Why place a life insurance policy in trust?

Why should you usually be advised to place a life insurance policy in trust?

Firstly, by doing so, you are taking control of where your money will go, which may not be the case if your current life insurance policy is not held in trust. YOU name the beneficiary.

Secondly, insurance policies in trust on the whole, are paid out much faster than those which aren’t. This is simply because those not in trust then form part of your final estate and so need to be included as an asset within the probate process which can take months or, in the worst case scenario, even years.

Thirdly, often money form a life insurance when placed in trust does not form part of the estate and as such is not subject to inheritance tax. Remember life policies tend to be high value. If an estate is pushed over the nil rate band, currently £325,000, inheritance tax is charged at 40% for everything above. 

Many clients place their life insurance policy in trust as part of their estate planning process, as this can ensure that the monies received on final payout don’t form part of the estate; and therefore are not included as part of the final inheritance tax valuation.


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