Did you know there is a hidden life insurance secret in the UK that only 6% of UK policyholders currently utilise?
One which could save your loved ones £1000’s.
The answer is simple, to write your life insurance policy in trust.
By writing your life insurance in trust, ensures the proceeds of your policy avoid forming part of your legal estate.
At the time of writing this article the inheritance tax threshold is £325,000. Anything over this figure is taxable at a sizeable 40%.
According to property website Zoopla, the average price paid for a property in Warrington is currently £212,526.
When you consider that your estate includes any property, assets/possessions, as well as your life insurance pay-out (unless written in trust), it is easy to see how this threshold can easily be exceeded in this part of the world.
Whether you have level/decreasing term cover, whole of life or an over 50s plan, you can write your policy in trust.
Is it difficult to do so?
No. All major insurers allow you to write your policy in trust, at no cost.
Faster pay out, (as probate is avoided)
The advantages don’t end there. If you write your policy in trust you also avoid the probate process.
Why is this important?
Because it ensures a faster pay-out for dependants. This could enable the proceeds to cover significant expenses such as rising funeral costs, (currently £4,417 according to insurer SunLife).
Generally speaking, it takes approximately 6 months for probate to be granted and for an estate to be settled.
However, if there are complications, for example a beneficiary contesting the will, this can take many months, even years to pass probate.
If you have young children
If you have young children, you can request in your trust that they only receive the pay-out proceeds after they reach a certain age.
For example, you probably would not want to gift your 13-year-old £150,000 and may want to specific that funds are only distributed after the kids turn 18 or 21.
Therefore, on occasions a trust can provide you great control over your policy.
So, why don’t more people write their policy in trust?
It is most likely that so few people write their policy in trust simply because they do not know about how to do it and the potential benefits.
Perhaps, some are put off by the lengthy application process and confusing insurance jargon?
However, FCA regulated brokers, such as Reassured, can guide you through the trust application process (free of charge) and answer any questions you may have.
Are there disadvantages?
Potentially, yes.
Unfortunately, most trusts exclude the settlor (policyholder) from being a direct beneficiary.
Whilst, this is fine if you are the only settlor, it could cause an issue if you are part of a couple and have joint life insurance, as this would prevent the surviving partner from receiving the pay-out.
When you assign a trustee you effectively sign the ownership of the life insurance policy over to them. Much like the executer of a will. Therefore, you need to ensure that you select your trustee carefully.
In summary
In summary, whilst writing your policy in trust is not suitable for everyone, in most circumstances it could help you avoid 40% inheritance tax and guarantee a quicker pay-out.
This could mean a significant saving for many Cheshire residents.
