Top Tip – Back to Basics – Life Policies Under Trust
Last updated on August 12th, 2020 at 10:04 am
I met someone recently who had (reluctantly) had to leave the comfort blanket of working for a large organisation because his job had been made redundant. Along with the loss of a job also came the loss of one of those rare things called final salary pension schemes plus company PHI and death in service benefits. All these employee benefits that were taken for granted at the time now have to be replaced as this person is going to try his luck with setting up his own business (like a lot of people being forced into redundancy).
Anyway, the pension was dealt with first (PHI not yet) and death in service benefits have now been replaced with a life policy. As we were chatting, I asked if he had been advised to write the policy in trust. He does, after all, have a young child and a partner who he is not married to. He said no and it struck me that many people may not realise the benefits of having a trust or more importantly the effects of not having written it under trust.
IHT is not going to be this couple’s problem at the moment but might well be one day. So it’s not primarily for that reason I suggested he ring up and ask for a trust document from the life office he’s bought this policy from. The reason I was overly keen to get him to do this was because of probate. If he dies then the life office will not pay out the death benefit until his executors or administrators produce a grant of probate or letters of administration. If his estate is relatively simple then this might take a few months – if it’s more complicated then it could take a year. If the life policy is written under a trust then the life office don’t need a grant of probate because the legal owners of that policy are now the trustees and they should get the pay out within 10/14 days.
The partner of this chap will have enough on her plate should the worse happen to him without having to worry about financial difficulties too. If the deceased income was required to meet mortgage repayments and other bills or debts a delay of months and months due to probate, could have severe repercussions.
If IHT was a potential issue using a trust could also avoid or save 40% inheritance tax.
So back to basics – there is no reason why life cover designed to protect your family should not be written under a trust.