Placing a life insurance policy in trust means that someone else – your chosen trustee(s) – is looking after it. This person looks after the policy and will make a claim in the event of the settlor’s death (the person who created the trust and pays the premiums). The trustee(s) must act in the best interests of the beneficiaries. They are the person or people who will receive the money from the trust fund.
What are the benefits of having my life insurance policy in trust?
It is quite a simple arrangement. It means that your family will not have to pay inheritance tax on any sum paid out by your life insurance and your beneficiaries will be paid directly form the insurer.
Tax Benefits
Life insurance pay-outs are already exempt from capital gains tax and income tax. However, they are usually subject to inheritance tax as they are part of your legal estate. However, if you put your policy “In trust”, the pay-out is made directly to your beneficiaries and will not be considered when inheritance tax is being calculated.
Skip Probate.
When a person dies, probate courts distribute a person’s assets to the right beneficiaries. However, this can be a lengthy process and can be made even longer if you have not written a will. By naming a policy in trust it can mean that the beneficiaries can receive their pay-out direct from the insurance company. This can help if your beneficiaries need the money quickly.
Does it cost Extra?
Insurance providers can set up a trust for you when you purchase your policy with no extra charge (check with your chosen insurer to establish if this is the case). It is also possible to transfer active policies into trust. You should speak to your provider for more details.
Can all types of protection policies be put into trust?
Most types of life insurance can be placed in trust. Level term, decreasing term, and whole of life cover may all be put into trust.
Speak to one of our Advisors if you need more information, we are more than happy to help.