Writing Life Insurance in-Trust? – Check Why!

December 11th, 2019

Why Should You Write Life Insurance in trust? Here is the Answer!

If you are planning to buy a life insurance policy to safeguard your family against financial issues in the event of your death and after that, then it is always advisable to write the policy in-trust. Although the process is very simple most of the policyholders do not apply this method. This small step is helpful as it defines the way the pay-out is used. It also helps to speed up the pay-out as it bypasses probate. By writing in-trust you can get the benefits associated with inheritance tax.

What are the major benefits of writing in trust?

According to a report by the Daily Mail, UK customers not writing policies in trust results in £0.5bn of policy payments gone in taxes. This uncomplicated procedure if followed would save a huge part of the pay-out from going into taxes. So, by writing a policy in trust you end up giving more money to your loved ones and cut down on the taxman.

Which kinds of policies are supported by this method?

Writing an in-trust procedure is valid for all kinds of life insurance policies which include whole of life cover, term insurance cover, critical illness cover and over 50s lifelong protection. Check with your insurer whether it is valid for the policy you want to buy or not.

What is a trust for a life insurance policy?

The policyholder can set up a trust which includes family, friends or relatives as trustees. It can also be a professional like solicitor or accountant and the policyholder themselves. People for which the trust is set for are called beneficiaries. The policyholder is termed as settlor and he/she continues to pay the premiums. There is a trust deed according to which the entire trust should work. It should be written in a way to give the highest benefit to the beneficiaries.

Major advantages of having life insurance written in trust:

When written in trust, the policy bypasses probate or confirmation (in Scotland). Probate means a legal process that allows authority of an executor even when the dead policyholder has left a will. Bypassing probate means the pay-out would be made quickly. It is made once the death certificate is issued.

Another major benefit is that with the policy written in-trust the pay-out would be directly given to its beneficiaries. This means that the pay-out money will not form a part of the estate or property and so, it will not incur any kind of inheritance tax. This may still turn out to be a complicated affair and depends on the policyholder’s health and the kind of trust and policy. The best way is to consult a legal adviser or your insurer for this.

When written in trust, the policy pay-out can be regulated by conditions suggested by the policyholder. The distribution of funds would be under the control of the policyholder and help in varied situations like it considers the financial arrangement for children if the guardian chooses to divorce or remarry.

When not to write life insurance in trust:

There is no need to write in trust when you have a joint policy with the partner and there are no dependents.

When it’s a whole life policy and the policyholder can claim surrender value instead of letting it go to the beneficiaries.

If the pay-out is supposed to go to a lender or mortgage holder then there is no point to write in trust.

How to write a policy in trust?

  • While you buy the policy, ask your insurer and it will usually be done completely free of cost.

  • An existing policy can also be transferred into trust. Do take legal advice before doing this.

For more details on life insurance UK, do check our website and comparison tool that gives free, transparent comparison quotes in the UK. Do check freepricecompare.com or call us on 08081682466.

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