Do I need to write Life Insurance in Trust immediately when the policy is taken out?

Savvy_Saver1

I'm setting up life insurance for my partner and I.

I'll be writing them in trust in order to avoid any payment becoming part of our estate to avoid any delays and to benefit from any possible IHT avoidance.

On the MSE guide it says " If you die your life insurance forms part of your estate, which could mean it's hit with a huge whack of Inheritance Tax. In many cases it's possible to avoid this by writing the policy in trust, if it's done at the time the policy is taken out".

However, it doesn't explain WHY it needs to be done at the time the policy is taken out. I am keen to take it out ASAP, but given lock-down, I won't be able to have my chosen trustees sign the paperwork, so won't be able to set the trust up immediately.

Am I okay to just take the policy, and put it in trust later on?

Weighty1

Well, if you don't do it when taking it out you might die the next day and so the money would enter your estate.....
You can write a plan in trust at any point but it doesn't help if you have already died before doing so.
Several companies offer online, signature-less trusts which require no actual paperwork to be completed.  If you don't know which companies do then I'd recommend utilising the services of a broker who could help source the best company for you.

dunstonh

On the MSE guide it says " If you die your life insurance forms part of your estate, which could mean it's hit with a huge whack of Inheritance Tax. In many cases it's possible to avoid this by writing the policy in trust, if it's done at the time the policy is taken out".

That is not strictly correct.  It would only apply on single life, single owner cases. Not joint owner policies (although it would apply on second death)

If its a joint policy, you may not need a trust.  If its single life policies then you can achieve the same outcome in many cases by setting them up as life of another.

However, it doesn't explain WHY it needs to be done at the time the policy is taken out. 

What if you die before you set the trust up?  If you delay doing it you may end up delaying forever.

coachman12

I have done both in my time, but it was so much easier to put a policy in Trust at the time of first taking out the policy. I am a great believer in the Trust concept. But, of course, it depends on people's personal circumstances and wishes.