Putting you policy under a Trust

Setting a life insurance policy up under a Trust can provide additional benefits outside of those provided by the policy.

What are the benefits?

The main benefits are:

• In the event of a claim the proceeds are paid outside the life insured’s estate. Therefore the sum insured does not increase the deceased’s estate for potential inheritance tax liability.
• The sum insured can normally be passed on to the beneficiary(s) within a few days after a claim has been lodged. The beneficiary(s) do not have to wait until probate or letters of administration have been passed by the court.
• A Trust provides more flexibility and security in ensuring that the proceeds of the plan are paid out in line with the life insured’s wishes.

How is it set up?

Standard Trust documents are available from the life insurance company providing the plan. These normally meet the needs of most people wishing to use a trust for their new policy. The Trust deed is usually completed at the same time as the life insurance application but the policy once issued can be placed in Trust at a later date.

The life insured (know as the settlor of the Trust) appoints at least 2 Trustees. These are normally trusted family members. In the event of a claim, they have a legal responsibility to pass on the proceeds to the nominated beneficiary(s).
The life insured then decides who they wish to receive the proceeds of the policy if there is a claim. There is also the opportunity to decide what share each beneficiary is to receive.

When completed and signed, the Trust deed is then lodged with the life insurance company for registration. The deed is then returned to the life insured for safe keeping with the policy document.

What happens if there is a claim?

The life insurance policy, Trust deed and death certificate are then lodged with the life insurance company with the claim document. The proceeds of the policy are then paid, normally by cheque, to the Trustees.

The Trustees must then pass on the proceeds to the nominated beneficiary(s) named in the Trust deed and in the share specified.

Types of Trust

Most life insurance companies offer a range of Trusts to suit different situations. The most common Trust used for ordinary life insurance is a Flexible Power of Appointment Trust but other trusts such as an Absolute Trust and Trusts under the Married Women’s Property Act are also common.

This is a complex area and you should seek advice from an Independent Financial Adviser as to the suitability of using a Trust to meet your needs.