Life Insurance – What is a ‘Trust’ policy and should I put my policy in one?

One option to consider when taking out life insurance is putting the policy into what is known as ‘trust’. According to insurer Aegon, only 6% of life insurance policy holders in the UK are set up in this way. Although the process isn’t necessarily suitable for all people, it can be an advantage in the long term for many. Do bear in mind that if you want to discuss the specific advantages of putting your life insurance policy into trust, you may be better off speaking to an adviser (which you can do by clicking here).

A trust allows you to set aside an asset to benefit a specified person or people (the beneficiaries that you nominate). This asset is then managed by a trustee or trustees until such time as the beneficiary is intended to benefit. So let’s say that your spouse is designated to look after your property on behalf of your children until they reach a responsible age, so maybe 18 or 21. Life insurance policies are such an asset, and putting a policy into a trust can affect what happens to the payout from a policy in the event of your death.

By writing your policy in trust, you can ensure that the money goes to the people you intended it for, at the time you intend. If you wish to leave all or part of your insurance money to your children, for instance, you can ask the trustees to keep control of it until they turn 18, 21 or whatever age you specify they can have it.

By putting your life insurance in trust, your policy is no longer considered to be part of your estate. Current UK inheritance tax laws declare that any part of your estate over the value of £325,000 has to be taxed at 40%. For a lot of people, their house and their life insurance policy will equate to over this limit. By writing your policy in trust, you could potentially avoid your estate being valued at more than this amount, thereby avoiding the need for your family to pay the higher rate of inheritance tax.

The process for claiming a life insurance policy that is not in trust can take some time, and your family won’t be able to claim the insurance money until probate is satisfied. By writing your policy in trust, your family will be able to access the money must faster, helping them deal with unexpected expenses such as funeral costs or the loss of your income more effectively.

Writing a policy in trust should never cost you any extra as the insurance provider should be able to offer this option free of charge at the time you take out the policy. When you speak to a consultant about life insurance, ask for information on trust policies and what this could do for your policy.

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