"Several months where your family must endure the very financial strain that the policy was intended to protect them from in the first place."
I’m a dad and husband. Unsurprisingly, my financial planning priorities are all about safeguarding my family. And, should the worst happen, I’ve done everything in my power to ensure that accessing the support I’ve put in place for them doesn’t involve excessive admin, hoop jumping, or probate delays at a time when they’re likely at their most vulnerable.
“I made sure my protection policy was written in trust.”
The cumulative effect of writing policies in trust can be summed up as the right people getting financial support at the right time. Broken down, it provides:
- Faster payouts because trusts exclude life policies from probate,
- Reduced Inheritance Tax (IHT) liabilities, since money paid doesn’t form part of your estate,
- Policy authority as you can nominate your beneficiaries.
When you consider probate in the UK can take up to a year to conclude, the best-case scenario you can hope for is several months. Several months where your family must endure the very financial strain that the policy was intended to protect them from in the first place. Worst case, it could leave them seriously financially exposed, having to cover day-to-day expenses as well as funeral costs and IHT bills.
“Your loved ones will have to contend with protracted, complex admin while grieving.”
The question we should all be asking ourselves is, in the event of a claim, does the policy deliver the right outcome if it’s not written in trust? Intended beneficiaries of mums, dads, and partners, who thought they were protecting their loved ones by taking out protection, could potentially be missing out on better outcomes because policies weren’t written in trust.
According to Swiss Re’s ‘Life Cover Payouts Report’, only 18.2% of new policies written in 2023 were put in a trust. Meanwhile, HM Revenue & Customs (HMRC) has revealed that of the 27k estates that paid IHT in 2020/21, over 6.9k included life policies worth over £828mn – these policies could have been excluded had they been written in trust.
“With no increase in the IHT tax-free allowances until April 2028 (at the earliest), more families will find the value of their estates rising to the point where they, too, get caught in the IHT net.”
Last month, I spoke with one of Legal & General’s (L&G) Market Development Managers who confirmed that if your customer is in good health when putting the policy in a trust, there are usually no IHT implications because the policy has no value. However, if your customer were seriously unwell when the policy was put into a trust, dying within seven years, HMRC could argue that the policy did have value and may look to include that value in the estate.
“Alongside Life Insurance, trusts have an important role to play in ensuring the right people get the right money from Critical Illness (CI) and Mortgage Payment Protection.”
Writing policies in trust is straightforward enough and there are plenty of providers out there that enable e-signatures. So, if perceived complexity or wet signature requirements are what’s putting you off, don’t let them.
