Life Insurance in Trust.

Turning Your Life Insurance Policy into a Trust

Embarking on the journey of purchasing a life insurance policy can be an adventure filled with choices. The key to a successful voyage is understanding the array of options at your disposal. While you’re busy weighing different policy types and comparing premiums, don’t let the opportunity of transforming your life insurance into a trust slip under the radar.

Transforming your life insurance policy into a trust is like unlocking a treasure chest of benefits. For instance, it could expedite the payout process of your life insurance policy and potentially shield some or all of your payout from taxation.

What is Life Insurance in Trust?

Life Insurance in Trust, what’s all the fuss about? Simply put, it’s a way of arranging your life insurance policy so that the payout goes into a trust and becomes separate from your legal estate. For clarity, when your life insurance is ‘in trust’ it means the policy isn’t part of your legal estate, but instead, it’s managed by a trustee on behalf of your intended beneficiaries. A Trustee? Yes, a person responsible for overseeing the policy after your death – more on that later.

Contrary to what you might think, setting up a Life Insurance in Trust is not just for the well-to-do – it’s for you and me. This method helps you control who your policy’s proceeds go to, and most importantly when. Put simply, it ensures that after your curtains close, your family won’t be left fumbling in the dark and the life insurance payout lands where it should.

Exploring Different Types of Life Insurance Trusts

Did you know that there are three distinct types of life insurance trusts available to you? Each comes with its unique set of rules that dictate what changes can be made to the trust after its establishment:

• Fixed Life Insurance Trusts: Also referred to as ‘bare trusts’ or ‘absolute trusts’, a fixed life insurance trust is like a written-in-stone agreement. Once you’ve designated the beneficiaries and the distribution of benefits, there’s no going back to make changes.
• Flexible Life Insurance Trusts: As the name suggests, this type of trust offers flexibility. You can add potential future beneficiaries (think unborn grandchildren). The trustees also have the power to modify the beneficiaries and the benefit distribution based on your desires. This type of trust is also known as the ‘power of appointment’ trust.
• Discretionary Life Insurance Trusts: In a discretionary trust, the ball is entirely in the trustees’ court. There are no predetermined beneficiaries. Instead, you, as the settlor, propose potential beneficiaries and the trustees make decisions at their discretion, even considering potential future beneficiaries.

Is Writing Life Insurance in Trust for Everyone?

As with many decisions in life, writing your life insurance in trust isn’t always the right fit. It’s like trying to squeeze into a pair of jeans – sometimes it’s a perfect fit, sometimes it’s a bit tight. For example, if you share a joint life insurance policy with your significant other, the payout automatically goes to the surviving partner, tax-free. It’s seen as a simple transfer of assets, so the tax benefits of a trust aren’t applicable here.

Key Features

The key features of Life Insurance in Trust make it a real game-changer in the insurance realm. With this setup, the policy payout isn’t counted towards your estate value for tax reasons. Let me paint a picture, imagine sidestepping a hefty Inheritance Tax bill and delivering the full benefit directly to your beneficiaries – that’s Life Insurance in Trust for you.

Another standout feature is the speed of payout. Normally, the claims process can take a substantial amount of time, but with the policy in trust, funds can be made available to beneficiaries immediately after death. It essentially eliminates the lengthy probate process that can throw a spanner in the works during a difficult period for your loved ones.

Benefits of Writing Life Insurance in Trust

Let’s delve into the perks a tad deeper. Writing Life Insurance in Trust has numerous benefits. The big hitter, as mentioned before, is circumventing Inheritance Tax. In usual circumstances, your life insurance payout would add bulk to your estate, pushing it potentially over the nil-rate tax band. But by placing your policy in a Life Assurance Trust, it’s separated from your estate – thus dodging the taxman.

Furthermore, control is a huge boon. Consider Trust Planning as you draft your own playbook for how your insurance payout gets distributed. Think of yourself as the puppet master, you can dictate where your insurance money ends up, along with when and how it’s dished out. Whether you want to ensure your kids’ education gets funded or have your spouse’s living expenses covered, the choice is yours.

How to Set up

Establishing a Life Insurance in Trust might sound like you need a law degree, but with the right guidance, it’s not a bridge too far. Here at Pure Cover, we can offer advice to make this task a breeze. Initially, you’ll need to decide on the type of trust you want to set up. This may be a Revocable Trust, Irrevocable Trust, or a different type based on your audacious Estate Planning.

Once you’ve nailed down the specifics, you’ll need to appoint your trustees. These are the folks trusted with the mantle of managing the trust after your exit. To make it legal, a set of trust documents needs to be completed. Don’t pull a face – it’s not as scary as it sounds. This process can be as simple as completing a form supplied by your insurer and sending it back to them. Easy peasy!

Is Consulting a Legal Advisor Necessary?

Absolutely! While it’s not mandatory, consulting a solicitor about writing your life insurance in trust is highly advised. Numerous life insurance providers encourage this, especially if you’re looking to shift an existing policy into a trust. It’s equally beneficial for new policies as well.

A conversation with an independent legal advisor can clarify all the intricacies of trust establishment. They can provide guidance on optimal arrangements, ensuring you’re content with the future handling of your life insurance payout.

FAQs

1. Is it complicated to set up Life Insurance in Trust? Not at all! With the right advice and guidance, it can be as simple as filling out a form from your life insurance provider.
2. Can I change my mind after setting up the Life Insurance in Trust? This would depend on the type of trust you’ve set up. You can normally change a Revocable Trust but not an Irrevocable one.
3. Who can I nominate as a trustee? Any adult can be nominated as a trustee- from your spouse, adult offspring, friends, to a trusted adviser.
4. Does a Life Insurance in Trust cost more than a standard policy? Typically, no. The policy costs remain the same. The perceived value, however, can be much higher due to tax efficiencies and prompt claim settlement.
5. How to get a Life Insurance quote in Trust? Just tap the button below, and the team at Pure Cover will help find the best coverage for your needs in minutes!

Conclusion

In wrapping up, placing your Life Insurance in Trust can provide remarkable benefits and a peace of mind that your loved ones will indeed reap the fruits of your policy. It expedites the payout process and dexterously dodge potential inheritance tax pitfalls. With a trustee at the helm, your intentions are safeguarded and executed as per your command. How about that for security?

At Pure Cover, we can accompany you on your journey to securing a Life Insurance in Trust, offering help, advice, and the easiest way to get a quote tailored to your needs.