Putting a life insurance policy in trust may sound like something only the super-rich contemplate.
Yaw, after taking advice from Tarquin in Dewey, Cheatem & Howe, we have decided to write our life insurance in trust for our dear boys Tristin, Crispin and Sebastien.
But that couldn’t be further from the truth.
Afterall, we can put your life insurance in trust for free.
In this article we’ll go through the WWH’s of life insurance trusts:
A life insurance trust is a legal document.
Using a trust ensures that money from a claim is kept separate from your estate.
A trust allows you to set aside the proceeds of a life insurance claim for a specified person.
So you can leave your favourite diamond necklace in trust for your daughter or your beloved Ray Houghton signed Ireland Euro 88 shirt to your son.
But usually a trust is used to manage who gets the proceeds of your life insurance policy.
A life insurance trust guarantees that the proceeds of your life insurance policy will be paid to the right people at the right time.
You decide what happens to your money after your death.
Setting up your life insurance in trust ensures your money is paid out to the trustee without legal delays.
Think of the trustee as the guardian of your life insurance policy.
They will use the proceeds of your policy according to your instructions.
If you don’t use a trust and instead use a will, your solicitor will have to wait for a grant of probate before paying the policy proceeds to your family.
Compare this to using a life insurance trust which will payout in a matter of days.
Remember this is at a time where your family may be in dire need of the proceeds of your life insurance to pay the day-to-day bills.
The sooner they can get the proceeds, the better.
It’s simple…with a little bit of help.
You complete a trust form where you write down how you want the proceeds of your policy distributed.
The trust only comes into operation after your death.
On death, the insurer will pay the proceeds to the person you choose (the appointed trustee).
The trustee is then legally bound to pay the proceeds to the beneficiaries you have named on the trust form.
When you head upstairs, your assets pass into your estate.
Before dividing up your estate, your solicitor must get a grant of probate.
This may take up to a year and generally the solicitor cannot distribute your asset before probate is granted.
Using a suitable trust may avoid probate and allow your solicitor to pay your policy benefits immediately.
You specify who gets the proceeds of your life insurance policy but you can alter your trust at anytime.
Setting up your policy in trust protects the proceeds of your policy from creditors, unless the policy was specifically effected to defraud creditors.
The policy proceeds are held in your name, therefore the identity of the beneficiaries are kept confidential until your policy proceeds are distributed.
Just a couple:
Also please be aware the formation of a trust doesn’t eliminate a tax liability.
As a trust is a legal document, by it’s nature it has to be confusing.
How else can solicitors make a living?? Only joking my learned friends.
Here are the people named on the trust form:
This is the plan owner, the person paying the life insurance premiums -i.e you generally.
The settlor is also the trustee – so you are the settlor and you’re also the trustee until you die.
When you die, the appointor (see below) chooses a new trustee (told you it was confusing!).
The trustee must use the proceeds of your policy according to your instructions.
Those who you want to receive the proceeds of your policy are the beneficiaries.
You choose the appointor. This person has the power to appoint a new trustee on your death. Usually the appointor chooses themselves as the new trustee.
Hopefully your head hasn’t exploded by now.
If you think a trust is a good idea for your policy, and you’d like to know more, please get in touch using the quick outline form below and I can answer any questions you may have.
Alternatively I’m on 05793 20836.
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