If you are thinking of taking out a life insurance policy, or you are in the process of renewing your existing plan, you may want to consider writing your policy in trust. Surprisingly few people do this, and yet it can save a lot of time and money in the event of your death, meaning more of your payout is paid to your beneficiaries, and they are likely to receive it much quicker.
Here are five reasons why you should consider writing your life insurance in trust:
- It costs you nothing, and PayingTooMuch.com working with your life insurance provider can do it all for you.
- Any payout that is made remains outside your estate for inheritance tax purposes. Inheritance tax is payable if the value of your estate is valued above £325,000 (if you're single or divorced) or £650,000 (if you're married or widowed). Everything you own above this threshold will be taxed at 40%. Your estate includes all your assets such as your home, savings, possessions and any life insurance payment (unless it’s written in trust).
- If your policy is not written in trust, and you die with outstanding debt, the payout from your policy may go towards setlling this debt, rather than to your beneficiaries.
- It speeds up payment following death as there is no need to wait for probate. Your life insurance provider should payout as soon as they receive the death certificate.
- It allows you to specify exactly who should benefit from the money and how it should be paid. The proceeds of any claim are typically held in trust until the beneficiary is eligible to receive them, for example when they reach a certain age.
What is a trust, and how do I get one?
In this case, a trust is an arrangement where you nominate someone (or usually more than one person), to manage the proceeds of your policy in the event of your death. That person is the trustee, and is responsible for ensuring your beneficiaries receive the appropriate amount at a given time.
What to watch out for
- When you set up a trust for life insurance it will be linked to a specific policy number, and if that policy is cancelled and a new one set up, the trust dissolves automatically if there are no other assets.
- Once a trust has been set up, it can't usually be cancelled. Control is given to the trustees, but you are also a Trustee during your lifetime which means you can change your choices as your circumstances change.
- There is a lot of legal jargon surrounding trusts, and there are complications to the rules. If you want to write a life insurance policy in trust, PayingTooMuch.com working with the life insurance provider can usually answer most queries but you may need legal advice for more complicated estate planning.
Haven't got life insurance yet, or think you could be over-paying?
If you haven't got around to taking out life insurance yet, or think you could be paying too much, just click here to get an online quote or give our friendly team a call on 01243 784000.
