A trust is a legal entity and by placing a life policy in trust, it has many benefits. The proceeds of the life insurance policy will bypass the deceased’s estate and as such beneficiaries will receive the money quicker and without any inheritance tax implications. It also gives the policyholder greater control over who receives the assets.
What do I need to place a policy in trust?
You need to consider who to nominate as beneficiary and who will act as the trustees.
Nomination of beneficiary
The life assured will be able to nominate beneficiaries to benefit from the proceeds and the percentage of the money that each will receive. This ensures that the proceeds of a death claim go directly to the people the client wants to benefit. It is important to check with the provider whether there is a limit to the number of beneficiaries.
If the policy incorporates critical illness cover, it is important to ensure that by placing life insurance into trust, the proceeds of any claim relating to either terminal illness or critical illness will still go directly to the life assured.
Nomination of trustees
Once you have chosen the beneficiaries you need to nominate one or more trustees to manage the trust until the beneficiary is ready to inherit. The trustees, ideally a solicitor, family member, or close friend, is responsible for ensuring the money set aside goes to the correct people after you have passed away. Trust deeds are agreed upon and signed by all parties, setting out the terms of the trust.
Can trusts be changed?
Life policies are often long-term contracts and the clients’ circumstances may change. Not all trusts are flexible so you need to make sure that the trust you have can be altered in the future. Where something changes and the client wishes to either change the beneficiaries or amounts allocated to them, this can then be done by contacting the provider. Any changes are usually required in writing, as opposed to being allowed online. You will also need the signature of any trustees. However, it is best to check with the insurance provider about the process involved.
Making trust easier
Much work has been done by insurers and a small number of providers now allow online and sometimes signatureless trusts. However, not all offer this facility, and therefore a paper trust document will be required.
We’re here to help
If you are unsure whether to write your life insurance in trust, talk to us. It is important you understand the options and any tax implications if you move a life insurance policy into trust. We can discuss your circumstances and give you the appropriate advice.
Please contact us on 01780 480600.