How To Keep Your Financial Legacy Safe With A Life Insurance Trust
You might be the main breadwinner in the household and need to be sure that if the worst happens, your family will be able to carry on financially. But the last thing you want is almost half of your assets - your property, your money and your life policies - being swallowed up by the Government: but if your assets are worth more than £325,000* that’s exactly what can happen. So you need to be able to lock up your life policy securely so as when you do die the taxman doesn’t raid the payout your family should receive.
The solution is a life insurance trust. Just like a normal life policy it pays out a certain amount when you die, but unlike a regular policy, it is safe from both bureaucracy and the taxman.
This is because the policy is put into a trust, which is like a legal safety deposit box. A trust can only be unlocked by the trustee and it is the job of the trustee to hand over the contents of that trust to the beneficiary or beneficiaries at a time set by the settlor of the trust, which would be you. So instead of waiting months and months to receive the proceeds of a life settlement, your beneficiaries can get access to the money soon after you pass away.
Also a life insurance trust is inheritance tax exempt, as long as you took out the plan at least seven years before you die and the trust pays out within ten years of your death. So the sooner you take out a policy, the better chance you have of making it tax exempt.
This might sound like a lot of legalese but it needn't have to be complicated - it is a simple, useful financial product locked away in a legal entity. A financial professional can help you set up the scheme, so all you have to do is ask. No one wants to think that their loved ones will not receive 100% of what you intended for them, but without proper preparation this could be the case. So talk to The Mortgage Broker today about taking out a life insurance trust and giving your family some certainty and security for after you're gone.
What is a trust?
A trust is a legal entity that essentially locks up assets. Think of it as a safe that you can place money, property and assets in, away from anyone who you would rather not get hold of your hard-earned money. There are three people needed in a trust – a settlor, a trustee and a beneficiary. The settlor is you, the person who creates the trust and stores their assets within it. The trustee is the person or body who you trust to look after the trust and makes sure that the assets reach the right people after you are gone. The beneficiary is the person or persons who you wish to receive your assets.
Why put my life insurance in trust?
Usually when you die, your estate is organised and distributed as you decree in your will or through to your next of kin. Your estate is everything that you own – your house, your money, your possessions and all your other assets that are worth money. The problem is if all your assets are worth more than £325,000* then they are taxed at 40% - that's almost half of your estate in the pocket of the taxman after you die, automatically. But as mentioned above, a trust holds your assets away from anyone who you would rather not get hold of your hard-earned money – especially the taxman.
Who benefits?
The only person or persons who can benefit from a trust is the beneficiary. The trustee is legally obliged to make sure that no one else touches the assets and makes sure they are promptly delivered to the beneficiary. Another problem of a regular life policy is that they can be held up in the estate and can be embroiled in legal and administrative red tape. This means your policy may not reach the people who need it in time. That's not the case with a life insurance trust – the key is handed to the right people at the right time.
How difficult is a life insurance trust to organise?
It is surprisingly easy to set up a life insurance trust. Of course it is a legal exercise, so should only be handled by a professional, but with the right paperwork and the right wording, a life insurance trust will make sure your life policy is safe from red tape and from the grasp of the taxman and from the reams of red tape that come with life bureaucracy.
* 2008/2009 Tax year figures relating to Inheritance tax
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