Finance Q&A's
Writing life insurance into trust
Taking out life insurance provides peace of mind that your loved ones would be financially secure in the event of your death. Writing that policy into trust goes one step further, providing extra protection and ensuring the funds are readily available. In this Q&A Lakeside Compliance Director, Nathan Hibbert outlines the pros of putting policies into trust and highlights the potential risks faced by those who don’t.
What are the key benefits of writing life insurance into a trust?
N: It offers extra protection in various circumstances, but crucially writing a policy into a trust means that once the death certificate is presented the money is paid directly into this trust and so it’s not classed as part of the deceased’s estate.
From a financial perspective, the benefit is that the payout is not subject to inheritance tax. It also avoids the need for probate to be granted, which can take weeks or even months. Instead, the money is paid into the trust and is quickly available to the beneficiaries, which is vital if the funds are needed to pay a mortgage or support dependents.
Can both new and existing policies be written into trust and, if so, what is the process?
N: Yes, and it’s a quick process with no additional costs or fees incurred. For new policies, it’s just a little extra administration. Meanwhile, those with an existing policy will simply need to fill in a form nominating the policy to be written into trust.
Are there any other decisions that will need to be made?
N: You will need to decide on the trust beneficiaries and also appoint one or more trustees, who will be responsible for money paid into the trust. As it sounds, a trustee should be someone you trust will manage the funds responsibly and act in the beneficiaries’ best interests. We would always advise appointing at least two trustees and consider including a professional trustee, such as a financial advisor or solicitor, to mediate any family fallout implications.
What are the potential risks of not writing insurance into trust?
N: For extra protection, it makes sense that everyone has their life insurance written into trust, but it’s particularly important for single people or couples with single policies. This is because if a will is not in place in the event of their death, their estate would be shared out by specific laws put in place by the government, known as the rules of intestacy. As such, their assets may not go to the person they would have wished, such as their spouse.
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