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How to set up a trust for life insurance

LifeSearch author John Rogers
3 min read

by John Rogers, Marketing Executive

See author bio

John is a Protection expert, having worked in our customer facing teams and best practice teams, and now is immersed in Protection Content and Marketing. See author bio

Guide last reviewed 29 Sep 2022

Less than 10% of people in the UK with a life insurance policy have written their policy into trust, and we think we know why. It sounds complex, unnecessary, and full of legal jargon - but it doesn’t have to be. Writing life insurance in trust is one of the best ways to protect your family’s future in the event of your death. Your life insurance policy can be a big chunk of money, and by putting life insurance in trust you can manage the way your beneficiaries receive the payout.

We know it sounds complicated, so let us help make it simple. 

What is a trust?

Trusts are a pretty simple legal arrangements that help you leave money and assets to beneficiaries (beneficiaries can be friends, family, your spouse/civil partner, or charities/organisations). The trust is managed by a trustee - who can be a family member, friend, or legal professional - until the trust pays out to your beneficiaries. The trust can pay out either when you die, or on a pre-planned date (like when a child turns 18). 

The trust can last up to 125 years - or longer for trusts set up for charity - there’s no expiry date for these! Really the agreement should last as long as you need it to. Your personal circumstances will influence how long the trust needs to be in place for. 

“But what does this have to do with life insurance?” we hear you cry. Well, your life insurance policy can be put into trust. The huge benefit and impact of placing a policy into trust can be explained by the three main reasons to take one out in the first place:

  • Avoiding inheritance tax

  • Writing life insurance in trust means the money paid out from your policy should not be considered part of your estate. There are exceptions; for example, you may be liable for an Inheritance Tax charge on the value of the property on each ten-year anniversary. Currently, the standard Inheritance Tax rate is 40%, which is charged on the part of your estate above the £325,000 threshold.

  • Bypassing probate

  • Without a trust, when you die your would-be beneficiaries would need to obtain probate, which can cause delays. With a trust in place, your loved ones could receive the inheritance much more quickly than they would without it.

  • More control over your assets

  • If you don’t have a trust, your money might be used to pay off outstanding debts. Putting life insurance in trust gives you greater discretion, as you can decide who to appoint as your beneficiaries and trustees. Setting up a trust is especially important if you’re not married or in a civil partnership, as otherwise, your assets may not transfer to the intended recipient.

For more information about trusts and how they work, read our article here

How can I set up a trust for life insurance?

Here at LifeSearch we greatly encourage all of our customers to place their policies into trust wherever applicable. We simplify trust forms and take all of the information required on the forms for you. The only work our customers will be doing is signing the forms and getting their beneficiaries and trustees to sign it too… EASY!

The process of writing a life insurance policy in trust is very simple. Most insurers will offer it as an option when you initially take out the policy, and there should not be any extra charge for doing so. A life insurance policy can be put into trust at any time - you can do it when the policy is first written, or at a later date, it’s entirely up to you. Transferring an existing life insurance policy into trust may involve the assistance of a financial adviser or solicitor, and so could incur some costs.

When you come to take out your life insurance policy with us, just ask for our help to make writing your life insurance policy into trust easy. Or you can give us a call on 0800 316 3166 to talk to our friendly experts for fee-free advice!

LifeSearch author John Rogers
John Rogers Marketing Executive
A ‘Searcher since 2015, John is a Protection expert having worked in our customer facing teams and best practice teams, and now is immersed in Protection Content and Marketing.
See all articles by John Rogers
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