A Trust is a legal arrangement to manage and move your assets, such as your life insurance policy, to your chosen beneficiaries, via one or more trustees.
There are different types of Trust, each with different nuances, but ultimately they all aim to do the same thing. Setting up a Trust is not required when taking out life insurance, however there are many benefits of doing this.
When writing your life insurance policy in Trust it no longer forms part of your Estate and therefore avoids Probate. By skipping the standard Probate Court Process of asset reallocation after your death, a potential life insurance payout will reach your chosen beneficiaries quickly. Probate can sometimes be lengthy or even be contested, neither of which you want when there are urgent costs your loved ones may need to pay, such as paying for a funeral or mortgage payments.
Putting your life insurance policy into Trust also provides you with greater flexibility with who will receive a potential payout and how they can spend it. For example, you could require a trustee to manage any money intended for a child until they reach the age of 18. If you do not put your policy into Trust, your payout will likely be given to your next of kin, whether or not you had intended for this to happen.
If your life insurance policy no longer forms part of your Estate it is not taken into account when inheritance tax is calculated. This can ensure your loved ones receive all of the payout as intended, rather than losing some to the taxman. Please note that the rules of inheritance are subject to change and you should seek professional advice when it comes to taxes.
You can take advantage of Protect Line’s complimentary Trust Service when you purchase a life insurance policy through us.
Trust planning is not regulated by the Financial Conduct Authority. Inheritance tax planning is not regulated by the Financial Conduct Authority.