When discussing financial planning, trusts are often misunderstood. Many people assume they are only relevant for the very wealthy or those with substantial family fortunes. In reality, trusts can be a valuable planning tool for people from all walks of life.
The terminology surrounding trusts can seem complex, which sometimes puts people off exploring them. At their simplest, however, a trust involves one person (the settlor) placing assets into a legal arrangement for the benefit of others (the beneficiaries), with appointed trustees responsible for managing those assets according to the settlor’s wishes.
One area where trusts can be particularly effective is in conjunction with life assurance policies. Despite the significant advantages they can offer, many life assurance policies are still not written in trust.
Consider a life assurance policy designed to provide financial support for your loved ones after your death. If that policy is not placed in trust, the proceeds will normally form part of your estate. This means the funds may not be accessible until probate has been granted, a process that can take several months or longer in some cases.
At the very time your family may need financial support most, they could find themselves waiting for access to the funds intended to help them. If your income has ceased and assets held solely in your name have been frozen pending probate, this delay can create additional financial pressure during an already difficult and emotional period.
Writing a life assurance policy into trust can help avoid this situation. Once a valid claim has been paid, the proceeds can usually be distributed by the trustees directly to the beneficiaries without waiting for probate. This is possible because the policy is held within the trust rather than forming part of your estate.
There is a well-known saying that trusts help ensure life assurance benefits reach the right people, at the right time, without unnecessary delay. For many families, this perfectly captures their value.
Trusts can also offer inheritance tax planning benefits. Because assets held in trust may fall outside of your estate for inheritance tax purposes, they can potentially reduce the amount of tax payable on death.
While trusts are not suitable for every situation, the advantages can be significant. Rather than asking, “Why should I place my life assurance policy in trust?”, a better question may be, “Is there any reason not to?”
As there are different types of trusts available, each with its own rules and considerations, professional advice is essential to ensure the most appropriate solution is selected for your individual circumstances.
Warm Regards
Neil
Neil Rossiter APFS, Chartered MCSI, CFPCM
This article represents the opinion of W&T Ltd trading as Blackdown financial only and is intended as information only. The content of this article should not be construed as advice or recommendation.