Life insurance is an important part of securing your family’s financial future. If you are hoping to take out a life insurance policy, you may have heard the phrase ‘written in trust’. This is a vital aspect of a life insurance policy if you want to ensure your loved ones receive the pay-out, and in a timely manner.
It may be beneficial to arrange your life insurance to be written in trust, but what does this mean and how does it work?
A trust is a legal agreement that allows you to set aside an asset to benefit a specified person or people, known as the beneficiaries. Life insurance policies are an example of this type of asset. The asset may be managed by a trustee, on behalf of the beneficiaries, until the beneficiary/beneficiaries can manage it themselves.
A trust can set out how the pay-out from your policy is distributed.
Taking out a life insurance policy can seem like a complicated task. Here at Caspian Insurance we can help you to cut through the jargon and offer a free trust service, for further help and advice.
When learning more about a policy written in trust, you will hear phrases including trustee, beneficiary and witness. It is key to understand what these mean and how they relate to one another.
The first phrase to understand is the settlor. The settlor is the person who sets up the trust of which the life insurance policy transfers into. If you are taking out the policy, you will likely be the settlor. This role also has the responsibility of deciding who will look after the trust and who will benefit from it.
The trustee is the person or people you have chosen to manage your trust. They become legally responsible for the management of the trust, and it is the trustee who will make a claim on your policy in the event of your passing. Due to this, the trustee will also receive the policy proceeds and can then make any payments to your beneficiaries. It is usually advised to name at least 2 trustees who must be at least 18 years of age.
Your chosen beneficiaries are the ones who will receive the proceeds of your policy. This is typically your partner or your children, although it can be anyone who you wish the money to be given to.
The beneficiaries may receive the payment in full straight away, or the trustee may manage the proceeds until the beneficiaries reach an appropriate age. You can name a trustee as a beneficiary if you wish.
A trust form is a legal document, and as such it requires the signatures of the settlors and the trustees to be witnessed. Only 1 witness is usually required, and they should be at least 18 and not named on the trust.
Writing your life insurance policy in trust allows you to specify how you want the proceeds to be paid out. It can give you a little more control over the pay-out, ensuring it will go to the people you intend it to.
When assets such as life insurance policies are placed within a trust, you effectively give up ownership of them and pass over to the trustees, who will manage it. This means your insurance cover is generally no longer classed as being part of your estate, and will be handled separately.
This is important as it can mean your loved ones may avoid having to go through probate in order to receive the pay-out. Probate can be a lengthy process, and your family may need the pay-out in order to meet urgent financial commitments, such as mortgage repayments.
Writing a life insurance policy in trust is very simple, and it is usually offered as an option from your insurer when taking out a policy. At Caspian, we can offer a trust service at no cost.
Life insurance policies can be put into trust when you first take out the policy, or at a later date. If you are hoping to transfer an existing life insurance policy into trust, it is important that you seek professional advice to ensure it is done correctly.
You should think carefully about your policy before putting it into trust, including the amount of cover and the type of trust you use. It may be difficult to make changes to your policy once it is written in trust, as it may no longer be under your control and has effectively been handed over to your chosen trustee(s).
You should think carefully about your policy and the type of trust you wish to use.
Please note that the guidance above does not constitute financial advice and may change depending on individual circumstances.