Sole Remaining Trustee Abroad - Life Assurance Policy - red flag?

I have been asked to appoint an additional trustee to a Life Assurance Policy. The Settlor of the life assurance policy has died and the life assurance company are looking to pay out the proceeds of the policy. The settlor originally appointed three trustees. However two of those trustees have now died, and the remaining one has lived in France for a number of years.

The Life Assurance Company have told my client that if an additional trustee is appointed by the surviving trustee, they can pay the proceeds of the life assurance policy to them, to bypass the need of the French Trustee from needing to set up a UK bank account.

I do not yet have sight of the trust deed. However, I have a red flag about this, and experience tells me to follow that… Is there any reason why it would not be appropriate to appoint another Trustee? I can’t see CGT being an issue here as one would assume that as this is a life assurance policy, the value crystallises on death so there is no gain as such. However, where the Trustee is offshore, I think the concern I have is that technically it means the trust is offshore, and by appointing a second trustee in the UK, I understand that would bring the trust onshore. Though, even so, I can’t see what the issue might be even so.
Can anyone help me settle this red flag once and for all?
If there is an issue I suppose we could just appoint a Power of Attorney for the surviving Trustee to bypass any potential issues of appointing a new UK trustee. I’d just like to settle the niggle in my mind.
Many thanks all

Presumably the life policy is a qualifying policy (ie is not of the single premium bond variety) ?

Malcolm Finney

Hi Malcolm

I believe it is the life assurance variety and not a bond.

Though I’d be interested to know how the answer might differ if so.

Life assurance policies are coming up more and more now but yet there is so little information on them for us, I find.

Kind regards

Christina

Christina,

There may be another “red flag”.

If the policy is offshore, but I assume held ‘in trust’ under an English law trust and the only beneficiary is resident in France and is also a “trustee”, there may have been a French compliance failure if no 2181 Trust1 or 2 declarations have been filed.

Just by way of indication, the failure to file a Trust1 évènement return and the annual return Trust2 of the value of the trust assets each carry a significant fine, currently of 20.000 € for each omission.

There appears to have been three “events”: the first is the creation of the trust, or if it was in place prior to 2011, its existence declaration. That applies irrespective of whether the trustees are beneficiaries or not. Whilst the French administration have accepted the filing of an annual return in 2012 as being equivalent to an ‘event’ return, that merely reduces the declarable events to two, being the deaths of the other two beneficiaries. Whilst the penalties were increased from 10,000€ to 20.000€ per omission, there is also an, 80% penalty on the 1.5% prelèvement which the previous trustees will be considered to have eluded.The deaths of the two other trustees would also be declarable “events” as would their deaths if they were beneficiaries.

Life assurance issuers putting contract or bonds in trust fro IHT purposes have been entirely unscrupulous in not warning policy holders with French resident beneficiaries and trustees, seeking to distance themselves on the basis that it is the “trustee’s” responsibility, when they are in reality and in fact the “administrateur” of the trust and its assets under article 792-0 bis I CGI. I take it that there has been no warning given by the insurance company of these French issues. Can I also assume that the insurance provider has complied with its CRS obligations and disclosed the “account” ? In which case there might be nowhere left to hide or run to in a post Brexit scenario, and the resident French trustee and beneficiary is already out in the fisc’s headlights.

The French resident trustee/beneficiary needs to take advice on their position firstly as trustee and secondly on the French taxation of the money being paid out by the bond issuer.

If you need a hand, please let me know. I have sorted a few of these out in the past, but the fact that you only have a French resident trustee with no other trustee outside France is a real obstacle.

To my knowledge, which is limited, there has been no publicised French waiver for offshore insurance policies held in trust. If anyone else has information on this issue, it might be helpful to share it.

Peter Harris
www.overseaschambers.com

Thank you Peter. I am going back to the financial advisor to find out more information.
My understanding currently is that it is a standard life assurance which has been put into trust for the purposes of negating IHT.
The French Trustee is not the beneficiary. They are just the trustee of the trust. As such, is this still likely to apply? Assuming it does not, can anyone see any problem with appointing a UK trustee to accept the proceeds from the policy and allocate them to the rightful beneficiaries?

Article 1649AB’s declaration requirements were extended to French resident trustees in December 2013 irrespective of where the assets or the beneficiaries be situate or resident.
The French administration have corralled and prodded the EU Commission and Parliament into believing that the trust is an instrument of the fiscal dark side of the farce, so the French trustee should technically have been making the declarations or face the fines since 2014.
There might be some leniency given were there to be no assets or beneficiaries in France, but from the French administration’s perspective, they are scraping digital information disclosures that can be transferred and moneyed with other administrations as a gesture of anti anglo-saxon fiscal thinking. Hence the continuing requirement for trustees to submit returns of their movable assets where there is a French connection despite the fact that the IFI or annual wealth tax only applies to immovables and immovable property holding structures. They simply put it in the global information plum pie.
It appears that some “anges” had had the bright idea of dancing on a pinhead by acting as trustees in France on what was a totally unregulated basis who did not have to make any declarations anywhere in the world, and who were banking on the hope that their French balance sheets did not have to disclose the assets of the trusts that they were “administering”.