life assurance...policy in trust - please explain

theGrinch

Apologies if this has been asked before but I am sure it will help not only me.

Can someone explain what this means and the benefits and costs of doing it? I am currently filling in a life assurance policy and this is one of the questions requiring a yes/no answer. I understand that is potentially takes the payout out of your estate for IHT purposes.

thanks

ACG

Trusts are usually free if done with a life office on a life policy.

Your correct in that should a claim be made then the payout will avoid probate so will be paid out quicker, it also means there is no IHT on it.
I think in 99% of cases you would end up putting a life policy in trust. If it is life and CIC then you may want to look at a "Split Trust" (Thats where if you make a claim on the critical illness side, you get the money - If its the life cover then the beneficiary does).

KoreArabin

ACG wrote: »

Trusts are usually free if done with a life office on a life policy.

Your correct in that should a claim be made then the payout will avoid probate so will be paid out quicker, it also means there is no IHT on it.
I think in 99% of cases you would end up putting a life policy in trust. If it is life and CIC then you may want to look at a "Split Trust" (Thats where if you make a claim on the critical illness side, you get the money - If its the life cover then the beneficiary does).

Indeed - many companies have their own pro forma trust deeds which you can use. However, if you want a trust more tailored to your particular circumstances, you should take legal advice.

And remember, that whilst writing the benefit of policies in trust (for your children, for example) may be tax efficient, you should ensure that this does not leave other people (a spouse, for example) hard up after your death.

theGrinch

thanks for the helpful advice. Im going through LV so if I tick yes to "policy in trust" then it could be a further form to fill rather than a having a trust in place, legal advice etc?

I am just waiting for LV to call back so want to be ready to ask the right questions

dunstonh

Putting the policy in trust is not just a further form. You will have one form for the trust. There are different types of trust available with most insurers (assuming you dont want your own one). So, you will need to pick the right one. Then you will need a deed of appointment to have additional trustees put on the plan.

LV will not advise you on which trust you should have.

kevin_c_3

in theory you can put a life policy in trust at anytime, so it isn't crucial to tick the box yes now - if you do tick yes it is likely they will need the completed trust form (signed by all parties) before your life cover can start, which might delay things

generally speaking in trust is better than not in trust, the cost is typically free (other than potential IFA time for advice, which is advisable) and there are three benefits, as follows:

- monies are paid much quicker as there is no need to wait for the inland revenue
- monies are paid to the right person (i.e. your chosen beneficiary) instead of generally forming part of your estate
- as you say above, once you have completed a trust form the benefits of the policy are no longer yours, which means they do not fall into your estate for IHT purposes

there are different trust forms, and the point about critical illness is correct re using a 'split' trust or 'carve-out' trust as you probably wouldn't want the CI benefits in trust as well as the life cover