DO YOU NEED TO SET UP A TRUST WHEN TAKING OUT A LIFE INSURANCE POLICY

Cressida100

My son and his partner are in the process of buying their first home. They have a mortgage in principle and an offer accepted on a property. The sellers are still looking for something to move to.  My son just asked me who to add as a trustee for the trust they need to set up for their life assurance policy (advised by their mortgage advisor - I think to avoid inheritance tax). I'm a bit worried as everything I've read about trusts is don't touch them with a barge pole! I would be really grateful if someone could explain how they work. He's going to send me the paperwork to look at but I know there are very many knowledgeable folks on here.

The house value is circa £300K so not sure why this is needed. Thanks in advance if someone could explain how this works and whether they need this. I know it's not my business but I want to be sure they are doing the right thing. 

Brie

cynical me thinks that the advisor is looking to line his/her pockets as much as possible by adding on lots of extras that give them commission.  I've never heard of a trust needed to set up a life assurance policy.  And a life assurance isn't needed (as far as I'm aware) to get a mortgage.  Might be a good idea but I don't think the mortgage companies can insist on it anymore.  

Cressida100

Brie said:

cynical me thinks that the advisor is looking to line his/her pockets as much as possible by adding on lots of extras that give them commission.  I've never heard of a trust needed to set up a life assurance policy.  And a life assurance isn't needed (as far as I'm aware) to get a mortgage.  Might be a good idea but I don't think the mortgage companies can insist on it anymore.  

Thank you! That's what I think. I am going to look at the paperwork if I can. I think his partner feels it's none of my business . I'm trying to look after his best interests. 

Keep_pedalling

It is quite normal for life insurance policies to be written in trust as it takes them out of the policy holders estate. They might not be anywhere near IHT territory now but that might not be the case if it pays out in 20 or 30 years time. If they were married however it would be a bit pointless. 

This is nothing like setting up a trust to put your home into and should not come with any costs attached.

Brie

Well his partner is sort of right as it is none of your business but s/he might come round if you talk to him/her in a way that reassures a bit?  "Gee I didn't think that was still needed? Have you googled to see if that's required?  What does the mortgage provider require?  Maybe you could see something online that would give you a better idea of what's expected when buying a home!"   Or find some random bank's list of "what's required when you get a mortgage" brochure to point them to?

Keep_pedalling

Brie said:

Well his partner is sort of right as it is none of your business but s/he might come round if you talk to him/her in a way that reassures a bit?  "Gee I didn't think that was still needed? Have you googled to see if that's required?  What does the mortgage provider require?  Maybe you could see something online that would give you a better idea of what's expected when buying a home!"   Or find some random bank's list of "what's required when you get a mortgage" brochure to point them to?

It’s no longer compulsory, but it is sensible not to leave your partner in a financial mess if you kick an early bucket. 

Cressida100

Keep_pedalling said:

It is quite normal for life insurance policies to be written in trust as it takes them out of the policy holders estate. They might not be anywhere near IHT territory now but that might not be the case if it pays out in 20 or 30 years time. If they were married however it would be a bit pointless. 

This is nothing like setting up a trust to put your home into and should not come with any costs attached.

Thank you the word Trust triggered me a bit! I was getting my lines crossed. They aren't married. I appreciate the reply. 

Cressida100

Brie said:

Well his partner is sort of right as it is none of your business but s/he might come round if you talk to him/her in a way that reassures a bit?  "Gee I didn't think that was still needed? Have you googled to see if that's required?  What does the mortgage provider require?  Maybe you could see something online that would give you a better idea of what's expected when buying a home!"   Or find some random bank's list of "what's required when you get a mortgage" brochure to point them to?

I am guilty of of sticking my nose in but my intentions are good. The thing is they have been living with me for over a year whilst saving so I am in close proximity. If they weren't here I wouldn't know about these things. I must admit I probably did appear panic stricken when I heard the word Trust 

ACG

Mortgage brokers/IFAs get paid no more to put the policy in trust. In fact it is actually more work for literally zero extra, not a single penny more (I just wanted to press the point). 

The broker is doing a good job by bringing up trusts. You can always refuse it, but I dont think it makes any sense even if below the IHT threshold. 

It is the life policy that is in trust, not the property. 

As they are not married, any pay out would get to the other person quicker and potentially with less tax payable. It also does not get added to the persons estate. 

I think as a parent, if your kids are buying their first home its great to have mum and dad onboard and I dont mind including them in the conversation. I think it is important to have someone on side you trust who is unbiased to ensure the broker is not trying to pull a fast one... I have an 8 year old and I know when its time for her to be moving out, I will struggle to not "help" haha. 

I know our industry had a bad reputation 10-15+ years ago, but a lot has changed in that time.

Cressida100

ACG said:

Mortgage brokers/IFAs get paid no more to put the policy in trust. In fact it is actually more work for literally zero extra, not a single penny more (I just wanted to press the point). 

The broker is doing a good job by bringing up trusts. You can always refuse it, but I dont think it makes any sense even if below the IHT threshold. 

It is the life policy that is in trust, not the property. 

As they are not married, any pay out would get to the other person quicker and potentially with less tax payable. It also does not get added to the persons estate. 

I think as a parent, if your kids are buying their first home its great to have mum and dad onboard and I dont mind including them in the conversation. I think it is important to have someone on side you trust who is unbiased to ensure the broker is not trying to pull a fast one... I have an 8 year old and I know when its time for her to be moving out, I will struggle to not "help" haha. 

I know our industry had a bad reputation 10-15+ years ago, but a lot has changed in that time.

Thank you for the reassuring post. I really appreciate it. My anxiety is high over this purchase, actually moreso than when I bought my first house! 

Emmia

The intention of the policy is that the mortgage could be cleared with the payout in the event of the demise of either of them.

Policies may also payout (depending on the terms) in the event off the diagnosis of some, life limiting or employment limiting conditions.

If they can each afford the mortgage solo, then the policy may be redundant, but if either one of them can't, then that's what the policy will help with should the worst happen.

The trust element just takes it out of the estate so the survivor can get the money. As they're not married/CP there's no automatic transfer of assets from one person to the other in the event of the death of the first one, and there's a risk (if the estate is large enough) for IHT to be due at that point.

Do your son and his girlfriend have wills in place? I'm sorry if this seems morbid, but if they're not married their assets do not automatically go to the other.