Find out what putting life insurance in trust means and why it could be the best option for you.
Thinking about passing away isn’t exactly a fun pastime. But, it is a necessity. Especially for mums. If you’re considering putting your life insurance in trust or even just wondering what exactly that means, you’ve come to the right place.
In this guide, we’ll take you through all the pros of putting a life insurance policy in trust and explain how Mummy Insurance can help you do it for free. Read on to learn more.
What does putting life insurance in trust actually mean?
Putting life insurance in trust basically means leaving your assets (so, your life insurance policy and any other financial assets such as property, land etc) in the hands of a trusted person or people. These people are known as ‘trustees’. This legal arrangement means that they will look after all assets, including your life insurance policy when you pass away. They are responsible for ensuring that your policy payout is divided out between your surviving loved ones at the appropriate time, and in accordance with your wishes.
When putting life insurance in trust, you will need to choose a trustee. This trustee could be a family member or friend, or even a legal professional. Your trustee can also be a beneficiary as long as they are 18 or over. This means that you can choose your spouse or life partner as a named trustee providing they are of sound mind.
When putting life insurance in trust, you are literally trusting someone else to divide your financial assets and the lump sum pay out according to your wishes in the event of your death.
How does putting life insurance in trust work?
In short, putting your life insurance in trust gives the named trustee legal ownership to your life insurance cover.
Your trustee will need to keep the trust paperwork (the deed) safe. This is essential when they come to claim the payout from your life insurance policy after you die. This deed outlines all the terms stipulated by you at the time of putting your life insurance into trust, to ensure that the payout is used exactly as you intended it to.
It is also worth mentioning that once life insurance has been put in trust, this decision is one that can’t normally be switched at a later date. This means that once you have decided on putting life insurance in trust and the deed has been drawn up, you won’t be able to take the life insurance policy back out of the trust. You also won’t usually be able to change the beneficiaries further down the line. Although, this does depend on the type of trust but we’ll explore that a little later on. With that in mind, you should be absolutely certain of putting your life insurance in trust before doing so.
Benefits of putting life insurance in trust
The main benefit of putting your life insurance into trust is avoiding inheritance tax. Inheritance tax is a tax of up to 40% that is deducted from the total value of your estate (so the total of your life insurance payout and all financial assets). This means that your beneficiaries will receive a significantly smaller payout than you might expect.
Putting your life insurance in trust helps you avoid this taxation.
Putting your life insurance in trust also gives you control of what happens in the event of your death. It allows you to stipulate who benefits from your life insurance policy and financial assets and you get to choose who you trust to effectively be your trustee and deliver your wishes.
Another benefit to putting your life insurance in trust is the speed at which your beneficiaries will be able to access the payout. Probate is the process of dividing up your assets and this can actually take months to be finalised. By putting your life insurance in trust, your loved ones won’t have to wait until the probate process for your policy to pay out. Instead, your trustee just needs to present your death certificate.
However, it’s worth also noting that they may have to apply for probate for any other financial assets in the estate.
Should you put your life insurance in trust?
Given the benefits outlined above, putting your life insurance in trust is a good call for everyone. Being able to avoid inheritance tax altogether is a perk that’s hard to pass up. Then when you factor in the speed at which your beneficiaries will be able to access your life insurance payout over the lengthy probate process, putting life insurance in trust seems ideal. Plus, you’ll have control over who benefits from your life insurance pay out and who you trust to deliver your wishes. There isn’t really a downside.
Why let Mummy Insurance help with putting your life insurance in trust.
At Mummy Insurance, we deliver quotes from all the top UK insurers. We’ll help you conduct a full comparison of life insurance options and our experts are always on hand to help guide mums through the entire process. All of our quotes are also 100% personalised.
What’s more, at Mummy Insurance putting your life insurance in trust is completely free. We can help you put your life insurance in trust without having to pay those pesky legal fees. Win-win.
