Advisers have been urged to put their clients' life policies in trust or risk facing claims from unhappy clients.
Writing a policy in trust can protect it from unwanted probate and tax charges. Although payments from life insurance policies don't incur income tax, they could still be hit with an inheritance tax charge if they are not in trust and are counted towards the estate.
Probate fees are set to rise after the Ministry of Justice (MoJ) decided in November to pursue a banded structure for those fees, prompting experts to warn now was a good time to reconsider the arrangement of a client's life cover.
Neil Liversidge, managing director of West Riding Personal Finance Solutions, warned advisers who don’t routinely write policies in trust could end up facing claims.
He told FTAdviser: "I’ve long been a fanatic for putting life cover in trust. Sadly the same can’t be said of all advisers.
"Some lawyers are feeling the pinch a bit these days. Don’t be surprised then if, when calculating the probate fee resulting from the failure to put a trust in place, they offer to run a claim against the adviser on a no-win no-fee basis for the excess. It’ll be a nice and easy little earner.
"With a typical Professional Indemnity Insurance excess of £2,500 for non-investment claims, protection advisers who’ve written large cases might want to revisit their back book and put trusts in place now."
He added: "Last November’s announcement by the MoJ that it would press ahead with a shift to a tier-based system for probate costs adds another reason why trusts should be pretty much a default recommendation.
"Whilst the revised fee scale is far less draconian than the original proposals which mooted a top-tier charge of £20,000, estates worth £2m or more will still face a charge of £6,000."
Rachael Griffin, tax and financial planning expert at Quilter, said: "My view is that all life cover should be placed in trust and the reason is, invariably, because a client’s intention is to pay an inheritance tax bill or to get money to a loved one as quickly as possible on their passing.
"The probate process, regardless of whether you end up with a fee or not, takes a period of time.
"The decision is not influenced by probate fees, but by the purpose of life cover. The MoJ’s move is just a prompt to advisers to revisit those clients that perhaps haven’t already signed up to putting the life cover or other assets in trust."
Alan Lakey, director at CIExpert, agreed more plans should be placed in trust.
He said historically some clients were put off the practice by the clunky process but mnow more insurers were bringing to market online trusts, which made for an easier process.