How to make sure the money from your life insurance goes to your loved ones
For most of us, the main motivation behind getting life insurance is the money it will provide for our loved ones, if the worst were to happen.
To make sure the money goes to who you want it to, there’s two words you need to become familiar with: trust forms! We’re going to go through what life insurance is, what your trust form will consist of, how to place your policy in trust, and why they are so important.
Firstly, a bit about us
At Caspian, our mission is straight-forward; a no-fuss, jargon free, simple approach to life insurance.
We don’t just provide free life insurance advice. We can also help you take out your policy, complete your trust forms, change your cover in the future (if you ever needed to) and we can even help you or your loved ones make a claim, if the worst were to happen.
How life insurance works
Before we get into what trust forms are, let’s look at what life insurance is. Whether it’s term life insurance, critical illness cover, mortgage protection or income protection, the reason behind life insurance is simple.
No matter what the policy, you’ll pay an amount of money each month (often called your monthly premium) and in return for paying this, you’ll be covered by your policy/ies.
Then depending on what you’re covered for, your policy will pay-out a cash lump sum to you and/or your loved ones if you were to be diagnosed with a critical illness, become terminally ill and/or pass away.
What is a trust form?
Put simply, your trust form is a legal document that you can complete, if you want to speed up the process of the money from your life insurance policy getting to the right people.
What you can expect to see on your trust form
There are several different sections on your trust form, most of which you’ll need to fill out. If you want your life insurance written in trust, the main terms you need to know about are:
- Settlor - This is also sometimes referred to as the policyholder or donor, depending on what provider you’re with. The settlor is just the owner of the policy
- Beneficiary - This is the person or people that you want to receive the money from your life insurance pay-out, if the worst were to happen to the policyholder
- Trustee - There is a clue in the name with this one. Your life insurance trustee is the person or people that you would trust with making a claim on the policy, if the worst were to happen to the policyholder
- Witness - Most legal documents need a signature and this one is no exception. Your trust form will need to be signed by you and/or a witness. Your chosen witness must be over the age of 18 and can’t already be named on the trust. They could be your friend, a family member work colleague or even neighbour
Don’t worry if you haven’t got all that yet (it’s a lot of information), when you take out a policy with Caspian, we have our own dedicated trust team, who are there to help you with all things trusts. So if you need a helping hand, just let us know!
Different types of trusts
There are a couple of different types of trust forms. We typically recommend a flexible trust form, as this means you can change parts of it, further down the line, if the worst happens. The main types of trust forms that you need to know about, are;
- Discretionary - This type of trust form is the type that most providers offer and it is typically the type of trust form that our trust team will recommend. A discretionary trust form always gives you or your chosen trustee’s the option to make changes to your trust form at a later date
- Bare or absolute - A bare or absolute trust form is more set in stone. With this type of trust form, you typically cannot make any changes to your choices when you’ve submitted it. So if you’re choosing this type of trust form, it’s important to ensure you’re sure of the details you are putting in
- Survivor’s discretionary - This type of discretionary trust is typically used for joint policies and ensures that when one person who is covered by the policy dies, the remaining survivor would be entitled to the money from the policy. However, although very unlikely, if both the policyholders passed away within 30 days of each other then the nominated beneficiaries would likely receive the pay-out instead
Can a trustee be a beneficiary?
We’ll keep this simple - yes, a trustee can be a beneficiary and it’s probably more common than you think.
We always recommend naming more than one trustee, just to be on the safe side. But you can name just one, if you want (it’s your preference).
The importance of having your policy in trust
One of the reasons why we always talk about the importance of trust forms is because of how they can affect inheritance tax.
In simple terms, a trust for your life insurance can help mitigate inheritance tax by ensuring the life insurance pay-out is separate to your estate. Basically what this means is, if the worst were to happen, the pay-out from your life insurance policy would go straight to your beneficiaries and not into your estate with the rest of your money, possessions and property.
When should a policy be written into trust?
The beauty of your life insurance trust forms is that there is no time limit on when they need to be completed by. There is also no right or wrong time!
To ensure your life insurance policy is written into trust, all you need to do is complete your form and send it over to your life insurance provider. But if you want a helping hand with this, then we’ve got you covered.
What to do if you’re struggling with your trust forms
At Caspian, we have our very own dedicated in-house trust team which means if you’re ever struggling with your trust forms, all you need to do is pick up the phone and give us a call.
With over 200 years combined experience in the life insurance industry, we know a thing or two about life insurance.
To get in touch with the Caspian trust team, simply call us on 0161 241 6146 and we'll be happy to help you.
