Writing your life insurance into trust is a smart way to protect your loved ones and ensure that your wishes are carried out after you die. Here are some of the key benefits:
- 1Faster access to the payout: When your life insurance is in trust, your beneficiaries can receive the payout much faster than if it were part of your estate. This is because there is no need to go through probate, which can be a lengthy and expensive process.
- 2Protection from inheritance tax: If your estate is worth more than the inheritance tax threshold (currently £325,000), your beneficiaries may have to pay 40% tax on the excess. Writing your life insurance into trust can help to reduce or eliminate this tax bill.
- 3Greater control over the payout: When you write your life insurance into trust, you can choose how the payout is used and who benefits from it. For example, you could set up a trust to provide for your children's education or to care for a disabled loved one.
What is a Trust?
A trust is a legal arrangement where you (the settlor) transfer ownership of assets to one or more trustees. The trustees are then responsible for managing the assets and distributing them to the beneficiaries according to the terms of the trust.
What are the different types of trusts?
There are many different types of trusts, but some of the most common for life insurance include:
Who are beneficiaries?
The beneficiaries of a trust are the people who are entitled to receive the assets in the trust. They can be individuals, charities, or other trusts.
Who are the Trustees?
The trustees of a trust are the people who are responsible for managing the assets in the trust and distributing them to the beneficiaries. They can be family members, friends, professionals, or a combination of these.
How to write your life insurance into trust
To write your life insurance into trust, you will need to create a trust deed. This is a legal document that sets out the terms of the trust, such as the trustees, the beneficiaries, and how the assets should be managed. You can create a trust deed yourself, but it is advisable to seek legal advice to ensure that it is drafted correctly. Or, the life assurance company may already have standard trust documents you may be able to use.
Once you have created a trust deed, you will need to notify your life insurance company that you want to write your policy into trust. They will then provide you with the necessary paperwork.
Conclusion
Writing your life insurance into trust is a simple and effective way to protect your loved ones and ensure that your wishes are carried out after you die. It is especially important to consider writing your life insurance into trust if you have minor children, a disabled loved one, or a complex estate.