You should know by now that it’s essential to have life cover. But if you don’t write your life policy in trust, the consequences could potentially be pretty damaging to your finances. Writing a life insurance policy in trust is an important and tax-efficient strategy for several reasons. Read on to learn more.
This does not constitute advice and advice should be sought in all instances before acting on it.
Why you should write your life policy in trust
There is a strong link between trusts and life assurance policies. For simple protection-based policies providing benefits on death, these are a few of the benefits of using a trust with a policy:
Preserve the insurance proceeds
Placing a life insurance policy in trust ensures that the policy proceeds are separate from your estate. By doing this, the funds are protected from potential claims like inheritance tax, creditors, or legal disputes. However, funds can be made available to help pay for any IHT liability on the deceased’s estate.
Upon the death of the policy holder, the proceeds will be paid to the trustees (provided there is at least one surviving trustee) without having to wait for a grant of probate or letters of administration, thus avoiding any unnecessary delay.
Retain control over the proceeds
When you establish a trust, you can designate specific beneficiaries to receive the insurance proceeds. This enables you to control how the funds are distributed. Which means you can ensure that they are used for their intended purposes.
Mitigation of inheritance tax
In many areas, life insurance proceeds are not subject to inheritance tax, but only if the policy is written into trust. Doing this significantly reduces the tax burden on the beneficiaries of the policy and ensures that they receive the entire benefit of the policy.
Potential income tax savings
On top of the benefits in terms of IHT, in some cases, writing a life policy in trust can also provide potential income tax savings. For example, if the policy generates investment income within the trust, then it may be subject to different tax rules in a trust than if it were part of your personal assets.
Faster access to funds
If you write your life insurance policy in trust then the distribution to your beneficiaries will be quicker than if it was part of your estate. In situations where fast access to the funds are critical, having your policy in trust is the better option.
Flexibility and customisation
When setting up a trust you are given the flexibility to customise the terms and conditions specific to your needs and circumstances. You have control over how the funds are distributed, who you appoint as a trustee to manage the trust, and include provisions for special circumstances or contingencies.
Connect with a professional
Ready to secure your family’s financial future with a tax-efficient and well-structured life insurance policy in trust? It’s important to remember that the benefits of a life insurance policy in trust will vary based on jurisdictions and individual circumstances. The expert financial advisers at Dental & Medical Financial Services are here to help you. Contact us today to schedule a consultation and gain the peace of mind that comes with sound financial planning.