Writing life insurance in trust is one of the best ways to protect your family’s future in the event of your death. Your life insurance policy is a significant asset and by putting life insurance in trust you can manage the way your beneficiaries receive their inheritance.
What is a trust?
- Trusts are a straightforward legal arrangement that let you leave assets to friends, relatives or whoever you pick to be your beneficiaries.
- One of the main benefits of this approach is that the value of your policy is generally not considered part of your estate.
The benefits of writing life insurance in trust
There are many reasons why putting life insurance in trust is a popular option. Here are some of the ways you can benefit from a life insurance trust:
- Control over your assets - if you don’t have a trust, your money might be used to pay off outstanding debts. Putting life insurance in trust gives you greater discretion, as you can decide who to appoint as your beneficiaries and trustees. Setting up a trust is especially important if you’re not married or in a civil partnership, as otherwise, your assets may not transfer to the intended recipient.
- Faster access to your money - without a trust, when you die your would-be beneficiaries would need to obtain probate, which can cause delays. With a trust in place, your loved ones could receive the inheritance within a couple of weeks of the death certificate being issued.
- Protect your beneficiaries from Inheritance Tax - writing life insurance in trust means the money paid out from your policy should not be considered part of your estate. There are exceptions for example, you may be liable for an Inheritance Tax charge on the value of the property on each ten-year anniversary. Currently, the standard Inheritance Tax rate is 40%, which is charged on the part of your estate above the £325,000 threshold.
Joint life insurance in trust
- With a joint life insurance policy, there is still a benefit in putting the policy into trust, especially if you are not legally married or in a civil partnership. For a married couple, life insurance policies include an inheritance tax exemption for the spouse or civil partner, but this doesn’t apply if you have a joint policy and are cohabiting.
Is there an extra cost?
- There is no added cost to putting life insurance in trust. You can put your personal life insurance policy in trust when you take it out, or at any time after that – you simply need to own the policy.
