What does it mean to put Life Insurance “In Trust”?
Writing life insurance ‘in trust’ is a great way to protect your family’s future in the event of your death. By putting life insurance in trust, you can manage the way your beneficiaries receive their inheritance.
What is a trust?
Trusts are a simple legal arrangement that let you leave assets to your chosen beneficiaries. A trust is managed by one or more trustees of your choosing – these can be family members, friends, or a legal professional. A trust can stay in force until it pays out to your beneficiaries. This can occur upon your death, or on a specified date of your choosing.
The benefits of writing life insurance in trust:
Here are three of the ways you can benefit from a life insurance trust:
- Protect your beneficiaries from Inheritance Tax – using a trust means the money paid out from your policy should not usually be considered as part of your estate.
- Control over your assets – putting life insurance in trust gives you greater choice, as you can decide who to appoint as your beneficiaries and trustees. This is especially important if you’re not married or in a civil partnership. Otherwise, your assets may not transfer to the intended recipient.
- Faster access to the life insurance benefit – without a trust, your beneficiaries would need to wait for probate after your death, which can cause lengthy delays.
How does putting life insurance in trust work?
You will need to decide which type of trust is right for you. There are three options:
- Absolute Trust. The beneficiaries are named individuals who cannot be changed in the future. This includes, for example, any children born after the trust is written so this could be considered a fairly inflexible trust. The advantage of an Absolute Trust is that the pay-outs can be made quickly without long legal delays. Your beneficiary can get access to the trust at the age of 18.
- Discretionary Trust. The trustees have a degree of control as who will benefit from the contents of the trust when you. Your ‘letter of wishes’ outlines your intentions as to how trustees should administer the trust.
- Survivor’s Discretionary Trust. This form of joint life insurance in trust pays out to the surviving policyholder; here the surviving partner is entitled to inherit your estate before your beneficiaries. If both policy owners die within 30 days of one another, your beneficiaries can benefit on the same basis as a Discretionary Trust.
Your chosen trustees need to be happy with the responsibility of controlling the policy and the proceeds in the event of a claim by the beneficiaries. It is advisable to have more than one trustee but no more than four so that decisions about your policy can be made swiftly.
Putting your policy in trust can be done at any time. You can put your life insurance policy in trust when you take it out, or at any time after that – you simply need to own the policy.
Once your trust is set up, your trustees legally own the policy and must keep the trust deed safe as this will be used to make a claim to your insurer when you die.
Is there an extra cost?
There is usually no added cost to putting life insurance in trust.
It is always advisable to speak to a professional adviser to ensure you have the right level of financial protection.
Swift Mortgages has access to a wide range of insurances and protection policies and the expertise to help put your life assurance policy in trust.
Trusts are not regulated by the Financial Conduct Authority.
Please contact us before making any decisions and we will help you find a suitable protection for your situation.
Call on 01525 309300 or 07903 302895 or send us a few details and we will be happy to talk through the options with you.