Making your life insurance policy work for you and your family-Writing life insurance in Trust

As I have told you numerus times, arranging your life insurance in the right way to give your loved ones the maximum possible benefit is an important consideration.

Having taken the important step of getting a policy, one option to consider, in order to ensure maximum benefit to your family, is putting the policy into a trust.

And yet according to insurer Aegon, only 6% of life-insurance policies in the UK are set up in this way.  I therefore thought it might be useful to explain this further so that more of you can take advantage of it.

Why is this important?

If you have taken out life insurance to provide for your family after your death, the money could be subject to inheritance tax (IHT) as it will form part of your estate when you die.

With your policy written ‘in trust’ your family members can then legally sidestep IHT and will not have to pay any of the proceeds of the policy as tax.

Putting a policy in trust can also help your beneficiaries avoid probate. This means they can get hold of the life insurance payout without a lengthy legal process.

What is a Trust?

A trust is simply a legal arrangement that allows you (the settlor) to set aside an asset to benefit a specified person or people (the beneficiaries).

The trust is run by appointed trustees who take legal ownership of the trust and look after the deeds which govern it. They are duty bound to act in the interest of the beneficiaries at all times.

It is the responsibility of the settlor to pay the premiums for the life policy, even when it is in trust. The settlor is also usually a trustee, so has some control of the management of the trust.

How easy is it to set up?

The answer is quite easy;

Most life insurance policies can be placed in trust, and it’s a fairly straightforward process. Your insurance company will normally supply the relevant forms free of charge.

Moreover, you can put your policy in trust at any time, regardless of when you took out the life insurance.

Which is the right trust for you?

There are various different types of trust – and the best one depends on your personal circumstances, though you need to be aware that once the trust has been created it cannot usually be cancelled before it has served its purpose and the policy cannot be cancelled without the permission of the trustees.

The different types of trust can be treated differently for IHT purposes. The trust might also pay tax itself. It is therefore important to seek expert legal advice if you are thinking of placing your life policy in trust.

I hope this as given you something positive to consider. Should you need some advice I am always happy to speak with you so get in touch.


Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>