Putting life insurance in trust: Why it matters for your family

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Want to protect your family’s future when you pass away? Take a look at your life insurance. Your life insurance policy is an important asset. By putting life insurance in trust, you can manage the way your beneficiaries receive their inheritance.

At James Leighton Financial Services, we can take you through the benefits of life insurance trusts, how the process works, who’s involved and other considerations.  This sits alongside our wider financial planning services, where we help clients build strategies to improve their financial health for the future.

What is a trust?

A trust is a legal arrangement where you give control of an asset such as money, property or a life insurance policy to one or more trustees. The trustees you have selected are responsible for managing the asset and making sure it is passed on to your declared beneficiaries at the right time. Trusts are often used to protect and direct how money is distributed, for instance, making sure children get funds when they reach a certain age.

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Without a trust, when you pass away your would-be beneficiaries would need to obtain probate, which can create delays.

Advantages of putting life insurance in trust

Here are some of the ways you can benefit from a life insurance trust:

  • Control over your assets. If you don’t have a trust, your money might be used in ways you don’t want, such as paying off outstanding debts. Putting life insurance in trust gives you greater power, 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.
  • Faster access to your money. Without a trust, when you pass away your would-be beneficiaries would need to obtain probate, which can create delays. With a trust in place, your nearest and dearest could receive the inheritance within weeks of the death certificate being issued. 
  • Protect your beneficiaries from Inheritance Tax. Writing life insurance in trust means the money paid out from your policy should not be considered part of your estate. 

Disadvantages of putting life insurance in trust

While there are benefits to putting life insurance in trust, there are drawbacks too:

  • Once you’ve put a life insurance policy in trust, there’s no turning back. You won’t be able to withdraw the policy as the decision will be considered irreversible.
  • You lose some control. Once your life insurance is in trust, any decision must be signed off by your named trustees, not just yourself.
  • When arranging a life insurance policy, one important decision is whether to have the policy written in trust. This can have a big impact on how your loved ones benefit from your policy after you pass away. 
  • Trusts may have legal and tax implications. Getting professional advice is important.

Want to know more putting your life insurance and putting it in trust? We’re happy to help. Just get in touch with our experienced team at James Leighton Financial Services in Nottingham.

Trusts and Inheritance tax are not regulated by the Financial Conduct Authority

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