Published on: 31st January 2022

Is Your Life Insurance in Trust?

Some life insurance policies are written in trust which names beneficiaries in the policy. If an insurance policy is in trust, its value will not be aggregated to the individual’s estate for Inheritance Tax (IHT) purposes.

When something is put into a trust, the trustees are responsible for the distribution of the trust asset. For a life insurance policy, this means that if an individual dies, the trustees must ensure that the money from your policy goes to your intended beneficiaries.

There can be major benefits to having your life insurance in trust. The main benefit is the fact that the pay-out does not count toward the value of your estate. If your total assets are above or close to your IHT threshold, an insurance pay-out that aggregates to your estate could mean that your beneficiaries have to pay a large sum to HMRC. Additionally, you are able to choose exactly who the money should be distributed to with the assurance that it is in the safe hands of your trustees. Finally, a major advantage to having your life insurance in trust is that pay-outs can be quicker. If the insurance policy pays to your estate, probate would need to be completed before the funds could be distributed. If the policy is in trust, however, it can be distributed immediately.

Whilst there are significant advantages to having your life insurance in trust, some people decide not to do so. Amending trust details can be harder than amending a Will, so if you want to change beneficiaries or trustees, there is added complexity than if your life insurance were not in trust. Also, certain changes to your life insurance such as moving it into trust have caused IHT liabilities or even invalidated the policy altogether. For this reason, it is imperative that you speak to insurance and legal experts to decide how you wish to proceed.

If your insurance policy is not in trust and you would like to keep it that way, our Consultants might still be able to find other ways of mitigating IHT liabilities. In certain cases, we can create other types of trusts, change beneficiaries, utilise business property relief, or other techniques that can help lower the amount of IHT due.

Whether your life insurance policy will be aggregated to your estate for IHT purposes or not, Casey & Associates can provide bespoke Estate Planning services for you and your family. If you would like to book a no-obligation appointment to begin or update your estate planning, please contact our client services team by calling 01732 868190 or by using our online form by clicking here.

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Our Covid-19 policy is now that if you wish to give instructions or require general information about our Wills, Lasting Powers of Attorney, or Trusts then we will carry out a telephone or Zoom appointment. However, if you wish to give instructions to one of our Consultants and you feel that you can only do this at a Face to Face meeting we are offering, at our Consultant’s discretion, a limited number of Face to Face appointments in most of the areas we normally cover (subject to Government advice). To see the areas we normally cover please click here. To arrange an appointment please telephone 01732 868190 or click here.

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