Putting a life insurance policy in trust
When you have invested time and gone to the expense of arranging life insurance to take care of your family after you’re gone, it makes sense to do what you can to ensure they get maximum benefit from your investment.
Putting something ‘in trust’ simply means setting aside a benefit for a named person/persons in a legally endorsed manner. This benefit is looked after by a trustee until the time comes for it to be released. As an example, you might want to leave your house to the children, but want your spouse to look after it until they are 18 or 21.
There are many benefits to putting your life insurance policy in trust, most notably sidestepping huge inheritance tax bills and bypassing the lengthy probate process. Despite this, only 6% of policyholders actually have their policy put in trust.
Is it difficult to put your policy in trust?
No. Putting your policy in trust need not be complicated or even expensive and it could make all the difference to your loved ones when they come to make a claim.
Your insurance provider should be able to provide you with this option for free when taking out the insurance policy.
Any assets can be written in trust, including your life insurance policy. By putting it into trust, it becomes the property of your beneficiaries right away, (no need to wait for probate to be granted). Although they cannot gain access to the money until after your death.
The trustee is usually your life insurance company, and they will retain the money until a claim is made.
Key benefits to putting a policy into trust:
Reduce inheritance tax liability
- By paying your life insurance benefit directly to the recipient, your policy is no longer considered to be part of your estate
- Inheritance tax laws state that if any part of your estate is over the value of £325,000 it is taxed at 40%
- If you have a property and a life insurance policy, your entire value can quickly exceed this threshold
- By writing your policy in trust you can avoid your estate being valued at more than this amount, avoiding the high rate of inheritance tax.
Avoid delays due to probate
- Probate is a legal process which confirms that your executors are in the position of authority to administer your estate
- The probate process takes time, and your family will not be able to claim insurance money until probate is granted
- However, by writing your policy in trust you can bypass the probate process
- Your family will then be able to access the money quicker, helping them deal with expenses, such as funeral costs or loss of income.
Keep control of your policy
- By writing your policy in trust you can make sure the money goes to the people you intended it for, at the time you want
- If you wish to leave all or part of your insurance money to your children, you can ask the trustees to keep control of it until they turn 18, or whenever you specify they can have it.
Important considerations with trusts:
- Writing a policy in trust should not cost you any extra
- Your provider should be able to offer this option free of charge when you take out the policy
- Some policies which are already in place are able to be re-written in trust, (check with your insurer)
- For many putting their policy in trust brings significant benefits
- However it’s not right for everyone, so it’s important to seek independent legal advice
- For example, it is very hard to make changes to your trust if your circumstances change.
Talk to our Reassured consultants today on 0808 168 2025 about putting your life insurance policy into trust and how it could help protect your dependents. Alternatively Start Your Quote online today.