Life insurance is a crucial component of securing your family’s financial future. However, many people overlook an important aspect: placing their life insurance policy in trust. At Larkbridge Mortgages, we believe this is a step worth considering. Here’s why.
What is a Trust?
A trust is a legal arrangement where the policy owner (settlor) creates a framework to hold assets for third parties (beneficiaries). The key parties involved are the settlor, trustees (managers), and beneficiaries (recipients).
Benefits of Putting a Policy in Trust
Placing your life insurance policy in trust offers several advantages:
• Inheritance Tax: Policy proceeds may not be subject to inheritance tax, potentially saving your beneficiaries a significant amount of money.
• Probate: Policy benefits can be paid out more quickly as they don’t go through probate, ensuring your loved ones receive the funds when they need them most.
• Protection: Policy benefits may be better protected from creditors, providing an additional layer of security for your beneficiaries.
Types of Trusts
• Discretionary Trust: Allows a wide range of potential beneficiaries and flexibility in
adding beneficiaries later.
• Flexible Trust: Similar to discretionary trusts but you name specific beneficiaries and decide how proceeds are split.
• Split Trust: Allows separation of benefits for the settlor and beneficiaries, useful for life and critical illness policies.
Why We Think It’s a Good Idea
Placing your life insurance policy in trust ensures that in the event of a claim, any policy proceeds will be distributed as per your wishes and without intervention from probate. This means that the beneficiary will not have to wait while your estate is distributed through probate, which can be a very lengthy process.
Beneficiary Nomination: An Alternative to Consider
While placing your life insurance policy in trust has its benefits, another option to consider is beneficiary nomination. This involves directly naming individuals or organisations to receive the policy proceeds upon your death. Beneficiary nomination can be simpler and quicker to set up compared to a trust. However, it may not offer the same level of protection from inheritance tax
and creditors. Additionally, if the nominated beneficiary is a minor, the proceeds may need to be managed by a guardian until they come of age.
Conclusion
At Larkbridge Mortgages, we recommend considering placing your life insurance policy in trust. This step can provide peace of mind, knowing that your loved ones will be taken care of promptly and efficiently. If you have any questions or need assistance with setting up a trust, our team is here to help.
