Is it normal to not be able to list a beneficiary in a life policy?

skibster

My husband bought an Aviva life insurance policy last year and he wants me to be the beneficiary. The policy doesn't let you name a beneficiary -- is that normal? We didn't find this out until he had gone to his doctor for forms etc required by the insurance people, so after going to the trouble of that we decided not to change.

He thought it didn't matter too much as if he dies he assumes that I, as his wife, will inherit his estate. We recently looked into making a will and realized that it isn't always the case if there is no will. It seems that if he lists me as the sole beneficiary in his will, I will get the life insurance (the main reason we were looking into a will was in the unlikely event we both die in an accident that we can make sure our assests go where we want them to. Now it looks like we really needed the will all along to make sure I would get all of the life insurance if he passes away).

So, I'm just really curious if Aviva is a bit crap for not letting us name a beneficiary, or if that is the norm? We may go ahead and change to a different company if people know of one that actually lets you name the beneficiary? I'm not sure if that will be necessary once we have the will in place, we just want to make sure that if anything happens our affairs our sorted in a way that things hopefully go smoothly in sorting out the estate. We're relatively young and have no kids, which is why we haven't done this sooner.

kingstreet

Going back to the outset, you could have become the owner of the policy on your husband's life, or been a joint applicant. Either way, you would have received the benefit on his death.

When someone writes a policy "own life-own benefit" there is no way of naming a beneficiary. The proceeds go into your husband's estate and will be distributed according to his will with his other assets, or according to intestacy rules, if he leaves no will.

I would suggest if he wants you to receive the benefit quickly, without the need for a will or probate and in a way which will be Inheritance Tax efficient in the future (if not an issue now) he contacts Aviva and ask them for the necessary form to write the policy in trust for you.

It's a straightforward process you should be able to handle yourselves. Otherwise an IFA may be able to assist, at your cost of course.

dunstonh

The policy doesn't let you name a beneficiary -- is that normal?

yes.

How you "nominate" a beneficiary will depend on how you set it up. For example, "life of another" which you put you as the policy owner and him as the life assured. Then on his death, it pays out to you. Or joint owner, single life (with both of you owners but only himself covered).

Or you can write the policy in trust and the trust handles the beneficiaries.

skibster

kingstreet wrote: »

Going back to the outset, you could have become the owner of the policy on your husband's life, or been a joint applicant. Either way, you would have received the benefit on his death.

When someone writes a policy "own life-own benefit" there is no way of naming a beneficiary. The proceeds go into your husband's estate and will be distributed according to his will with his other assets, or according to intestacy rules, if he leaves no will.

I would suggest if he wants you to receive the benefit quickly, without the need for a will or probate and in a way which will be Inheritance Tax efficient in the future (if not an issue now) he contacts Aviva and ask them for the necessary form to write the policy in trust for you.

It's a straightforward process you should be able to handle yourselves. Otherwise an IFA may be able to assist, at your cost of course.

The trust forms looked complicated, and they never mentioned the option of doing the policy differently when he signed up and said he wanted his wife to be the beneficiary. So is it just as well to do it all in a will? That is the option we're looking at now.

kingstreet

If he leaves a will, you can/will be the main beneficiary of his estate. The proceeds of the life policy will be paid into his estate and distributed to you by the executor once the executor has been through the process of obtaining probate.

Probate can be a lengthy process involving the completion of forms more complicated than those for the trust, plus an interview, and it can be delayed by such issues as debts to Government Departments (the DWP for example).

Such a delay could leave you in a very difficult financial position if you don't have money of your own. Joint bank accounts and other joint property will simply pass to you, so no major issues there.

Having the proceeds pass into his estate could cause Inheritance Tax problems later, if not now. Any assets left to you would be tax-free, but bequests to others could attract Inheritance Tax if above a certain amount. Adding the proceeds of the life policy unnecessarily isn't a good idea.

I'd do the trust, if for no other reason than to ensure you get the money a lot faster - days, rather than weeks or months!

skibster

kingstreet wrote: »

....
I'd do the trust, if for no other reason than to ensure you get the money a lot faster - days, rather than weeks or months!

Just had hubby look at the trust papers they sent us last year, the main thing we weren't sure of (and thus let it be) was it talks about naming a beneficiary and also a trustee. Not sure if those two are the same person? Or are you required to have a trustee, as upon looking it up it seems they are in charge of management of the trust, but I wouldn't think you'd need that for an adult?

