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What are the benefits of putting your life insurance policy into a trust?

What are the benefits of putting your life insurance policy into a trust?

There are some significant benefits to putting a life insurance policy into a trust (called “written in trust”) and it’s important to consider whether this is an option for you.

When you take out a life insurance policy you are naturally thinking of your loved ones and it is a fair bet that you would be hoping that the money would be quickly distributed and in full.

However, a life insurance payout can be very much delayed by probate or reduced by inheritance tax and administration if it is not written in trust.

To help, we’ve listed the benefits of writing your life insurance into a trust here

#1 Avoiding probate

When people pass on the person acting for them will generally need to obtain legal clearance to administer the estate.

If you have a Will (and we’d always advise this) then your executor will probably need to obtain a ‘grant of probate’.

This gives them the legal right to collect your assets, pay off any debts, pay your inheritance tax and then finally distribute money to your beneficiaries.

In all, the process just to get the grant will probably take a minimum of five weeks and the whole probate process will likely take a lot longer.

Writing your will into trust sidesteps the process completely as when you set up the trust you will choose your beneficiaries and the money will be paid out immediately according to your wishes.

You can find out more about the grant of probate here.

#2 Avoiding inheritance tax

In many people’s minds, avoiding inheritance tax is a major reason for writing their life assurance into a trust.

In the UK the inheritance tax allowance is currently £325,000. Everything over this amount is taxed at a rate of 40%.

In contrast, the benefit of an insurance policy that is written in trust is disregarded when looking at both the estate limit and for taxation.

This means that the policy proceeds won’t be taxed in itself but also that it won’t push the rest of the estate over the allowance and result in other assets being taxed.

#3 It makes your wishes clear

We firmly believe that everyone should have a clearly and legally drawn up Will.

This is why we set up Smart Will and why we price it at an affordable level and allow free changes for life.

But we have to be realistic and say that sometimes people’s wishes can be rather complicated.

By writing your insurance policy into trust you are making your views on the proceeds absolutely clear, so even if your Will is fairly complex your life insurance policy proceeds will be dealt with completely separately.

#4 It speeds up administration

We’ve already said that by putting your insurance policy into a trust you can avoid the issue of grant of probate.

But from an insurance company point of view having a clearly expressed trust, with beneficiaries on file makes the administration of the payout much easier and of course quicker.

All they will need is a copy of the death certificate and they can organise the payment meaning that your beneficiaries get their money very quickly indeed.

As we said earlier, we think that everyone should have a Will and our Online Will making app makes this a doddle.

Smart Will are also able to help you with your Trust and in particular, making sure you can benefit from writing your life insurance policy in trust.

Download the Smart Will App here

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