Critical illness can help education ?
If the parents do have capital (or the grandparents are providing it) a trust may be set up into which money is paid. This educational trust then purchases a series of deferred annuities payable not to the parents or the child but to a school (which does not have to be named until shortly before schooling begins). This method may especially be suitable for those paying high rates of income tax, for which the net returns can be of very important value.
These trusts are quite different from the trusts constituted under the Married Women’s Property Act (MWPA) which are normally used to ensure that the proceeds of a critical illness insurance policy designed to benefit children actually reach them free of tax. In this case the policy is written under trust and the contract contains the stipulation that the critical illness insurance policy proceeds are to be payable to either the wife alone, to the wife and children, to the children alone, or to an individually named child or children.
Normally the husband and wife are named as the trustees, thus maintaining some control over the disposition of the proceeds. However, once the trust has been constituted, it may not be altered without the consent of those named as beneficiaries, and a child may not give its consent until reaching the age of majority (18). Thus, the use of the MWPA provisions for educational plans does mean an irrevocable commitment of the proceeds to the child(ren) and this may not be desired by some parents. The main advantage of the procedure is that, if the policyholder (usually the father) dies, the proceeds of the policy will be immediately available to the wife and children and no cash will be payable.
The MWP is a type of policy which is also useful for providing a sum for a child, say, at the age of majority or on marriage. Provided the wording of the trust allows this, the trustees can have the power to make the policy pay benefits.
Tags: critical illness, critical illness cover, critical illness insurance