You’ve taken out life insurance to protect your family. But have you thought about how the money will actually reach them? Writing your policy in trust is usually free, quick to set up, and can make a real difference to how fast your loved ones receive the payout, and how much of it they keep.

What does “in trust” mean?

A trust is a legal arrangement where you (the settlor) hand over ownership of the policy to people you choose (the trustees). They hold it for the benefit of the people you want to receive the money (the beneficiaries). When a claim is made, the trustees receive the payout and pass it to the beneficiaries according to your wishes.

The benefits of using a trust

A faster payout

If a policy isn’t in trust, the payout usually forms part of your estate. That means your family may have to wait for probate to be granted before they can access it, which can take many months. A policy in trust typically sits outside the probate process, so the trustees can claim once they have the death certificate and the necessary paperwork.

Potential inheritance tax savings

Because the payout from a policy in trust usually doesn’t form part of your estate, it may not be counted for inheritance tax. If your estate is above the available tax-free allowances, a payout that isn’t in trust could add to the amount taxed, which is currently charged at 40% on the value above those thresholds.

More control

A trust lets you decide who receives the money, and in some types of trust, when and how. This can be particularly helpful if you have young children, a blended family, or want to make sure money goes to specific people.

Types of trust

Insurers usually provide their own trust forms. The two most common types are:

• Discretionary trusts, which give trustees flexibility to decide who benefits from a group of potential beneficiaries you name.
• Absolute (or bare) trusts, where the beneficiaries are fixed and can’t be changed.

Which suits you depends on how much flexibility you want. Some trusts can have tax implications of their own, so it’s worth getting advice.

Choosing your trustees

Pick people you trust to act sensibly and promptly, and consider having at least two. Many people include themselves as a trustee alongside others, so they can stay involved during their lifetime.

Can I put an existing policy in trust?

Often, yes. Many existing policies can be placed in trust without changing the cover itself. It’s worth reviewing any policies you already hold.

Tax rules and thresholds can change, and trusts can have legal and tax consequences, so this is general information rather than legal or tax advice.

We can help you set up new cover in trust, or review whether your existing policies are arranged in the best way for your family. Get in touch for a free consultation.