If you have been researching life insurance, or are looking to get a life insurance quote, you may have found information on life insurance trusts, and on the face of things a life insurance trust is something that may appear to be most appropriate for the over 50 life insurance market, however with several up-sides, and practically no negatives, placing a policy in a trust is something almost anyone should consider when getting a life assurance quote.
By placing a policy in to trust, you are keeping the total payout value of the cover outside of your estate therefore Inheritance Tax (IHT) does not apply.
Lets use an estate that is worth 500,000, 100,000 of which is life assurance that is not in a trust, as an example. The current IHT threshold is 325,000, and so 175k is liable to 40% IHT, therefore 70,000 goes to the taxman. Placing a Life insurance policy into a trust reduces the estate to 400,000, leaving just 75k over the threshold to be taxed and reducing the IHT sum to 30,000.
That leaves an incredible saving of 40k in tax, increasing by 40,000 the amount that the beneficiary receives. The other added bonus of a trust is that it removes the requirement for solicitors to handle probate as a trust pays directly to the trustees promptly. Often solicitors on average take six months to finalise probate, which you will agree is a long time to wait before the beneficiary acquires the money.
No doubt at this point you are waiting for the catch; there is not one, it is no harder to set up a trust as your normal life assurance policy. When you are meeting an advisor to set up a policy, ask to place the policy into a trust, all the documentation is standard as the usual policy papers and requires no extra cost, as it will be finished by the broker.
The only extra information needed is the trustees details to set up the trust. If at a later date you need or have to change a beneficiary or trustee, all the broker will need of you is to complete both a deed of removal and a deed of appointment. With the deed of appointment you will have to bring is the new trustees signature; the deed of removal only needs the settlors signature. Many agreements have a clause included which enables you to change trustees, always check before signing any contracts that this clause is included.
It is advised is that you have a minimum of two trustees appointed, though in most cases the settlor will be a trustee. The fellow trustee is usually a friend or family member, though it is firmly advised that you do not choose someone who could have a conflict of interest, i.e. a trustee who could also be a beneficiary.
If you are having problems finding a trustee, it is possible to hire a professional trustee, though they will charge a fee for their services, but an upside of this route is they will be impartial.
It should be remembered that the beneficiary types can vary, i.e. people could receive different amounts, so it is important the wording must be crystal clear to avoid any legal disputes that might arise after the settlor has died. it is also for this reason an up to date will is also kept to avoid any confusion that might flame up with the maturing of a trust.
In conclusion, setting up a trust ensures your beneficiaries receive the money with significantly decreased hassle with no major negatives, thus giving the settlor and family the peace of mind they desire.
Debi McGrady is on the digital marketing team at Just Life Insurance, a site that provides free life insurance advice, and access to market leading life insurance quotes.