Should I Put My Life Insurance in Trust?

Published / Last Updated on 17/06/2021

Research by L&G back in 2018 found that 90% of life insurance policies that were not in trust and may be more beneficial to be placed in trust.

A legal Trust is about the ownership of any benefit or asset by a trusted person on behalf of another (the beneficiary).  The use of trusts actually started with 10th Century monks who took a vow of poverty with all assets held in trust for the benefit of others.  You are TRUSTING somebody (the trustee) to look after the wealth.

Not In Trust

If you life insurance policy is not in trust, it means that on your death, the life insurance will be included in your estate for inheritance tax calculations with taxes needing to be paid to HMRC before probate is granted and eventually be paid out to your estate,  Your loved ones may have to wait some time to access the life insurance funds.

Life Insurance in Trust

A simple trust document is usually no more than two sheets of A4 paper.   It includes your details, the trustees details and the beneficiaries details.  Once in trust, you no longer own the benefits of the life insurance policy, your trustees do on the behalf of the beneficiaries.  This also means that on death, it does not for part of your estate so will not be included for inheritance taxes.  In addition, the insurance company will not need to wait for probate to be granted meaning benefits are paid out to loved ones sooner.

Types of trusts

There are many types of trust although the most simple ones for life insurance will be

  • Bare/Absolute trusts – where the beneficiaries cannot be changed
  • Flexible/Power of Appointment trusts – where the ‘squad’ i.e.  broad range of beneficiaries is defined and then the team selected from the squad i.e.  the named beneficiaries (that can be changed to another provided they are in the squad)

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