Why Writing Your Life Insurance Into Trust Matters

Many people carefully arrange life insurance to protect their family, repay a mortgage or provide financial security if they die. However, a surprising number of policies are never written into trust.

This small administrative step can have a significant impact on how quickly benefits are paid and whether the proceeds form part of an estate for inheritance tax purposes.

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What Does Writing a Policy Into Trust Mean?

A trust is a legal arrangement that allows the policy proceeds to be paid to chosen beneficiaries via trustees rather than becoming part of the deceased’s estate.

In many cases, insurers provide standard trust forms which can be completed relatively simply.

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The Benefits

Faster Access to Funds

If a policy is not in trust, the insurer may need to wait for probate to be granted before paying the proceeds. Probate can take several months.

Where a policy is written into trust, payments can often be made much more quickly, providing valuable financial support when it is needed most.

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Potential Inheritance Tax Advantages

Life insurance proceeds paid into an estate can increase the estate's value for inheritance tax purposes.

Where a suitable trust arrangement is used, the proceeds may sit outside the estate, helping to reduce potential inheritance tax liabilities.

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Greater Control

Trusts allow policyholders to specify who should benefit from the proceeds.

This can be particularly important for:

• Unmarried couples.
• Blended families.
• Business owners.
• Those wishing to provide for children.
• Individuals concerned about future family circumstances.

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Certainty

A trust helps ensure the money reaches the intended beneficiaries rather than being distributed according to the estate.

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What Happens If You Do Nothing?

Many policies remain outside trust because:

• The subject was never discussed when the policy was arranged.
• Circumstances have changed.
• The policy was established many years ago.
• The paperwork was overlooked.

The consequences can include:

• Delays in payment.
• Increased inheritance tax exposure.
• Benefits passing through the estate.
• Additional administration at an already difficult time.

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Existing Trusts Should Also Be Reviewed

Even where a policy has been written into trust, it is important to review it regularly.

Questions to consider include:

• Are the trustees still appropriate?
• Are the beneficiaries still correct?
• Have there been marriages, divorces or births?
• Has inheritance tax planning become more important?
• Have business or family circumstances changed?

But don't stop there.

A Letter of Wishes can be equally important. It helps trustees understand who should benefit, how funds should be used and the policyholder's intentions. Circumstances change, families evolve and trustees may need guidance years after the trust was established.

Keeping the trust documents, policy details and Letter of Wishes together ensures the right people have the right information when it matters most.

It is one of the simplest pieces of planning available, yet it is frequently overlooked.

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Time for a Personal Protection Review?

Protection planning should not stop once a policy is arranged.

A regular review can help answer important questions:

• Is the level of cover still sufficient?
• Are the right people protected?
• Have your financial commitments changed?
• Are your policies written into trust?
• Would your family be able to access funds quickly if needed?
• Is your letter of wishes up to date and stored with your policy documents and trust deeds?

For many families, writing a policy into trust can be one of the simplest and most effective pieces of financial planning available.

If you cannot remember whether your policies are in trust, or if they have not been reviewed for several years, now may be the right time to arrange a personal protection review.

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