Ok – let’s start easy. We’re going to cut out all the jargon here, and talk you through how and why you should consider putting your life insurance policy into trust. Firstly – what is a trust?
A trust is simply a way of managing your money. By putting your life insurance policy into a trust, the money paid out upon your death will go into this trust account. When you create the trust, you will create a document called a ‘trust deed’. This document will detail exactly how you want the trust assets to be distributed upon your death. For more information on trusts, have a look at the Gov.uk website.
So that, in basic terms, is what a trust is. So why should you get one?
1. No inheritance tax
Did you know that without a trust, life insurance pay-outs are subject to inheritance tax? Upon your death, the life insurance settlement will simply go into your estate ‘pot’. If your estate is worth over £325,000 (that’s the value of your property, savings, assets etc. combined) then you’ll be taxed 40% of everything over £325k.
So, you could risk losing 40% of your life insurance pay-out to the taxman! Putting your life insurance into trust will stop this happening. Any pay-out made into a trust remains outside your estate for inheritance tax purposes.
2. More control for you
One of the great benefits of a trust is that you have control over where the money goes. You can decide who benefits, and how they spend it. For example, you can stipulate that 50% of the money is payable to your son once he is over a certain age. You can even specify how the money is to be used. For example, to buy a house or car.
3. No debt repayment
If your estate is in debt when you die and no trust exists, the insurance pay-out may be used to repay these debts. The ‘trust deed’ is a legally binding document which only allows the money to go to the beneficiaries.
4. Faster payment
Upon your death, someone (normally nominated in your will) needs to apply for a ‘grant of representation’ – known as ‘probate’. This gives them the legal right to deal with your estate. This can take some time – especially if there is any dispute.
However, since your ‘trust deed’ already has the beneficiaries listed, the pay-out is normally very quick. The life insurance company will normally release funds to the trust as soon as a death certificate is received.
5. It’s free!
Putting your life insurance into trust costs nothing!
6. It’s easy!
Here at PayingTooMuch.com we can guide you through the whole process. We will work with your life insurance provider who will be able to do it all for you. However, if your estate is complicated, you may need to seek external legal advice.
A couple of things to watch
- A trust will be linked to a specific policy number. If that policy is cancelled, the trust dissolves automatically if there are no other assets.
- Once a trust has been established, it can’t be cancelled without cancelling the policy. However, you will remain a trustee during your lifetime so will have the control to make changes as circumstances change.
So – how do I do it?
We can put any new or existing policy into trust – just give us a call on 01243 219972 and one of the team will help you through the process.