Life Assurance policy in trust? What does that mean and why should you do that? Laura Richardson explains . . .
A Life Assurance policy pays out upon the death of the policyholder. The policy can be tailored to pay out a suitable amount to meet the needs of your beneficiaries, for example, you may decide to arrange for a payout amount that would pay off the mortgage on your family home. A Trust is a legal construct that allows you to place the payout funds of the Life Assurance policy under the control of a chosen Trustee who must distribute the payout funds in exact accordance with your recorded requirements.
There are several advantages of writing a Life Assurance Policy into a Trust:
- Avoid Inheritance Tax liability
Under a standard Life Assurance policy, the payout amount forms part of your Estate and could therefore be subject to Inheritance Tax. Inheritance Tax is liable on Estates valued over £325,000 and is payable at a rate of 40%. Thankfully, however, writing your Life Insurance Policy ‘in Trust’ ensures that your Life Assurance policy goes directly to your chosen beneficiary in full, without any Inheritance Tax liability. What’s more, you could even take out a Life Assurance policy to pay out an amount covering the Inheritance Tax liability of your Estate! This could be especially beneficial if the majority of the Estate value is held in your family home as it would negate the need for your beneficiaries to sell off your family home in order to settle the Inheritance Tax liability on the Estate.
- Faster payout
If your Life Assurance policy is not written ‘in Trust’ then it will form part of your estate when you die and will be subject to probate administration. Probate is a notoriously lengthy process and it generally takes at least 6 months before any assets, including the Life Assurance payout, could be distributed to your beneficiaries. By writing your Life Assurance policy ‘in Trust’, the payout amount will be directly given to a named beneficiary of the Trust meaning that they can access and utilize the funds immediately after your death is legally declared.
- Control of the funds
Although the Trust places the control of the payout funds in the hands of your chosen Trustee, that Trustee must comply with your instructions as to how the funds should be distributed. This allows you to specify not only who should receive the payout funds, but whether funds should be received in a lump sum amount, in regular payments, paid out for certain expenditures, or even paid out once the beneficiary reaches a certain age or milestone such as marriage. This is most useful when your beneficiaries are under the age of 18 and are unable to directly hold the payout funds for themselves.
At Andrew Douglas Wills & Legal Services we are proud to work alongside trusted partners to offer a bespoke Life Assurance policy service. Our Life Assurance policies are tailored to your individual needs and budget meaning that we can offer an affordable Life Assurance policy for all of our clients. For more information or to arrange your free initial consultation, contact Andrew Douglas Wills & Legal Services today! Whether in Chelmsford or across the UK, we welcome your call.
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