A recent study by Standard Life reveals that life insurance policies written under a trust pay out faster than normal policies.
The study found that on the death of a policyholder, other policies normally take six months to be paid out. Whereas if the life insurance policy is written under trust it is paid out faster and there is a possibility of inheritance tax (IHT) being avoided or minimised so avoinding potential family arguments.
However Standard Life suggest that one policy in ten is set up this way at present. Julie Hutchison, estate planning specialist said, “People should ask themselves why they would not put their policies in trust rather than questioning the need to do so. Trusts and life assurance policies should go hand in hand.”
A policy written under trust is faster to pay out because the grant of probate is not delayed, otherwise under a normal policy the grant of probate can take up to six months to arrive.
Inheritance tax is due if an estate of a deceased person is worth more than £275,000. Anything over this amount will be subject to 40 per cent IHT. This will include any gifts made by the deceased in the last seven years preceding the death.
If a life insurance policy is written under trust, the tax can be minimised as the policy is never owned by the deceased but was put in a trust instead.
There is more to policy writen under trust than tax efficiency. Ms Hutchinson added, “Don’t think of trusts as only being for inheritance tax purposes — for many people inheritance tax is still a marginal issue. Trusts are a most useful way of ensuring speedy payment of claims so loved ones can get on with their lives without worrying about meeting ongoing financial commitments.”