Not writing your life assurance polices in trust
What does "Written in Trust" with regards to Life Assurance mean?
Most life assurance companies supply a range of Trust Forms which allow you to ‘give away’ the proceeds of your policy in advance of your death. Basically you are named as the one making the gift (the Settlor). The people you want to receive the money are named as the Beneficiaries. They can be a class i.e. your children or grandchildren or they could be someone stated by name i.e. spouse. You will need to nominate a third party (the Trustee) to receive the funds for distribution according to the Trust. A close family member such as the Executor in your Will might be a good choice.
In the event of a claim, the insurance company pays out directly to the Trustees who then have a legal obligation to pass on the funds to the beneficiaries you name in the Trust. This has two major benefits:
1. The proceeds reach those in need quickly; usually within weeks. Without the trust a Grant of probate has to be obtained first. This can be a lengthy process and take months and even sometimes years. If there was no Will the delay could be very lengthy indeed.
2. The proceeds no longer form part of your overall wealth and so are not subject to tax which can amount to 40% of the proceeds.
So simply by signing a few forms, could prevent those you love from a lot of hardship and expense.
Is there a catch? No, not at all. All the documentation is standard and is provided totally free of charge by the life insurance company. Your Financial Adviser, through whom you buy the policy, should complete the documentation for you, at the time he or she arranged the policy. In the event of a claim, all you have to do is provide the details of the Beneficiaries and a Trustee or two and sign the form. Job done!
Even if your policy is designed to repay a mortgage, it should be written in trust for your partner. Then, rather than your estate receiving the money and using it pay off the mortgage, the money can be paid directly to your partner. This saves legal delays, solicitors and probate fees and loads of hassle. Your partner can then use the money to personally pay off the mortgage. Whether this also saves you Inheritance tax will depend on the value of your estate and how you have structured your Will.
Life Insurance “Written In Trust" is a must!
You might ask why isn't my policy written in trust? Good question – was the person who sold it more interested in the commission than doing a good job for you?
P.S. Always ensure that you have an up to date Will.