Life Insurance in Trust
Learn more about how writing your Life Insurance policy in Trust can benefit you, and use our free Trust tool to take advantage of these great benefits.
What is a Trust?
A Trust is a legal document where the policyholder can name the family & friends they want to receive the financial pay-out when a claim is made. These people are named beneficiaries.
A Life Insurance policy written in Trust allows the policyholder to name Trustees, who need to be 18 or over, who will be responsible for distributing the pay-out to the beneficiaries.
Here’s a summary of the key differences between a policy written / not written in Trust.
Advantages of a trust
- Avoid a potential tax bill if the value of your estate is greater than £325k
- Faster legal process so your family and friends can enjoy financial security sooner
- You have a say in who gets the proceeds from your policy
Policy not written in Trust
- Pay potential tax bill of 40% on the pay-out if the value of your estate is greater than £325k
- Pay-out may be delayed by the probate process which can take up to 6 months
- Risk the proceeds from your policy getting in to the hands of any debtors
The rate of inheritance tax is 40% on any estate value over £325,000 upon that persons death…
The effect on inheritance tax
The rate of inheritance tax is 40% on any estate value over £325,000 upon that persons death, although this may be reduced based on charity giving (see www.Gov.uk). However, the 2015 Budget had a significant impact on inheritance tax changes whereby the threshold increases for each parent to pass on has risen to £500,000 in property, which begins to be introduced between April 2017 and 2020.
Think about who you want to act as your Trustees. The Trustee will make sure your pay-out is split between your chosen family & friends
You will need the address and email of each Trustee to complete the form
You will need your policy number. This can be found in your policy schedule that was emailed to you upon setting up your cover with Beagle Street
You can add up to 4 Trustees
Life Insurance can only be written in Trust once. It is possible to amend the Trust to add, amend or remove Trustees or beneficiaries
You can also write a letter of wishes after a Trust has been written, which gives the Trustees details about how to distribute the pay-out from the policy
If your policy includes critical illness then it can be placed in Trust, but any claim made on critical or terminal illness will be paid directly to you
If your life cover is assigned as security against a loan or mortgage then it can’t be put in Trust
When Life Insurance is written in Trust it gives you the control to choose your Trustees, who are responsible for distributing the pay-out to your loved ones. A Trust can help you manage:
- Potential inheritance tax liability (depending on the value of your estate, the current HMRC tax threshold is £325,000 as of 16/09/2015).
- The speed of the pay-out. Without a Trust the pay-out needs to go through probate, which could take 6 months or more.
- In Trust your Life Insurance doesn’t form part of your estate. This means it cannot be taxed under inheritance tax, which places tax on estates over £325,000 (as of 16/09/2015)
- A pay-out can reach your loved ones in just a few days of a claim being approved if the policy is written in Trust, otherwise it can take 6 months or more
- With a Beagle Street Life Insurance policy you can write your cover in Trust for free
This depends on what decisions you have made with your Life Insurance policy. We offer a free service to place your policy in Trust. This gives you control to name your Trustees, who will be responsible for distributing your pay-out to the desired beneficiaries. If you do not write your policy in Trust then the pay-out will form part of your estate and could be liable for inheritance tax.
If you have a joint policy then the pay-out will automatically select the surviving policyholder as your beneficiary.
By writing your Life Insurance in Trust your chosen beneficiaries can usually receive the pay-out within a few days of the claim being approved (which can take as little as two weeks). If your policy is not written in Trust then the pay-out will be seen as part of your estate and subject to probate, which can take 6 months or more.