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Back..  Writing a Policy In Trust

 

If your life insurance policy is written in trust then, in the event of a claim, the insurance company will pay out the guaranteed sum assured directly to the beneficiaries named on the policy. 

This has the advantage of ensuring a quick payout directly to the people you most wish to provide for – as opposed to any creditors you may have.  It also removes the need to wait for court decisions regarding your estate which can lead to lengthy delays that can significantly hold up payouts – especially if you were to die without having drawn up a Will.  Furthermore, if you were to leave behind children under the age of 18, the trustees would be able to use the trust to provide for your children until such time as they come of age and can access the money directly.

Perhaps more importantly however, the proceeds from the policy will never be included in the value of your legal estate and therefore are not subject to inheritance tax. The law currently states that any assets over £325,000 for individuals and £650,000 for couples are subject to inheritance tax at a whopping rate of 40%.  If you fall into this category then setting up your life insurance policy in trust is especially relevant and should be given serious consideration. In order to arrange a suitable trust you simply request a trust deed form when applying.  The insurance company will then send this out to you and can assist you in setting up and registering your plan against it.

There are no real disadvantages to writing a policy in trust – you fill out a simple form, there is no charge and it acts as a safeguard to ensure your beneficiaries receive any payout quickly and without a tax bill attached.  Interestingly however, a survey carried out by a leading UK insurance provider revealed that only 1% of life insurance policies are written in trust – most likely due to poor consumer awareness. Generally any policy can be written in trust, but it is not always suitable.  A good example is if the insurance has been arranged to cover your mortgage rather than to provide money for your dependants.

One final thing to consider is that once established, a trust cannot usually be cancelled. It may be possible to cancel it if all the beneficiaries are in agreement but it is a complex process and so you should be certain that a trust is right for you before you proceed.