Should you put life insurance in trust?

Figures provided by the UK life insurance industry show that only 1% of life insurance policies are written in trust. There are major benefits to putting life policies in trust so many thousands of people are missing out.

Before we explain a little more about trusts lets look at how people buy life cover. 10 years ago you would have been sold a life insurance policy, either by a financial adviser or insurance broker. Good financial advisers would explain the options around setting up a policy and would discuss “life of another” and trust options. In current times we can buy life insurance cover over the phone, the internet and even when we do the weekly shop. The life cover providers are not in a position to provide advice on the various options so you never get told about them and most people are primarily concerned with price. If you need life assurance then we would always recommend speaking with an independent financial adviser (IFA) who can source a competitively priced policy and show you the best way of setting your policy up.

So do you need life insurance in trust?

Well this very much depends on your own personal circumstances. The main benefits are that the policy proceeds are paid out very quickly, no need for probate, and the policy payout does not form part of your estate for inheritance tax.

There are three parties needed for a trust:

1. The Settlor - This is you. You are gifting this policy into the Trust
2. The Beneficiaries - These are the people who will receive the policy proceeds in the event of death. You can nominate spouses, children, grand-children etc and also specify amounts of money or percentages they will receive
3. The Trustees - These are the people that oversee and look after the Trust. Trustees need to ensure that funds are distrbuted according to the trust deed.

Significant Inheritance Tax (IHT) savings can be made by placing life insurance policies into trust as the policy proceeds are paid to the Trust and not your estate. Most life insurance companies provide basic trust documents for free so there is no addition cost unless your situation is particularly complex.

You can make a start by contacting an independent financial adviser, they will be able to assess your requirements and take you through the steps needed to set your life insurance up correctly.