March 13, 2020
What is a Trust, do I need one for my life insurance policy?

A Trust is a legal document that allows the life insurance policyholder to say who they want the insurance payout to go to in the event of their death. Setting up a Trust ( known as writing a policy in Trust) means that the payout will only go to the people you intend it to.

What does the legal terminology mean?

Settlor – Is the person who owns the insurance policy and who is writing their policy into a Trust

Beneficiary – The person who will receive the insurance payout

Trustee – A trusted person aged over 18 like a relative or long term friend. A Trustee can also be a beneficiary of the Trust. Trustees can be changed at any time by notifying the insurer in writing. Trustees take care of the money until a beneficiary who may be under 18 can be given the money.

We use what is called a Discretionary Trust meaning that the settlor can change the beneficiary and/ or their share of the payout up to the settlor’s death. Or, the Trustees can change the beneficiaries after the settlor’s death.

Understandably, the position of Trustee is a position of great trust and importance.

Why do I need a Trust?

There are three main reasons why writing a policy in Trust is beneficial:

1. Your choice– Most importantly the money will pass directly to exactly who you want it to and you will be able to change your mind at any point. You are in control

2. Speed of payment – As the money is not yours when written in Trust, it is paid out as soon as the claim is agreed avoiding probate

Writing a policy in Trust means the payment to your beneficiaries will be quicker, as the money will not go through probate. Probate is a legal process. So, for example, if you leave everything to your spouse in your will, your spouse will have to get probate granted before they can distribute your money, property and so on.

This process can take a long time, even when there is a will. In cases of intestacy (where there is no will), it can drag on for a lot longer.

However, if the life insurance policy is put into Trust, then it can pay out before probate is granted, as the insurance provider will just require a death certificate before paying out.

3. Reduce Inheritance tax – Trusts can help to legally reduce overall inheritance tax. Under normal circumstances, the payout from a life insurance policy will form part of your legal estate when you pass away.

This means that it will be added to everything that is left behind. Such as property and savings which are known as ‘assets’. The estate may be subject to inheritance tax.

By writing a life insurance policy in Trust, the proceeds from the policy can be paid directly to who you want ( your beneficiaries) rather than to your estate. Because it does not form part of your estate, it is not subject to inheritance tax, lowering any inheritance tax bill.

Is it expensive to put a policy into Trust?

Not at all, it is part of the Future Proof service and comes at no additional cost!

Is it complicated?

We are on hand to talk you through your Trust every step of the way and what’s more, we will partially complete it for you, so all you need to do is get the right people to sign.

Please call us on 0800 644 4468 or email [email protected] if you would like to discuss writing your policy into a Trust.

Our offices are open from 9 am – 7 pm Monday to Thursday and 9 am – 5 pm Friday.

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The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

For more information on Trusts click on the links below:

Life insurance Trust

Will a co-habiting partner automatically receive the benefit from a life policy?

Why it is important to complete a life insurance Trust

What happens if a life policy has not been placed in Trust?

Why you can Trust Future Proof