What is a Default Beneficiary? (IIP Trust)

Under an interest in possession, power of appointment trust, a default beneficiary is a person or persons who are deemed to be the 'beneficial owner(s)' of the trust proceeds.

Unless the trustee or trustees appoint money from the trust to one of the potential beneficiaries, default beneficiary will receive the trust proceeds.

There may be more than one default beneficiary.

If there is only one default beneficiary, they own 100% of the policy proceeds.

If there is more than one default beneficiary, they will each be deemed to own a specified proportion of the policy proceeds, usually an equal proportion, but, if required, it could be an unequal proportion.

The proportions would be specified, usually as a percentage or as a fraction; for example, 1/3 each.

If the trustees appoint the policy proceeds to the default beneficiary or beneficiaries, in the same percentages as the default beneficiaries are entitled to as stated in the trust deed, no liability to Inheritance Tax will arise.

If the trustees appoint the policy proceeds to a potential beneficiary or beneficiaries, this will count as a transfer away from the default beneficiary or beneficiaries, and could give rise to an Inheritance Tax liability.

The exception to this would be in the event of the trustees appointing benefits away from the default beneficiaries to the UK domiciled spouse of the insured person, either during the insured person’s lifetime, or within two years of their death.

Trusts are not regulated by the Financial Conduct Authority

Serving Wrexham, Chester and North Wales

The guidance provided within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK. North Wales Independent Advice is an appointed representative of TenetConnect Services Limited, which is authorised and regulated by the Financial Conduct Authority. TenetConnect Services Limited is entered on the Financial Services Register (www.fca.org.uk/register) under reference 150643. Principal: David Jones

Terms and Conditions | Privacy Policy | Legal Disclaimer | Linked Websites