A Matter of Trust
Are you aware that the money you leave to your loved ones in the form of a life insurance policy might be taxed?
So you’ve been responsible and taken action to put in place a policy to help protect the financial future of your family if the worst occurs. Job done. Well, not quite.
You will, of course, want the money to go to those who need it and as quickly as possible but this might not happen unless the policy is ‘written in trust’.
When a life insurance policy that is not ‘in trust’ pays out, the proceeds are paid into the deceased ‘estate’ and distributed in accordance with the Will (you’ve got one of those already right?). This means that the money may not be available immediately as Probate will need to be granted first. This can take months to sort out. Worse still, the value of the policy may increase the value of your estate to such a level that inheritance tax is incurred and that’s charged at 40%!
Making sure a life policy is ‘written under trust’ is a straightforward exercise and costs nothing other than a little time. Nearly all life insurance providers will offer standard trust forms for completion. The benefit is that in the event of a pay out, the proceeds are paid into the trust rather than the deceased estate. The payment can be made promptly as there is no need to wait for Probate. Furthermore, because the money is paid into the trust it does not increase the value of the deceased estate and thus avoids inheritance tax issues.
It is believed that less than 10% of all life policies in the UK are ‘written under trust’. That’s a strikingly low number. This might be down to lack of awareness and possibly down to a lack of understanding and the perception that it’s a complicated area. It really isn’t.
You don’t even have to take out a new policy either as most providers will allow existing plans to be put under trust after they have started.
So writing your life polices under trust can avoid 40% tax, ensures prompt payment of benefits and makes sure benefits go to those who you wish. What’s there not to like, apart from a bit of form filling?
As with all things financial there are always exceptions and advice should be sought before taking action. Perhaps it’s time to reviews those old policies…
To discuss further or to arrange a face to face meeting please contact us.