Should I use a Trust?
Common questions about Trusts
Life insurance policies can also be written ‘in trust’. By placing a policy in trust you may be able to make it quicker and easier for your family or friends to receive a payout. This is because the trust makes sure the policy proceeds will not form part of your estate - the property and assets belonging to you at the time of your death - and will not be subject to inheritance tax.
A policy validly placed in trust may:
- mitigate the effects of inheritance tax*
- may assist the life insurance company to pay out faster. A policy in trust is designed to allow payment of the policy proceeds to your chosen trustees without the need for a grant of probate/letters of administration/confirmation, thereby potentially helping to avoid probate delay in the event of a claim
- prevent your creditors claiming against the policy
*As of 12.06.2015, inheritance tax is charged at 40% of the value of an estate over £325,000 (or 36% if you leave 10% or more of your net estate to charity).
Setting up a trust can be complicated, so we recommend using a solicitor to avoid any costly mistakes.
A solicitor can explain how the trust will work and help you choose your trustees. Trustees are often family members or close friends.
- Once a policy is put in trust, it is the trustees who will administer the policy proceeds and make the decisions regarding distributing the monies to the relevant beneficiaries. If you place your policy under trust, you might be giving up all your rights to the proceeds and you may not have any control over the decisions that they make after your death.
- If you are a trustee of a policy, you may still have to share control with any other trustees.
- If you choose to set up your policy in the form of a “discretionary trust”, the trustees will have a wide discretion to choose which of your beneficiaries are to receive any funds from your policy in the event of a claim being paid. You may prepare a letter of wishes to guide the trustees as to which of the discretionary beneficiaries you would like to receive benefits, and in what way, but you cannot limit the trustees' discretion or bind them.
For more information about trusts – including the types of trust and how they are treated for tax – please speak to your solicitor, financial adviser or Co-operative Legal Services.