A trust is a commonly used term that is often associated with Life Insurance and Life Assurance policies. This page is intended to explain why a trust can be useful when used in association with a Life Insurance policy and answers some of the frequently asked questions.
What is a Trust?
A trust is a legal means to transfers the ownership of property (such as a Life Insurance policy) from the original owner (the donor) to a group of people who administer the trust (the trustees) for the benefit of a person or person(s) (beneficiary/ies) other than the donor. The actual transfer is done by the use of a Trust Deed.
How do I set up a trust?
Most Life Insurance companies will have a basic Trust Deed available that can be used to place a policy in trust. The basic Trust Deed may not always be suitable, so it is important to make sure you understand what the terms of the Trust mean practically.
Where there is more than just a Life Insurance policy as the property of a trust, it may be necessary to consult a solicitor to draw up a Trust Deed that is specific to your needs.
Why would I want to use a Trust?
There are two main reasons a trust is useful when used in conjunction with a Life Insurance policy.
Firstly, putting a policy in trust will allow the proceeds to be paid to the trustees, who can then use it to pay any debts or taxes due on your death without having to sell any underlying assets such as a home or other investments. Alternatively, a trust will allow the Trustees to pay the proceeds of the policy to your partner and/or children without it being added to your estate and possibly be subject to inheritance tax.
Secondly, the proceeds of a policy can be paid to the Trustees without having to wait for a Grant of Probate or letters of Administration. Simplistically, it speeds up the process of claiming against a Life Insurance policy.
Can I be a Trustee?
Yes, provided there is at least one other trustee, to be able to administer the trust on your death.
Who can be the beneficiary of a Trust?
Anyone can be the beneficiary of a trust, however most simple trust deeds (provided by a Life Insurance company) will not require you to specify any particular individual, but instead generally specifies the beneficiaries to be the spouse/partner and any children.
Can I specify who are to be the beneficiaries?
When setting up a trust you can usually override the general term of spouse/partner and any children and specify the beneficiaries and the proportion of the proceeds of the trust they are to receive.
Can I change the beneficiaries?
Yes you can, although you may need to complete a document and ensure that the trustees are aware of the changes to the beneficiaries.
Can I change a trustee?
Yes, changes to trustees can be made, and again this is done by completing a document specifying the changes.
Can I take a policy out of a trust?
Generally it is not possible to remove a policy from being the property of a trust.
This article is for guidance only and must not be construed as advice. The contents of this article are aimed at the UK market, although many countries will have similar policies available. If you need advice you should refer to a Financial Adviser.