Guide To Trusts

Writing a Life Policy into Trust and the Benefits

What is a trust?

A trust allows you to set aside an asset to benefit a specified person or people (the beneficiaries). The asset is managed by a trustee until such time as the beneficiary is intended to benefit. So, for example, your spouse may look after property on behalf of your children until they reach a responsible age.

Life-insurance policies are such an asset, and putting a policy into a trust has huge consequences on what happens to the payout from a policy in the event of your death.

You get greater control over your policy

Writing life insurance in trust allows you to specify how you want the proceeds to be paid out. For example, trustees can be appointed to oversee money for the benefit of children under 18. In addition, setting up a trust means that the payout will go to the people you intend it to. If you owe money at the time of your death, it will be paid to your loved ones rather than to creditors.

Trusts can help sidestep inheritance tax

The biggest advantage relates to tax. Under normal circumstances, the payout from a life insurance policy will form part of your legal estate – and may therefore be subject to inheritance tax. The threshold for inheritance tax in the UK is £325,000 per person. Tax is payable at 40 per cent on any part of an estate above this level (information correct as of April 2017 – Source: www.gov.uk/trusts-taxes/trusts-and-inheritance-tax).

By writing a life-insurance policy in trust, the proceeds from the policy will be paid directly to the beneficiaries rather than to your legal estate, and will therefore not be taken into account when inheritance tax is calculated. This means the value of your estate may not move above the threshold, depending on your circumstances.

It is also important to remember that any inheritance tax is payable within six months of a death. By putting life insurance in trust, it may help your family meet a tax bill.

Writing a policy in trust also means payment to your beneficiaries is likely to be quicker, as the money will not go through probate. This is a legal process which confirms an executor’s authority to deal with your possessions. So, for example, if you leave everything to your spouse in your will, then 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, it can drag on for a lot longer.

However, if the life insurance policy is put into trust, then it can potentially pay out long before probate is granted, as the insurance provider will just require a death certificate before paying out. Obviously it is better for a family to get an insurance payment as soon as possible, as the period following a death is stressful enough without being concerned about where the money’s coming from.

Write your policy in trust

If you already have a life insurance policy or are thinking about taking one out, CLS Money can arrange a bespoke policy to match you exact needs whilst giving expert advice and of course, putting the policy into a trust. Furthermore there is no charge for doing this.