isn’t always easy. Sometimes you need, you know, with some sort. It can be quite straightforward and easy, you know, very, very quick systems. And then with some, you know, we’re having to still get the trustees to sign approval to change it, because they are a policy holder. And I think what can be really tricky is knowing why different in shows do different ways.

So why can some do a really, really quick and easy change of trustee? And why does some need to have, you know, wet signatures and form signs and all these kinds of things when they’re both doing the same thing that both both groups will be removing a trustee slash policy owner from the policy and potentially assigning new people. But we need to be conscious as an industry of the emergence more and understanding of economic abuse, the fact that it is a criminal act, and we need to have processes to make sure our clients aren’t trapped within that abuse because of something that we have done, because of a legal document that we’re involved in, that they’re not able to change or easily change. That doesn’t sound right to me in terms of consumer duty.

So I don’t know the right answer at all, and I’m certainly do not have the legal background. I don’t have the technical knowledge. And you know, absolutely hats off to anybody who is able to address this. But I think it is something that it does seriously need addressing, and it’s just kind of like hit home, while that’s the case, you’ve got charities like the surviving economic abuse. And you know, it’s very clear as well that both well, any gender, any gender whatsoever, can be the victim of economic abuse, but it does tend to more be women. And when you look at the statistics from this charity, it’s one in seven women have experienced or are experiencing economic abuse.

Now, I can’t say for everybody, but I know certainly for myself. I ensure and have advised far more than seven women, and it’s very likely that at least some of them at some point have either experienced it the economic abuse. Have experienced it whilst I’ve been advising them, or are going to experience it in the future. And to take that a little bit further, the government have a report out that says 16% so one six, 16% of adults in the UK, which is roughly 8.7 million people, have experienced economic abuse. And you know these figures, they’re massive, and that doesn’t take into account the people who are now or are going to in the future. And I think again, it’s really important to say with many of these things, because you might think, Oh, well, the vulnerability in terms of the economics, it could be people in the x, y, z situation. It can be in any situation. It doesn’t it can be more likely in certain characteristics or certain backgrounds or environments, but absolutely anybody can be victim to this. And it’s something that I think quite a few people can think of. It’s almost like a little bit of a silence or encroaching abuse. It happens gradually, like, like many forms of abuse, it happens drip, drip, drip, over time. And you wouldn’t necessarily think that something like life insurance or critical illness cover would be a vehicle for economic abuse. And when the policy starts out, it possibly isn’t, but it’s as things develop over time, where it’s it really can be. So just a bit of food for thought.

Do have a thing? I’m sorry to bring even more stuff for you to think about, because I know protection is already complicated enough as it is. Trusts are ridiculously complicated for what they are as well, and I’ve just added this into it. But in terms of learning a little bit more in season seven, episode nine, I did have a representative from surviving economic abuse on the podcast, and I really do think that’s something that is important to listen to. If you’ve listened to it before, possibly listen to it again. Have a bit of a reminder. It is very much somebody who would sit in your vulnerable clients, which, again, we all know that the FCA, all of our regulators are very, very on top at the moment of making sure that we all see as much as possible in terms of vulnerabilities. So, you know, having something like that some extra training, it’s never a bad thing.

And we then also have season six, Episode Five, with Ruth Gilbert, and the one I was alluding to earlier and came on discussed trust, but also was really discussing the beneficiary nomination, where she was obviously pivotal in getting that set up and is getting adapted and taken on more and more by insurance for just how simplistic it is, how much easier it can make it at the claims process, and as I say, it possibly has a very unique and specific place to sit if we are looking at him doing a life and critical illness policy. So thank you very much for listening, everybody. I’m really glad that my voice held out. I’ve only coughed slightly in the background once, so fingers crossed that wasn’t too noticeable next time. Alan is going to be back with me and we’re going to be deep diving into the underwriting. Of protection insurance for people living with cystic fibrosis. If you have listened to this as part of your work, please visit the website practical hyphen protection.co.uk. To get your CPD certificate thanks to our sponsors, next gen planners. Thank you, everybody. Bye. You you.

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