Put Life Insurance In Trust During Coronavirus Lockdown

Published / Last Updated on 26/04/2020

If your life insurance or combined life and critical illness insurance policies are not in trust, the death benefits are payable to your estate.  This means that:

  1. Your insurance will be paid to your estate and not to loved ones.
  2. Your insurance will be included in your estate when calculating inheritance tax and may mean more taxes are paid.
  3. Your insurance may not be paid out to loved ones quickly as your estate may need to go to probate before any funds can be paid out.

By putting life insurance in trust it means death benefits can be paid directly to your loved ones quickly and the benefits do not form part of your estate.  Consider these types of trust:

  1. Absolute or Bare Trusts – beneficiaries e.g. partner, children cannot be changed.  Benefits will be paid directly to them.  The trust cannot be changed.
  2. Flexible or Power of Appointment Trusts – you name your ‘squad’ or group of beneficiaries e.g. “The Smith Family”.  All members of the Smith family may benefit from the trust but you appoint/name certain people as beneficiaries e.g. partner or children.  The named beneficiaries can then be changed at any time, provided new beneficiaries are part of the ‘Smith’ group.
  3. Split Trust – used for combined life insurance with critical illness plans, where the critical illness insurance would be paid out to you (you are alive after all) and life insurance paid out, in trust to your loved ones.

Talk to your insurer during coronavirus lockdown about putting your life insurance in trust.  Ask them for their standard wording or contact us for help with putting insurance in trust.

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