Putting life insurance in trust, help please?

lee1985

I am thinking about taking life insurance out on my mother and putting this in trust in my name (well, she doing it and putting it in my name in trust).

I've read about this on the internet but it mainly goes on about inheritance tax which isn't an issue because we're not at all a wealthy family.

However, what I do want to know is this. My mother holds considerable credit card debt (she doesn't have any assets, she lives with her partner who owns the house solely). If a life insurance policy is put in trust for me and it ends up paying out, will it still go towards paying her debts, or will this all go to me irrespective of bills?

I ask because her partner also has life insurance on her, and to do with his house, paying off mortgage etc etc. Also the other way around so if he dies she gets the house mortgage paid off etc etc.

Don't really know much about it but does trust mean that I get the sole value of the policy, assuming it was still live when she passes.

I don't mind paying the bills as the policy's value is higher, but I thought perhaps if it was put in trust then other policies in the 'estate' would go towards this, whereas the one in my name would go to me.

Does this make sense?

ACG

Placing the policy in trust basically means that any payout would be paid to the trustees who would then pass it on to the beneficiary...or it may just get paid to the beneficiary anyway (in this case that would be you).

So the money would not form part of your mothers estate and you could then use that money for whatever you wish.

With you working for HSBC could you not speak to one of the brokers there? Alternatively if you arranged the policy through a broker get them to sort it out for you?

jonesMUFCforever

Assuming you are an adult is there an insurable risk here?
Again assuming you are not a dependent on your mother.

Annisele

If the OP's mother takes out the policy on her own life, then puts it in trust for the benefit of OP, I don't think there'll be an insurable interest problem. (If OP takes it out themselves, and if OP isn't in Scotland, then I think insurable interest would be a problem).

Assuming there is a trust, then I agree with ACG - the money would go straight to the OP and wouldn't form part of OP's mother's estate.

The part that puzzles me is why the OP wants to do this. There's no inheritance tax problem, no mention of debts owed by OP's mother to OP, OP's been working for at least six years so is presumably not financially dependent on the mother - so why does the OP have a need for life cover on his/her mother?

If there's no financial need for life cover, the premiums are probably better spent on savings than on insurance products.

lee1985

Thanks for the replies.

What is an insurable risk/insurable interest, what does one mean by this?

ACG

In effect you can only have (any) insurance if there is a need for it.

For instance, i couldnt take out life insurance for the bloke down the road as my life wouldnt be altered in the slightest if he were to pop it.

property.advert

lee1985 wrote: »

Thanks for the replies.

What is an insurable risk/insurable interest, what does one mean by this?

It stems from hundreds of years ago, before the Life Assurance Act 1774 was drawn up.

Imagine if you will a battle where I pay locals to fight for me. I can presume many would die and could thus insure their lives and perversely, perhaps profit from their death.

An adult child may have to prove insurable interest in the life of their parent but such interest in your own life and that of a spouse is always taken for granted.