Blog: Protection in trust

Taking out a Life Insurance policy gives you valuable peace of mind; you know you’ve helped protect your family against financial hardship, should the worst happen. But how can you make sure your policy will pay out quickly, to those who’ll need it most, if you weren't around? The answer might be to write your policy in trust.

What is a ‘trust’?
A trust is a legal document that allows you to specify what will happen to your money after your death. If your life insurance policy is written in trust, any payout will go to the trustees you’ve chosen, who will then ensure the funds are distributed to the people you’d like to benefit from the policy (the beneficiaries).

According to research by Legal & General, however, it seems there is a significant lack of awareness around the benefits of placing live cover in trust. In fact, their survey found that 82% of people questioned had assets they wanted to bequeath to their loved ones, but two fifths were unfamiliar with the process.

Why is a trust so important?

A trust provides control… Every year, many people die without having put their life insurance policy in trust. As a consequence, the payouts become subject to the delays caused by the processing of a Will and, where there is no Will, the complex laws of intestacy come into play. This could mean the benefits of the policy will form part of your estate, which may not go to the people of your choosing. With your life insurance in trust, you can specify who you want the beneficiaries to be. This is especially important if you are unmarried or in a civil partnership.

A trust means your life insurance policy won’t attract Inheritance Tax… A life insurance policy that has been ‘written in trust’ does not form part of your legal estate and is not subject to Inheritance Tax. This allows the entire policy payout to go to the people you intended to benefit from it.

Your beneficiaries will have the money more quickly… Using a trust should help ensure that the money paid out from your life insurance can be paid to the people of your choice quicker, without waiting for lengthy legal processes, such as probate. This can be a welcome relief for those left behind during what is likely to be a very stressful time.

Setting up a trust

Trusts are usually easy to set up, but it’s important to select the right type of trust and complete the documentation carefully. That's where we come in.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

The Financial Conduct Authority does not regulate Trust Advice.

If you're thinking of putting a life policy in trust, please talk to us first. We can tell you if it’s the right choice for you, which type of trust is most appropriate for your circumstance - and help you put the trust in place.