Putting Insurance in Trust

Published / Last Updated on 17/05/2021

Putting Insurance into Trust

Use a trust to protect family or business associates.  Use a trust to save inheritance tax.  Use a trust to speed up payments.

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If a life assurance policy is taken out to provide protection for your family or other dependants, the people that you care about will normally need the proceeds of the policy on death quite quickly.

Life of another

Policies can be taken out on a 'life of another' basis.  A wife could take out a policy on the life of her husband so that if he died, she would receive the money immediately as she owns the policy.   There could be problems here if the person taking out the policy died before the person covered under the policy.

Own life policy - delayed pay out on death

If you take out a life insurance policy on your own life and you die, then the proceeds of that policy are deemed part of your estate.  If a policy is not placed under trust for the family, there could be delays in paying out the proceeds whilst waiting for probate to be granted. 

In addition, there could also be Inheritance Tax to pay because the proceeds would form part of the deceased person's estate.

Use a trust

These problems can be easily overcome by writing policies in trust.  It is important that you take advice on the type and suitability of trusts in your particular circumstances.

We give honest trust advice to see you with the best deal, so contact us.

1.  What is a Trust? Trust Advice 

A trust is where assets or property are held by one person in 'safe keeping' for another.

Maximum term

The maximum time a trust can run for is 80 years.  Many have shorter terms and pay out due to conditions of the trust being met, e.g, death, or the trust term is set to a particular term or age, for example, 18 or 21 if for children.

Monks started it all

Trusts have been established in the English common law legal system for over 1,000 years.  They evolved broadly because monks who took a vow of poverty could not own property. 

This principal of holding property 'in trust' for another is a very popular way today of passing on your wealth to others.  Using a trust can reduce certain taxes on death as you no longer own the property as it is held inside a trust i.e.  it is not yours and therefore not part of your estate on death for tax purposes.

Trusts give choice

A trust is also a way of choosing who will receive a certain benefit without giving that person immediate control of it.

A trust is set up by a trust deed and it is this document that sets out who is involved, who made the gift and who ultimately will get the property and the terms that apply to it.   

Advantages of a Trust

The policy proceeds can be paid out on death to the surviving trustee(s) on production of a Death Certificate.

They will not need to wait for probate to be granted so delays in receiving the money are avoided.  The policy may not form part of the deceased person's estate for Inheritance Tax purposes.

This means that it could be free from Inheritance Tax.

2.  Which trust should I use? 

For Investments, there are many types of trust that can be used.

For Life Insurance and Critical Illness protection policies, there are broadly three types of trust that you may wish to consider:

  • Absolute Trust
  • Flexible Trust
  • Split Trust

Once you have decided on the most suitable policy and trust arrangement to use in your particular circumstances, all you will need to do is fill in a trust form.

It is also possible to put existing policies that you already have in trust.   Different trust wordings are available for

  • Existing policies
  • New policies

Take advice:

We strongly recommend that you take our expert advice or a solicitor to make sure the trust is right for you. 

Trusts are complex and you should seek advice in your particular circumstances as to what trust is appropriate for you.

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