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The what, why, when and how of trusts

Placing a life policy in trust remains a useful component in the advice you provide for your clients — particularly those looking to pass on assets to beneficiaries as part of their estate planning. Here is a quick summary to help make this technical subject more straightforward.

Our ‘Using trusts with life policies’ guide is a good place to start

What is a Trust?

A trust allows the owner of a life policy (the settlor) to specify who can benefit from the policy proceeds after they die (the beneficiaries). This is in a binding legal document (the trust deed) where two or more individuals (the trustees) hold the life policy and are bound to follow the wishes of the policy owner after he or she dies.

Quicker payment on death

When someone dies there is a legal process of probate where all the assets are gathered in and then paid out to beneficiaries. This can take several months and sometimes even cash in a bank account cannot be paid out until the probate process is completed. The trust is completely separate from your client’s assets, it is not included in their Will and does not need probate. This means the cash from the life policy can be paid to their beneficiaries much more quickly.

Flexible choice of beneficiaries

Your clients can include anyone in the list of beneficiaries. If circumstances change they can easily add beneficiaries. Also, on their death the trustees have flexibility in how they benefit, for example, young children or grandchildren. The cash in the trust is not included in your client’s assets on death and so is not liable for Inheritance Tax on their death.

Setting up a Trust

This requires the completion of a Trust Deed. You will need to take care in selecting the correct Deed to match your client’s requirements.