01. What is an insurance trust?
Insurance trust is a kind of family wealth management service tool, which is for the purpose of wealth protection, inheritance and management, the settlor will be the relevant rights of the life insurance contract, such as the right to benefit from death, the right to benefit from survival, the right to receive dividends (if any), etc., and the corresponding benefits [such as death claims, survival benefits, policy dividends (if any), etc.) and funds (contingent) as trust property, when the payment conditions agreed in the insurance contract occur, the insurance company will directly transfer the corresponding funds to the corresponding trust account according to the insurance agreement.
02. Two advantages of insurance trust
The insurance trust is composed of two parts, one is the insurance contract and the other is the trust contract, and the insurance trust organically combines the two contracts. There are two outstanding advantages of insurance trusts.
The first advantage is the expansion of the beneficiary. At present, the relationship between the beneficiary of the insurance and the protected person recognized in the mainland includes four types: in-law, blood relation, maintenance and maintenance, and employment, so the relationship between the beneficiary of the insurance and the protected person can only be one of the four relationships. The scope of beneficiaries of a trust is larger than that of insurance, so through an insurance trust, people outside the scope of beneficiaries of the insurance contract can be designated as beneficiaries, and even natural persons who are not born can be designated as beneficiaries of the insurance trust.
The second advantage is to reduce the trust property requirements for setting up a family trust by increasing leverage. At present, the requirement for family trusts is that the scale of entrusted assets shall not be less than 10 million yuan, and many trust companies also set 10 million yuan as the threshold for establishment in accordance with the supervision.
However, many families may not be willing to put so much money into the trust immediately, so that the insurance trust can play a role in amplifying leverage, if you want to set up a 10 million insurance trust, as long as the insurance amount reaches 10 million. For example, a 30-year-old person buys insurance, according to the average leverage ratio of the insurance industry is about 5 times, 2 million premiums can get 10 million of the insured amount, and when the payment conditions agreed in the insurance contract occur, this 10 million can enter the trust. The insurance company allows the sum insured to be paid in installments, and if it is calculated according to 20 years, 100,000 yuan a year, so as long as you pay 100,000 yuan in the first year, you can get such a large leverage.
03. What are insurance trust 1.0-3.0?
Insurance Trust 1.0 is the simplest model, which only changes the beneficiary of the insurance contract to a family trust plan, and the insurance contract is independent of the trust framework.
2.0 is an extension on the basis of 1.0, 1.0 changes the beneficiary to the family trust, and 2.0 changes the policyholder to the family trust plan, so the subsequent premiums are also paid by the family trust, and when the payment conditions agreed in the insurance contract occur, the insurance company will directly transfer the corresponding funds to the corresponding trust account.
In Insurance Trust 2.0, it is necessary to set up an insurance contract first, and the policyholder of the insurance contract must be himself/herself, and then a family trust plan is established. In 3.0, there is a family trust first, and then the family trust purchases this insurance.
There is a relatively large qualitative change between 1.0 and 2.0 and 3.0, while 2.0 and 3.0 can essentially be grouped together. At this time, the three versions coexist, with 1.0 belonging to one faction and 2.0 and 3.0 belonging to one faction.
Of the three versions, 1.0 is the weakest against risk, because property rights have not been transferred, and if something goes wrong, the protective barrier of the policy can be easily breached; For 2.0 and 3.0, because the property in the trust plan has been transferred, it can play a good role in risk isolation, and these two versions have strong risk resistance.
04. The establishment process of insurance trust
The requirements for setting up an insurance trust are relatively simple, mainly depending on how the trust company stipulates.
For the setup process, 1.0, 2.0, and 3.0 are all different. As far as 1.0 is concerned, the first step is a standard life insurance contract, the second step is to find a trust company to build a framework for an insurance trust, and the third step is to change the beneficiary of the insurance contract to a family trust plan.
The first two steps of 2.0 are similar, but in the third step, in addition to changing the beneficiary of the insurance contract, the policyholder should also be changed to this trust plan, that is to say, the future premiums are from this trust plan, and because of this, the requirements of 2.0 will be higher, from the perspective of trust risk control, because the trust company will pay the premium on your behalf in the future, so the funds you put in the trust plan cannot be less than the unpaid premium you will pay in the future. This is the general step in setting up an insurance trust.
3.0 has no examples in China because it involves the issue of insurance interests, but there should be a breakthrough in the future.
05. The function of insurance trust
(1) Wealth inheritance: The settlor can stipulate the benefit distribution scenarios and methods in the trust, breaking through the restrictions of insurance beneficiaries and designing more flexible property distribution for family members and descendants.
(2) Asset planning: apply for a larger sum insured with a smaller premium; Lower the initial threshold by paying regular premiums.
(3) Risk isolation: insurance has risk protection, and trust has bankruptcy isolation protection; Insurance and trust are organically combined to better maintain property independence.
(4) Privacy protection: It can avoid potential testamentary disputes in the process of will notarization, inheritance notarization, etc., so that the policyholder can distribute the deceased property according to his own wishes.
(5) Tax planning: Although the mainland has not yet introduced an inheritance tax, it has become an important function of the United States insurance trust industry to help residents save taxes reasonably compared with overseas.
06. Applicable groups of insurance trusts (partial)
(1) Children who are unable to support themselves or the elderly
Whether it is a minor child, a child with special needs, or an elderly person, their ability to work is weak, their own life is more difficult, they lack the ability to plan and use funds, and their own rights and interests are easily damaged.
(2) Children lack the ability to control wealth
If a child receives a large amount of cash at one time, if he or she lacks the ability to control his or her wealth, does not have financial thinking or squanders money, his or her long-term development ability will be impaired.
(3) Special occupations with a short golden period of occupation
The golden period of careers such as athletes and models is short, and after experiencing the peak of income, the income level is likely to drop significantly after retiring and changing careers. Set up a family trust when the income is high, and use part of the funds to purchase insurance; The property in the trust can achieve the effect of maintaining and increasing the value, and the insurance can also continue to protect the family in the event of an accident in the future.
(4) Middle class
For the middle class, although family trusts are powerful and private, the threshold for their establishment is relatively high. Compared with general family trusts, insurance trusts use the leverage of insurance itself and the payment method of regular payment, so that customers can leverage higher insurance premiums with lower premiums to set up family trusts. It allows the corporate gold collar and the middle class to achieve the purpose of asset inheritance while reducing the financial pressure.
(5) Non-single-child families
Families with non-only children are always more prone to conflicts in inheritance and property distribution, and by setting up an insurance trust, setting the conditions for the distribution of trust income in the insurance trust, and distributing the property in a non-public manner according to the different development potentials and life paths of the children, the friction between siblings due to money can be reduced.
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