Written by: Jason

Category: Inheritance Tax Planning

Published: 4th March 2014

Placing a Life Policy In Trust

When you take out a Life Policy the provider that you choose should give you the option to put your life Insurance or Assurance policy in trust.

Choosing to put your Life Policy in trust is one way to make sure that your the proceeds of your policy reaches your loved ones quickly when you die. Avoiding potentially unwanted delays during an emotional time for your loved ones.

The person placing their policy in trust is known as the Settlor. The Settlor chooses who they want as trustees and beneficiaries of the policy. Beneficiaries are the people who can receive payment from the trust fund.

Trustees take legal ownership of the trust fund from the Settlor and are responsible for looking after the trust fund and making sure that payments are made to the chosen beneficiaries.

Advantages of Writing a Life Policy Under a Trust

• Gives greater control as you can nominate your beneficiaries whilst retaining control of your asset.
• Provides protection from Inheritance Tax as the policy benefits paid out on death are outside of your estate for inheritance tax purposes and pass tax-free to your chosen beneficiaries at the appropriate time.
• No need to wait for Probate, immediate payment of the policy proceeds can usually be made on production of a death certificate, avoiding your loved ones potentially being unable to receive the proceeds for some time.

Are there any disadvantages of placing a Life Policy in Trust?

• Trust creation may affect your personal circumstances and taxation position, professional advice should be sought before creating a trust.
• Once the trust has been created it can not usually be cancelled before it has served it’s purpose.
• The settlor cannot cancel the policy without the permission of the trustees who are the owners of the policy.

Premiums paid under trust policies are considered gifts for inheritance tax purposes but are usually covered by one of the available exemptions. It is unlikely that tax will be charged if a protection life policy is the sole asset of the trust.

Summary

Most Life Insurance Companies offer different types of trusts that are available at policy inception. It is very important to seek advice on the best option for you.

Placing your Life policy in trust at outset with your insurance providers help is usually free to do and if you are happy that you know what you’re doing. It is better to put your life policy in trust at outset.

If your policy has already started and is not in trust, contact your provider as it may be possible to place it in trust retrospectively.

If they are unable to do this it is possible to place your Life Policy into trust within your Will. To do this you would need to obtain advice from your Will Writer, Estate Planning Consultant or Solicitor.

Related Links

Mind At Rest Wills & Estate Planning
HMRC Plans To Simplify IHT Charges On Trusts