Why trusts can be vital for life assurance
When life assurance is taken out, the main intention is to pay a dependent relative a lump sum of money. If we take the case of a husband and wife, a husband may take life assurance out so that the wife can repay a mortgage and have a lump sum on top, to maintain her standard of living. If the life assurance is in a trust, the trustees take a death certificate and the policy to the life assurance company, and the company should pay out very quickly.
If the assurance is not in a trust, it will form part of the husbands estate, and will need to go through probate before it is paid out. Probate can take weeks or months to be completed, and this can cause serious problems, for example financial hardship, before it is paid.
If the estate is not just being paid to a spouse, but to children as well for example, then because the life assurance money falls into the estate, there may be tax to pay, which may not have been paid if the policy was in trust. The valuable benefit the policy was giving, may instead cause an unintended tax bill.
An estate may not be large for a trust to be vital. If there are debts to be paid, the life assurance may be used up paying these debts, that may otherwise have been written off. This can leave the family with financial problems as it is very common for assets to be tied up in property these days - i.e. the family home.
A trust should be carefully set up, but life companies can usually do this for free. You may want to speak to a tax adviser or independent financial adviser about arranging a trust, and if a trust is suitable.
If the assurance is not in a trust, it will form part of the husbands estate, and will need to go through probate before it is paid out. Probate can take weeks or months to be completed, and this can cause serious problems, for example financial hardship, before it is paid.
If the estate is not just being paid to a spouse, but to children as well for example, then because the life assurance money falls into the estate, there may be tax to pay, which may not have been paid if the policy was in trust. The valuable benefit the policy was giving, may instead cause an unintended tax bill.
An estate may not be large for a trust to be vital. If there are debts to be paid, the life assurance may be used up paying these debts, that may otherwise have been written off. This can leave the family with financial problems as it is very common for assets to be tied up in property these days - i.e. the family home.
A trust should be carefully set up, but life companies can usually do this for free. You may want to speak to a tax adviser or independent financial adviser about arranging a trust, and if a trust is suitable.
