What is a Trust?
The big question on everyone’s lips, what is a Trust? The simple answer is ‘A Trust is a simple legal Arrangement’. This allows you (the settlor) to gift your life insurance policy to someone else (the beneficiary). It’s a great way to ensure that your life insurance is not considered to be a part of your estate when you die, so beneficiaries won’t face the burden of inheritance tax on your life policy. For joint life policies, both of you must agree to place your policy in trust.
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. Trusts are flexible, which means you have control over who will benefit from your plan, as well as who’ll be responsible for making sure this happens. You can also make sure you’ll receive any benefits that you want to keep for yourself, for example any payment following a critical illness claim.
Why is setting up a Trust important?
If a policy is not placed into 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 receives the policy money. This is because if your policy is not in Trust your personal representatives will need to obtain Probate before they can deal with your plan. This process can take a long time. Sometimes several months. Putting your plan in trust can avoid this delay. 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.
Speak to you adviser today about putting your protection plan in Trust.