Things to bear in mind
The majority of Life Insurance policies aren’t written in trust, in fact only about 6% are, so it’s something worth exploring early in the discussion if you think it might benefit you. If you already have Life Insurance with us and want to transfer it into trust, we have an online tool for putting your Life Insurance into trust on our site which you might find useful. Life insurance tax.
That being said, if writing Life Insurance in trust to avoid inheritance tax was automatically the best choice, that 6% would be much higher. There are factors to bear in mind before making an informed decision.
For example, while you may dodge the minefield that is navigating IHT, trusts are still complicated legal entities and come with their own jargon and concepts to get your head around.
Term life insurance coverage
Also, once a policy is written or transferred into trust, you (‘the settlor’) do not retain control. Yes, you can dictate the terms of the trust, such as who is paid what amount under what conditions. But once transferred to the trustees (normally the policyholder is automatically a trustee), it’s very unlikely that these terms can be changed and almost certain that the process cannot be cancelled. A policyholder should always read through the particular trust they are using.
With that in mind, it’s important to get the right advice (both on taxes and law) and ensure the terms of your trust are clearly defined and provide the best possible protection for your loved ones once the time comes for the trust to pay out to its beneficiaries.