When it comes to planning your family’s financial future, it makes good sense to take all steps possible to protect their standard of living. Arranging your life insurance in the right way - to give your loved ones the maximum possible benefit - is an important consideration.

One option to consider when taking out life insurance is putting the policy into a trust.

The main reasons for putting a life assurance plan into a trust

1. It makes sure that the money paid out from the plan goes to the people the plan holder wants to benefit from it. When a trust is set up, the plan holder lists all the people they want to share the money from the trust. The plan holder can even indicate what proportion of the money they would like each individual to receive - for example John 25%, Jane 25% and Mark 50%.

2. The life insurance company can usually pay a death claim more quickly than they could if it were not put in trust. If a life assurance plan is in trust, it is no longer part of the plan holders estate. So if they die, the trustees claim on the life assurance and the death benefit money is paid directly to the trustees. If a life assurance plan is not in trust, the amount of money a person has as life assurance is added to the rest of their estate if they die during the plan term. This means that the people that are to distribute the estate would need to get a grant of probate before the insurance company could pay out any money. This can take several months.

3. The money the plan pays out may be free of inheritance tax. If the plan was put into trust, it isn’t included in the settlor’s estate when the settlor dies, so there is no immediate inheritance tax to pay.

And yet according to insurer Aegon, only 6% of life-insurance policies in the UK are set up in this way.
This is surprising as, although this process isn’t necessarily suitable for all people, it can be advantageous in the case of many.

Putting your policy in Trust
After taking out Life insurance you can place it in Trust. This can help make sure the proceeds of your policy are used as you intended.

There are three main benefits for putting a policy in trust:

  • Control: You can help to ensure that the right people receive the life insurance.
  • Faster payment of the money: Using a trust should help to ensure that the money paid out from your life insurance can be paid out to the people of your choice quicker.
  • Avoiding Inheritance Tax: When a life policy is not held in trust, it will normally be considered part of the estate meaning it can be subject to Inheritance Tax. Using a trust should mean that the policy is not part of the estate and should therefore not be subject to Inheritance tax.
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