Putting Life Insurance into Trust
Once you have taken the steps to set up your life insurance and protect your family, an important next step can be putting this policy into a trust. This might be beneficial for a number of reasons:
1. Avoid Probate
The proceeds of your policy won’t have to go through probate, so can be in the hands of your loved ones faster. When a person dies, probate must be granted before their assets can be released to their family, but because the trust is said to be ‘outside of the deceased’s estate’, this money doesn’t have to go through probate.
2. You Decide Who Receives the Proceeds
A trust can ensure that the person you wish to receive the policy proceeds receives them, and they are not misdirected to someone or somewhere else.
3. Pay Your Family First
If you don’t have a trust but have a high number of debts, upon death the proceeds of your life insurance will cover the costs of your debts before going to family, unless you have a trust in place.
4. Avoid Intestacy Rules
If you don’t have a trust or a will, the proceeds of your policy will be distributed according to intestacy rules, which may not be as you would have wished.
5. Reduce Inheritance Tax
For those with assets over £325,000, placing your life insurance policy into trust can be a useful way of reducing the amount of tax to pay upon death. The current Inheritance Tax rate is 40% on the excess of your assets over £325,000. However, if in trust, the proceeds of your life insurance policy are normally not considered part of your estate, and therefore not subject to Inheritance Tax.
It Is important to note that once the policy is placed into a trust, it can be harder to make changes to the policy terms, (depending on the type of trust). If you’re unsure whether a trust would be beneficial for you, you should consult an expert.
What exactly is a trust?
A trust is a separate legal entity that holds your policy and eventually, your policy proceeds.
Imagine it like a box.
The following people can have access to the box:
Settlor – The person who creates the trust. You can put your policy into the box and the box will stay closed.
Beneficiaries – When you set up the trust, you will assign beneficiaries, and these are the only people who are allowed to take the money out of the box, when the time is right.
Trustees – To make sure the trust is correctly maintained; you will assign trustees. Technically they own the trust- they can’t get into the box, but they can make sure that the beneficiaries can access the money at the right time. You should also be a trustee so you can keep an eye on the trust whilst you are alive, and you should consider who else you can trust to be a be a trustee; this might be a close family member or a professional such as a solicitor.
When you die, your life policy will pay out into the trust box, and the box can then be opened by the beneficiaries, and they can take the money out.
You can also set special terms with your trust. For example, you could allow your beneficiaries to access the trust only after they turn 18.
Utilising trusts is a clever way of changing your tax liability in many cases, and there are several types of trusts which have different rules and different features. Many things can be put into trust, such as investments or even houses. You should seek the help of an expert if you’d like to discuss this further.
How to Put a Life Insurance Policy into Trust
Most insurance providers have a simplified process for placing a policy into trust, which involves completing a form and sending it back to them. Sometimes, your circumstances might be a little more complex, in which case you’ll need a trust specialist. Thankfully, Genistar have a professional referral partner who can offer this service if you need it.
Contact your Genistar representative for more information.
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