Trusts
All of our customers can get their policy put into Trust.
What is a Trust?
A Trust is a legal document that ensures money from a policy claim is kept separate from an estate.
Unlike a Will, it mitigates inheritance tax and speeds up an insurance claim. A Trust allows you – and whoever you choose – to control what happens to your money after your death.
What is a Trust?
Placing your Life Insurance policy into a Trust is strongly recommended, and we can arrange this Trust free of charge.
Find out more about Trusts
It can ensure your cover pays out in a timely manner
You decide how much each person gets
A Trust can mitigate inheritance tax fees
Who Can Be A Beneficiary
Any person, or group of people, can be designated as your beneficiaries, which will entitle them to a payout in the event that a legitimate claim is made. Contrary to popular belief, there are no restrictions on who can be the beneficiary of your life insurance. You could decide on the following, for instance:
A spouse or civil partner
A child
A relative
A friend
A charity
While you won’t be able to change your beneficiaries if you have an Absolute Trust, if you take out a Discretionary Trust, your trustees will have the freedom to decide who your beneficiaries are, and how much they’re entitled to receive from a pay out.
How Does Putting Life Insurance in Trust Work?
Which trust kind is best for you must be determined. Here are your choices:
Discretionary Trusts – With discretionary trusts, your trustees will use your letter of wishes as a general guide to decide which beneficiaries to pay when you pass away. Your letter of wishes specifies how the trustees should manage the trust in accordance with your goals.
A Flexible Trust – A trust with two different sorts of beneficiaries is referred to as a flexible trust. The default recipient belongs to the first category. Any revenue that the trust generates is owed to these beneficiaries. In reality, there won’t be any income if the life insurance policy is the only asset in the trust. The discretionary beneficiary is the second category of beneficiary. Only if the trustees appoint them throughout the trust period do these discretionary beneficiaries get cash or income from the trust. By the conclusion of the trust period, appointments must be made; otherwise, the default beneficiaries will be given all benefits.
Survivor’s Discretionary Trust: If you and your partner both pass away, they would be entitled to inherit your policy before your beneficiaries. This type of joint life insurance in trust pays benefits to the remaining policy owner. Your beneficiaries may receive benefits if both policy owners pass away within 30 days of one another on the same terms as a discretionary trust.
Absolute Trust: In this case, the beneficiaries are specified people who cannot have their status changed in the future. This includes any later-born children and a spouse who got married after a divorce. The benefit of an Absolute Trust is that payouts can be made swiftly without the need for protracted legal proceedings, and like other trusts, there is likely to be no or very little Inheritance Tax.
Once your trust is established, your trustees are legally in charge of the insurance and are required to keep the trust deed safe; they can either choose a safe location in their home or appoint a lawyer to store the paperwork there. The trust deed must be available to your trustees since they will eventually submit a claim to your insurer after your death.
It’s important to keep in mind that you, the settlor, are still in charge of making sure your life insurance premiums are paid. To make sure your trust agreement’s legal language is precise, it could be advantageous to contact a legal advisor.
The Benefits of Writing Life Insurance in Trust
It is common practise to place life insurance in trust for a variety of reasons. Here are a few advantages of using a life insurance trust.
Control over your assets — without a trust, your money might be used to settle debts if you don’t have one. You have more control when you put life insurance in trust since you get to pick the beneficiaries and trustees. If you’re not married or in a civil relationship, creating a trust is extremely crucial since without one, your assets might not pass to the appropriate beneficiary.
Faster access to your money: Without a trust, your intended beneficiaries would first need to apply for probate, which can delay things when you pass away. Your loved ones might get their inheritance a few weeks after the death certificate is issued if you have a trust in place.
By placing your life insurance in trust, you can shield your beneficiaries from inheritance tax by ensuring that the proceeds of your policy are not regarded as part of your estate. There are exceptions; for instance, on each ten-year anniversary, you might be required to pay inheritance tax on the property’s worth. Inheritance tax is currently levied at a regular rate of 40% on the portion of your estate that exceeds the £325,000 cap.
Life Insurance in Trust for Cohabiting Couples
Around 60% of people in England and Wales were living in couples, per ONS data published in 2021. Cohabitation is becoming more common; in 2020, 13.1% of people aged 16 and over lived with someone else, up from 11.3% in 2010.
Although the term “cohabiting couple,” sometimes known as “common-law spouses,” without a legal definition, it often refers to a couple that lives together but is not legally wed. The idea that common-law partners have the same legal protections as married or civilly married couples is untrue.
The truth is that there are no legal requirements for cohabitation, and a surviving cohabitant has no legal right to anything from their late partner’s estate unless they made a will that specifically names their cohabitant. Additionally, if a life insurance policy is not written in trust, they will not be able to make a legal claim against it.