Many life assurance contracts would benefit from being written in Trust; however, many policies are not set up with a trust in place.
A trust provides a legal wrapper around the life insurance contract, in short, a trust will pay ona claim quicker, mitigate inheritance tax and can ensure that the proceeds of the life assurance are paid to correct person or persons.
A Trust is a legal arrangement which allows the owner of a life policy (the settlor) to give their policy to a trusted group of people (the trustees), who look after it. At some time,the proceeds will pass onto people from a group that the settlor has decided known as (the beneficiaries).
Inheritance Tax– It helps to ensure that any money paid out from the life policy would not be part of the deceased’s estate, helping to minimise death tax being paid or indeed increasing amount of tax due.
Quicker pay out– It should help to ensure that the money paid out from the life policy can be paid to the right people quickly without the need for lengthy legal processes (probate/ letters of administration).
Control of funds– By placing your policy in trust, you can indicate who you want theproceedstobepaidto.Atrustcancontrolwhenthemoneyfromthelifepolicywill be paid out. This can ensure that children receive some financial support from the money, but do not have full access to it straight away on death.
Trusts are often over looked, and this can prove costly. By not arranging a policy in Trust, it may mean that up to 40% of the policy proceeds are liable to tax. This rather defeats the object of arranging Life Cover in the first place!
The other major advantage is that the policy proceeds can be paid almost immediately. In England and Wales when a person dies, the representatives need to apply for a Grant of Probate (if a Will is in place) or Letters of Administration (where there is no Will). The main purpose of this process is to see if any Inheritance Tax is due on the proceeds of your Estate. This process takes time and if you die without having made a will it takes even longer. Since the trustees are the owners of a policy placed in trust, they do not have to go through this process in order to make a claim.
Both processes take months and effectively means that the state will be ‘frozen’ so there may be little or no money available to those who need it.
For further advice speak with one of our professional advisers.
If you have a life assurance policy that is not written in trust. Boudicas land offer a free review service. We can review whether the plan would benefit from being written in trust. We also carry out an open market review to assess whether cover could be provided more cost effectively.
We do not charge for the setting up of a trust.