Writing life insurance in trust is easy and could prove very beneficial. So, if you’re about to take out a new policy, or even concerned about an existing policy, you could benefit from the information below.
Life Insurance in Trust Snapshot
- There is no delay in distributing the proceeds of your policy in line with your wishes.
- No need for the policy to be included in your Will.
- Proceeds can be distributed amongst several people.
- Protects the proceeds of your policy from your creditors.
- The trustees must pay the proceeds of the policy to the beneficiaries you named on the trust form.
- You can easily appoint a solicitor as the trustee.
What is a Life Insurance trust?
A life insurance trust is a legal document that ensures money from a policy claim is kept separate from your estate and therefore not liable to delays in pay-out.
The asset is held by a trustee who must then forward these proceeds to the beneficiaries you name, at a time you choose.
When should I put my Life insurance in trust?
Single and dual life insurance policies:
A single-life policy is any life insurance policy that insures one person.
A dual life insurance policy is any life insurance policy that covers two people, with a pay-out made on each of the two people separately.
If you have a single, or dual life insurance, then you may want to write it in trust for the benefit of your spouse, your partner, or another beneficiary. This would mean a speedier payout than putting it under your will, as it would bypass probate.
Probate is a legal process that confirms an executor’s authority to deal with an estate, where your estate means your assets remaining after your death.
If you died without a will and without putting your life insurance under trust, then your life insurance policy would still form part of your estate, but a different method of distribution would occur, delaying payout.
Joint life insurance policies
A joint life insurance policy is one that insurers two people, but only pays out once on the first death. In this case, as both people act as joint policy owners, the pay-out on the first death would automatically be payable to the other person, not the deceased’s estate, so a trust is not necessary.
Advantages of having life insurance written in trust
There are three main advantages associated with having a life policy written in trust:
Bypass probate
Probate is a legal process that confirms an executor’s authority to deal with an estate. In Scotland it’s known as ‘confirmation’ and it’s a process that can take some time, even if the deceased had left a will.
If a life insurance policy is written in trust it means that payments to beneficiaries are likely to be quicker and should be processed as soon as a death certificate has been obtained.
More control over distribution
- When setting up a trust the policyholder has complete control when it comes to determining where the funds will go and can also define any conditions they want to associate with payouts.
- This can be valuable in any number of situations, but just one could be protecting the future interest of children as beneficiaries should a guardian divorce and remarry.
- Bear in mind that the flexibility offered by different sorts of trusts can vary significantly, as can the policyholder’s ability to make any changes after the trust has been set up.
- Once the trust has been created, it’s not typically possible to close it until it’s served its purpose and the policy can’t be cancelled without the permission of the trustees.
Frequently Asked Questions
Who shouldn’t write life insurance in trust?
While it’s thought that most people don’t write a policy in trust because they don’t know about, it or believe it’ll be too much hassle, there are cases where the option wouldn’t be suitable.
- Holders of joint life insurance policies.
- Holders of life insurance that need to be assigned against a loan.
- Holders of policies which include Serious Illness benefits.
How do I write life insurance in trust?
When you take out a policy, the insurance application form allows you the option of writing your life insurance in trust, and this option is free. It’s also possible to transfer an existing policy into trust, although you may want to seek legal advice before doing this.
What are the current inheritance tax thresholds?
You can use this link to the Revenue website to check the current CAT rates.
Is it possible to avoid Inheritance Tax on life insurance?
In Ireland, there is no CAT payable between married couples, but under all other relationships including co-habiting couples there generally is.
Unless the beneficiary is your legal spouse, you cannot avoid inheritance tax on inherited assets, but you can take an approach to setting up a new life insurance plan to ensure that you avoid it as far as any related life insurance claim payout goes.
This is not done using a trust, however, but via a standard guaranteed term life policy written under a ‘Life of Another’ basis.
For example, if Partner A ensures the life of Partner B, which can be done via a standard Guaranteed Term Insurance policy, then there is no trust involved.
In the event of Partner B dying, Partner A will receive the relevant sum insured as the Policy owner. Once Partner A has paid the premiums for that policy, no liability to inheritance tax as the surviving partner is receiving the benefit of a policy for which he/she has paid (owns).
More Information
If you want more information and help, remember that you can get free, impartial advice from One Quote Financial Brokers.
You can either call 01 8450049 or request a call back.
