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Life Protection Trusts

Did you know that the money you leave to your loved ones from a life insurance policy may be subject to inheritance tax as it is included as part of your estate?

By placing your life insurance policy into a Trust today, you can help make sure that your beneficiaries avoid inheritance tax so they can receive the money you intended to leave them.

Our experienced protection adviser will provide this essential option on all policies free of charge.

 

How do Trusts Work?

Setting up a trust means that you (the settlor) give your policy to the trustees who then legally own your policy and look after it for the benefit of your beneficiaries. You will still be responsible for paying the insurance premiums, but the trustees will be responsible for keeping the trust deed and any other documents safe. They make the claim on your policy and ensure that the money goes to your beneficiaries as you intended.

Depending on the type of trust you set up, it can provide lots of flexibility to change who will benefit and when, so that your changing circumstances - such as having more children or grandchildren - can be taken into account.

There are also inheritance tax benefits, because the value of your policy in the trust is not generally considered to be part of your estate when you die, leaving more for your beneficiaries.

 

Why is setting up a Trust important?

If a policy is not placed in trust, the policy proceeds may not go to the people who you want to receive it.

Without a trust, for a joint policy, the policy proceeds will automatically be paid to the survivor.

However, for a single life policy not placed in trust, there could be a delay before your spouse or partner receives the policy money. This is because when you die, if your policy is not in trust your personal representatives will need to obtain probate so that they have the authority to deal with your estate. The policy money will then be distributed in accordance with your will, or the laws of intestacy if you have not made a will.

The worst case could be if you are not married, and have not made a will, your partner may not be legally entitled to the policy proceeds at all unless placed in trust.

 

Why should unmarried couples consider a Trust?

If your policy is not in trust and you have not made a will, your partner may not be legally entitled to the policy money.

Therefore to try and gain access to the money your personal representatives will need to obtain probate so that they have the authority to deal with your estate.

However, you can usually only apply for probate (a grant of representation) to be the administrator of the estate if you’re the person’s next of kin, eg their spouse (or registered civil partner) or child. You can also apply if you’d separated from the person but you were still married or in a registered civil partnership when they died.

Unfortunately, you can’t apply for a grant of representation if you’re the partner of the person but weren’t their husband, wife or registered civil partner when they died.

The policy money will then be distributed in accordance with your will, or the laws of intestacy if you have not made a will. This means there could be a delay before your spouse receives the policy money or where there are children involved it could be mean that some or all of the money goes to them in accordance with the laws of intestacy.

The worst case could be if you are not married or in a registered civil partnership and have not made a will, as your partner may not be legally entitled to the policy proceeds at all unless placed in trust.

 

Why should joint policy holders consider a Trust?

A trust is a good way to help you both decide now, who you want to benefit from the insurance money.

For example an unmarried couple’s extended family, may have differing views on who the beneficiaries should be, when a claim is made on a joint life policy.

For example, John Smith and Lisa Cole buy a joint life policy together for £150,000. When John dies, the money is paid to Lisa direct as it’s a joint policy and she is the survivor on the policy. However John had two children, Sam aged 9 and Luke aged 6 from his first marriage. John’s ex-wife is dead and the grandparents believe the money should have gone to help provide for his children’s future not Lisa’s, so take Lisa to court to fight for the money

If the policy had been placed in a trust, it would have been outside of the estate with clear instructions as to who John wanted to receive the money, depending on both Lisa and John’s joint decision up front , helping to avoid any future issues.


Trusts and Inheritance Tax Planning are not regulated by the Financial Conduct Authority

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