Should I put my life insurance policy into trust?

Did you know that 43% of unmarried people will lose out on their partner’s life insurance pay-out because they haven’t made the right arrangements?* Fortunately there are ways to avoid this. One way is to place your life insurance policy into trust. A trust is a free legal arrangement which makes sure that the correct people receive the right amount of money at the right time. 


 What is a trust for Life insurance policy?

When you take out a life insurance policy you can put your policy into trust. This free legal agreement allows you to state the beneficiary of your assets. Including the pay-out from your life insurance policy. A trust is managed by trustees, who can be family, friends or a solicitor. You can create a trust when you begin your policy or at a later date.

What are the benefits of putting your life insurance policy into trust?

A life insurance policy has an order of precedence to decide who the beneficiary of your assets will be – unless stated otherwise. A trust gives you direct control over who you wish to benefit from what you leave behind. As well as who will manage the process. If your life insurance is in trust, your loved ones do not have to wait as long to receive your assets. Probate (the process of dealing with assets after you die) can take months to complete. With a trust, your family will usually only need your birth certificate. Consequently, you do not have to wait for probate to complete. Finally, the amount that your family receives should be the full amount of the sum tax-free. A trust means that it is legally owned by the trustee and is not classed as part of your estate on death.

Are there different types of trust?

There are different types of trusts available. The right option for you depends on the life insurance you have/want and who you would like to benefit from the proceeds. The differences between them largely depend on the flexibility to make amendments. A discretionary trust will give you the ability to change/add beneficiaries. Whereas a bare trust means that you will never be able to. If your policy is combined with a critical illness cover policy, you can create a split trust. This will allow you to retain the Critical Illness benefit but still pays any death benefit to your chosen beneficiaries.

Are there any legal implications of a trust?

Setting up a trust means that you are handing over the legal ownership of your life insurance policy. It is not something that can be reversed. However, if you cancel your policy or the policy is at its end date, the terms of the trust would also be canceled. As it has legal and tax implications the trust cannot be canceled or changed alone. You should ensure you make the best decision for your situation, before confirming who the beneficiary of the trust will be. 

What happens to beneficiaries?

A trust is not the only option, some providers will give you the option of a beneficiary nomination (without the need for a trust). However, a trust is an efficient method to get your beneficiaries of your life policy paid. As your payments go directly to beneficiaries, there are no inheritance tax implications for the nominated beneficiary option. These options are particularly helpful if you are an unmarried couple. Or your nominated beneficiary order does not fall in line with the standard order of precedence with inheritance. 

*Statistics from IFA Magazine