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Writing life insurance in trust

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Last updated: 03/03/2023 | Estimated Reading Time: 3 minutes

Did you know that you could avoid inheritance tax and maximise the pay-out for your loved ones by writing your life insurance in trust?

When taking out life insurance, you’ll want to set it up in such a way that the beneficiaries of your policy get as much as they can when it pays out. Putting your policy into trust is a great way to do this.

In This Guide:

What is a trust?

A trust is an asset that is set aside to benefit a particular person (or group of people) called the beneficiary. Until the beneficiary is intended to benefit from the trust, it is managed by a trustee.

For example, if you’ve set up a trust for your children, then either your spouse or another relative might look after it until say, they reach 18.

Life insurance policies can be put into a trust (known as writing it in trust), affecting the manner of the pay out in the event of your death.

Avoid inheritance tax and probate

One of the biggest benefits of writing your life insurance policy in trust is that you can actually sidestep paying inheritance tax as the value of the policy will not count towards the value of your legal estate.

Normally, when you die, the value of your legal estate is calculated and anything beyond the threshold of £325,000 is taxed at 40%.

If you have out a conventional life insurance policy, then the value of it will be included in the calculation of your legal estate. However, if your life insurance is placed in a trust, then the proceeds from it will be sent directly to the beneficiaries and not to your estate, therefore not counting towards the inheritance tax threshold.

Another benefit of writing a life insurance policy in trust is that the whole process of the pay-out is somewhat more streamlined, as you don’t need to go through probate.

Normally, when the time comes for your life insurance policy to pay out, a legal process must be undergone by which the executor’s authority to deal with your assets is confirmed. This is known as the granting of probate.

This can be a long process, particularly when there is no will (known as intestacy), but even if there is one it can take a while.

If your life insurance is put into a trust, then probate can be bypassed altogether; all that is needed for the policy to be paid out is for a death certificate to be provided.

Will it cost me extra to write my life insurance in trust?

You won’t have to pay any extra to have your life insurance policy written in trust, many insurance providers will even give you the option of transferring an existing life insurance policy into a trust.

If you do want to put your life insurance policy into a trust, you should first get in touch with an independent legal advisor who’ll go through all of the specifics of the process and help you make sure you’re getting exactly what you want.

Head over to our life insurance comparison page to see what options you have available when it comes to opening up a policy that you want to write in trust.

Just let us know a few details about yourself and we’ll get a list of the best quotes available given your circumstances.

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