When you die, the proceeds from a life insurance policy will normally be paid into your estate free of tax. Unfortunately, the insurer cannot hand over the money until legal matters concerning your estate have been resolved, for example, probate has been granted. The courts have to give permission for assets in your estate to be given to your beneficiaries. This takes time, and if you die before making a will it can take even longer. To make sure that your dependants get the money as quickly as possible, you can arrange for the policy to be ‘written in trust’. The Trustees don’t have to wait for the courts, so your life insurance payment can be made as soon as possible.
If your life insurance isn’t under trust it automatically becomes part of your estate, which could increase the chances of inheritance tax being due. Putting your policy under trust may mean that inheritance tax can be avoided.
Placing your policy in trust means the proceeds will go to the people you intended. For example, if you owed money when you died, a trust could mean the money paid out under policy would go to your loved ones not your creditors.
If you left behind children under 18 when you died, trustees could use the trust to support your children. Once your children have turned 18 they can have full access to the money in the trust.