Having it written in trust will not only give you better control of your policy it can also avoid (or minimise) 40% inheritance tax (IHT) on your whole estate. In addition, it can avoid the probate process altogether, which could otherwise delay payment to your beneficiaries for up to 9 months, sometimes much longer.
Think about it? You have selflessly invested year on year in order to protect your loved ones financially after you’re gone yet nearly 50% of the amount you have insured yourself for is paid away to the tax man and delayed by months.
In addition and even worse, if your policy is not put in trust, the pay out funds could be forced to pay off outstanding debts, rather than going to your loved ones as intended.
Your existing life insurance could be seriously out of date for many reasons such as a new home, job, marriage, children etc.
We can offer free advice in this respect as well as how to place your policy into trust at no cost.
A 5-minute conversation with one of our Professional Advisors can put your mind at rest.
We can still offer free advice on what cover we think you should have. If you decide to proceed, we can again place this into trust at no cost.
Did you know that Life Insurance can cost you from as little as £6 per month?
We could arrange life insurance for you via your business.
As well as avoiding 40% IHT it will also be classed as a tax deductible business expense.
This arrangement could be made available as a benefit to your employees as well.
NOTE: Registering allows us update you on your journey with us. Your information can be deleted at any time. Our recommended Financial Advisors agree to abide by the same terms and conditions, and will not use your information for purposes other than those clearly stated at the point of their collection or in their own clearly identified Terms & Conditions section
As a welcome gift we’re offering new customers up to £200 Amazon.co.uk gift card when you buy a life insurance policy. The gift card value varies depending on the monthly premium.
Let us try and explain this in very simple terms.
In the UK, if your estate exceeds £325,000 (if you’re single or divorced) or £650,000 (if you’re married or widowed) it’s subject to 40% inheritance tax.
If your life insurance policy is not written in trust then it will form part of your estate. Your estate could include your properties, vehicles, business, and any possessions as well as your life insurance.
It is not uncommon to underestimate the value of your estate. Many UK estates will easily exceed the above thresholds set by the government.
Separating your life insurance from your estate will therefore:
This will potentially prevent hundreds of thousands of pounds, that you have invested to pass on to your beneficiaries on your death, being paid elsewhere in tax!
And don’t forget that “in trust” it can not also be used to pay off any outstanding debts.
To have your Life Insurance written in trust is a legal agreement that ensures your beneficiaries will benefit from the full proceeds of your policy.
A trust is essentially a legal arrangement, where the trust takes ownership of certain assets. You appoint a trustee or trustees to oversee the trust. These could be family members, friends or perhaps a solicitor. The job of the trustees is to ensure that the assets contained within the trust go to the named beneficiaries. In other words, the money goes where it is supposed to, rather than into the hands of the taxman. The named beneficiaries would likely be your partner or your children - the people you want to benefit from the life insurance payout.
Therefore, upon your death, the person(s) you have placed in charge of your life insurance policy will manage your pay out in a similar way to being the executor of your will ensuring proceeds are paid and distributed exactly as you have requested.
Whilst avoiding paying 40% inheritance tax and probate!
After you’re gone, the sum from your life insurance will be paid to the trustees to carry out your wishes.
Trustees must have a UK bank account and be over the age of 18.
Probate is the legal process that confirms that your executors are in a position to administer your estate.
It typically takes between 6 and 9 months before beneficiaries are able to receive their inheritance, for nearly all estates in England & Wales.
With regards to your life insurance your beneficiaries will not be able to make a claim on your policy until probate has been granted – which further delays the process.
This could also mean that bills such as your mortgage will need to be paid by your loved ones/beneficiaries during this lengthy process.
Removing your life insurance from this process and placing it in trust ensures that the claim payment will not be unnecessarily delayed.
A claim can be filed with your life insurer as soon as the death certificate is produced.
And funds from a policy in trust can typically be received within just a few weeks and can then be made available to finance expenses such as your funeral.
In even worse circumstances if your policy is not in trust and there is a conflict between beneficiaries it can make probate even more challenging and could take years- not months – to resolve. This is sadly not uncommon.
If your policy is not put in trust, the pay out funds could be used to pay off outstanding debts, rather than going to your loved ones as intended.
Writing your life insurance in trust allows you to take more control and specify who you wish to receive the pay out, as well as when and how you want it distributed.
This could mean for example, if you have young children, that writing your policy in trust also allows you to instruct your trustees to keep control of the funds until they reach a certain age (for example, 18).
Generally, joint life insurance policies don’t need to be written in trust for inheritance tax purposes.
Most joint life insurance policies operate on the basis that a pay out is made upon the first death.
In this instance, the pay out would usually be paid to the remaining spouse/civil partner who would then be exempt from inheritance tax.
However, if both partners were to die together or your policy was joint survivorship life insurance (when a pay out is made on a second death basis), the beneficiary would be subject to inheritance tax.
For this reason and to avoid the lengthy probate process, it would be beneficial to write your life insurance in trust even if it’s a joint policy.
There are also other considerations:
If you opt for a joint policy, it’s important to remember there will only be one pay-out.
So, if a married couple had a joint policy, and both died in a car accident, their dependents would only receive one lump sum from the policy. If however, the same couple had taken out individual policies, each one would make a pay-out.
Another potential downside of a joint policy is if a relationship breaks down; you cannot simply ‘split’ a policy. That means if one ex-partner decides they don’t want to pay their share of the premium, the policy would probably cease unless the other partner took on the full burden of paying.
With life insurance policies, if premiums aren’t paid, then the policy simply terminates.
There could also be issues over who is entitled to any pay-out from a joint policy, particularly if one of the former partners remarries and has children with their new spouse.
Having separate policies avoids this sort of issue. if a relationship does end, each partner had their own cover and can protect their dependants as they choose.
Yes. Having a trustee who is also a beneficiary of a trust is generally allowed and commonplace in family trusts.
However, where trustees are granted discretionary rights, it may be advisable for there to be at least one independent trustee who won’t benefit from the trust.
Often, policyholders name their partner or children as trustees.
If you are in any doubt about what you should do please talk to us today.
Your existing life insurance could be seriously out of date for many reasons such as a new home, job, marriage, children etc.
We can offer free advice in this respect as well as how to place your policy into trust at no cost.
A 5-minute conversation with one of our Professional Advisors can put your mind at rest.
We can still offer free advice on what cover we think you should have. If you decide to proceed, we can again place this into trust at no cost.
Did you know that Life Insurance can cost you from as little as £6 per month?
We could arrange life insurance for you via your business.
As well as avoiding 40% IHT it will also be classed as a tax deductible business expense.
This arrangement could be made available as a benefit to your employees as well.
NOTE: Registering allows us update you on your journey with us. Your information can be deleted at any time. Our recommended Financial Advisors agree to abide by the same terms and conditions, and will not use your information for purposes other than those clearly stated at the point of their collection or in their own clearly identified Terms & Conditions section
Which may even cover the the total cost of your insurance. Our expert advisors can talk you through all options dependant on what both your lifestyle and goals are.
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