Also, in regards to taxes, everything would be left to me, so would the policy be taxable through a will? Would it be taxable if it were a trust?

kingstreet

To make a valid trust you need the settlor (your husband) a couple or three trustees (friends/relatives) and a beneficiary, or beneficiaries.

A beneficiary can also be a trustee.

So you could ask (eg) your husband's brother and your sister to be trustees with you.

If you use a bare trust, all you do is fill in the details of the settlor, the trustees and the full name of the beneficiary/ies. Add the policy details, sign, date and have it witnessed and that's it. Send a copy to the insurer, keep the original with the policy document.

You could also use a discretionary trust. You won't actually name a beneficiary using this form. The policy will pay out to you, the legal spouse. If you die before your husband, the benefit is paid to your children in equal shares and so on.

I don't want to overplay the Inheritance Tax aspects as they won't affect a lot of people. Transfers between spouses are tax-free, so something in your husband's estate comes to you tax-free, will or no will, trust or no trust.

It is the probate issue which affects more people. Having to wait months for the benefits of a life policy or to get the deceased's capital released for use by his heirs is the worst part. Probate is required if there is a will, or no will. The trust avoids probate so the money from the life policy is paid directly to you.

If you are planning to write a will, why not ask the solicitor handling that to check over the trust form with you before you finalise it. You could even do it in pencil first so you can amend it if advised to do so.

lisyloo

The type of policy I've always had is one whether the insurer is the trustee and I get to sign an "expression of wish" form which I can change whenever I want. Technically the insurer gets to decide who gets the money as they are the trustee but I understand 99.9% of the time they will follow the expressed wishes and only in exceptional cases would it be changed/contested.
Can anyone tell me is there some termsto describe this kind of policy and is it normal?

skibster

kingstreet wrote: »

To make a valid trust you need the settlor (your husband) a couple or three trustees (friends/relatives) and a beneficiary, or beneficiaries.

A beneficiary can also be a trustee.

So you could ask (eg) your husband's brother and your sister to be trustees with you.

If you use a bare trust, all you do is fill in the details of the settlor, the trustees and the full name of the beneficiary/ies. Add the policy details, sign, date and have it witnessed and that's it. Send a copy to the insurer, keep the original with the policy document.

You could also use a discretionary trust. You won't actually name a beneficiary using this form. The policy will pay out to you, the legal spouse. If you die before your husband, the benefit is paid to your children in equal shares and so on.

I don't want to overplay the Inheritance Tax aspects as they won't affect a lot of people. Transfers between spouses are tax-free, so something in your husband's estate comes to you tax-free, will or no will, trust or no trust.

It is the probate issue which affects more people. Having to wait months for the benefits of a life policy or to get the deceased's capital released for use by his heirs is the worst part. Probate is required if there is a will, or no will. The trust avoids probate so the money from the life policy is paid directly to you.

If you are planning to write a will, why not ask the solicitor handling that to check over the trust form with you before you finalise it. You could even do it in pencil first so you can amend it if advised to do so.

So is it better to do a discretionary trust? Bascially, we just need to get this sorted so that the payout goes to me if anything happens to my husband and doesn't go into some kind of limbo. This is very confusing -- we thought we had everything sorted by simply buying the policy. Um, I guess not.

We *may* go see a solicitor for the will, though, rather than an online option, and could ask about the trust then. We really want this sorted and done with soon, but first have to figure out what to do. However, since the trust is separate from the will, I'm not sure they would advise us on this without charging an additional fee?

edit: Just looked at the forms from our insurer, and it is for a discretionary trust and it still requires trustees to be named.

dunstonh

You still need to name the trustees as they are who you are asking to deal with the administration on death.

This is very confusing -- we thought we had everything sorted by simply buying the policy. Um, I guess not.

It's complicated as it has to do with tax avoidance. Trusts have developed over the centuries in relation to tax law. Effectively what you are doing with a trust is attempting to circumvent or avoid certain taxes legally.

kingstreet

The process is possibly over-complicated because of the wordings involved.

As I said, all you need is the settlor, your husband.

The trustees. All they will do is instruct the life office to pay the money to you (or the other beneficiary/ies) on the death of your husband. These can be friends or relatives, people you trust and yourself, of course.

You need trustees to do their bit regardless of which trust you use.

And the beneficiary, you or someone to replace you, if you die first.

Is is possible you might be able to get help from the adviser/firm who advised you to take out this cover? I routinely help my clients complete their trusts. It's a standard part of the service.