Life Assurance Trusts
Life assurance can be extremely beneficial in providing comfort that family members and loved ones will be provided for on your death. However, with just a small amount of planning there are numerous other benefits from which to take advantage.
These extra benefits are achieved by the life assurance policy being held on trust. The policy is written into trust to ensure that it is not paid directly into the estate of the person whose life is assured instead, it is paid into a trust to be distributed by trustees. If the policy is not written into trust, and instead pays directly into the estate, this will potentially increase any inheritance tax liability.
What type of trust is used?
A discretionary trust is used to receive the funds. There are named beneficiaries of the trust, who benefit at the trustees discretion. As the person setting up the trust you will choose both the trustees and the beneficiaries. Many insurance companies supply their own standard trust forms. We can advise on and complete these forms for you or, alternatively, draft a bespoke trust deed for you.
The benefits available
Putting the policy into trust results in a number of advantages. For example:
- As the proceeds of the policy pass outside the deceased's estate, trustees do not have to wait for the grant of probate to deal with the proceeds. This can be extremely useful if there are immediate debts to pay, or just to provide living expenses for a spouse or family.
- Possible reduced inheritance tax on your estate - the trust will have its own tax regime, and if managed correctly can significantly reduce inheritance tax liability or even remove it altogether. We will discuss the inheritance tax implications of your specific circumstances with you in more detail when you set up the trust.
- Possible reduced inheritance tax on your spouse's estate usually the proceeds of a life assurance policy will pass to a spouse. This can significantly increase their estate and can result in an inheritance tax liability that could be reduced or eliminated altogether had the proceeds been put into trust.
Depending on whether it is necessary for your estate, you can set up numerous trusts for life assurance funds. This is particularly useful if you have more than one policy or the proceeds or the policy or policies will be very high. This can significantly reduce IHT liability, but can be more complex and result in higher administration costs, so is an option that can be discussed with us in further detail.
Next Steps
If you would like to transfer your life assurance policies into trust, or would like to discuss life assurance trusts further to help decide whether they are right for you, please contact a member of our
Private Client Team