How to put my life insurance / assurance in trust

cuthbei

Hi,

I have just taken a new joint decreasing term life assurance / insurance policy with my wife, which is to pay off my mortgage. I would like to put the policy in trust, to avoid paying any extra Inheritance Tax. The policy is with Norwich Union, found via Cavendish Online. The documentation states I should "speak to my broker" about putting the policy in trust.

I also have another policy (not joint) which I took out a couple of years ago, through a different broker. This is with Legal and General.

What is the best way to put both of these policies in trust? Could I do both at the same time? I'm not sure if Cavendish Online would assist with the first policy.

Any advice is appreciated,

Thanks, Ian

missymugwump

We are in the same position I also would be interested in the replies you get.

dunstonh

What is the best way to put both of these policies in trust?

Select the appropriate trust for your needs or if there isnt one get a solicitor to draw one up (the latter would be unusual but there are times you may need a personal trust rather than an off the shelf one). Then complete the paperwork and supply it to the insurer so they can log it.

Could I do both at the same time?

If you like. Although you need to check if the existing one will allow trusts to be set up long after the event.

I'm not sure if Cavendish Online would assist with the first policy.

I doubt they will give any advice without charging you as that would breach execution only rules. However, they may make a charge for giving you advice limited to that area. Or you may get lucky and get a freebie off the record suggestion.

cuthbei

Thanks for your post.

How would I go about finding an appropriate trust? Best to talk to an IFA, even though I didn't purchase the trust via that IFA?

Thanks, Ian

cuthbei

Thanks Rikki, called who? Norwich Union or Cavendish?

Thanks, Ian

dunstonh

How would I go about finding an appropriate trust?

The different life companies usually have a range of trusts you can use. Knowing which is best will require some reading on your part but should be possible without advice if you can get your head round the terminology. The trusts normally come with basic notes but tend to be written on the expectation that an adviser is using them.

Best to talk to an IFA, even though I didn't purchase the trust via that IFA?

Probably find an IFA will want to charge you as the IFA would be taking on the liability (for life). Plus, they would need to factfind you and write a report. The charge could well exceed the difference in what you have saved by not using the IFA which defies the point of you going DIY.

somewhatnew

This is the problem with online execution only companies - they don’t give you advice and can confuse the issue.

You can put joint cover into a trust but you don’t need to.

A trust allows you to nominate the beneficiaries of a policy and mitigate probate and inheritance tax by taking the cover outside of your estate.

However, you have a joint policy so you co-own the insurance. If one of you dies there is no probate (you both own it, it doesn’t go into the deceased’s estate) and no IHT (you co-own it and you are also married).

You can put the joint cover into a trust if you want to but it would cause problems. Given current tax law you shouldn’t be the settlors (the people owning the insurance) and the beneficiaries as well because tax penalties can be incurred - you should only use a trust in this instance if on the first death you wanted the money to go to a third person (such as children) and not the survivor.

Regarding your older policy take this back to the person who set it up and ask them why they didn’t put it into a trust. Get them to do it. Putting a policy into a trust takes all of 5 minutes and they shouldn’t charge you – its really easy to do and they should supply all the documentation for free. If they wont do it think about moving the cover to a company who can and who know what they are talking about and want to help you rather than just sell to you. If they aren't going to help you do something as basic as a trust they aren't going to be much help at the time of a claim.

cuthbei

Hi,

I just got the forms from Cavendish online and was starting to think along the same lines as you have described. Thank you for such an excellent explaination. I can see that in most situations putting a joint policy into trust doesn't make much sense. (we are married and co-own the property).

I assume if we both died at the same time, the money would go towards paying the mortgage off (which was the whole point anyway) as part of my / our estate, so nothing from the policy would be left to go to a third party (my children) anyway. I need to meet with my solicitor soon anyway to update my Will, so I'm sure I'll understand this better once I have done that.

Thanks a lot, Ian

somewhatnew

Hi Ian

If you both died at the same time one of you will be deemed to have died first. This is the trigger for the insurance to pay out. The money then passes to the second person. Unfortunatly the second person is dead and so the money will go into the second persons estate.

The money will then be distributed according to the will (if you have one) or laws of intestacy.

If your will states the mortgage is to be paid off then it should do so (are your kids under 18? if so what do they then do with the house? would they want to or be able to pay council tax, rates, etc?), if the money is for your kids the money will go to your children into a trust (a different trust this time set up automatically by law) and they can have the money once they turn 18 - they wont necessarily be able to pay the house off before that time.

How old are your children at the moment?

cuthbei

My children and 4 and 8 months, so they probably won't be needing a house of their own.

I assume the house would then be sold by the Trustee of my children's trust.

Thanks, Ian