Trusts best for life insurance

Wednesday, 09 November 2005 12:00

A new study has found that life insurance policies written under trust are paid out months quicker than others.

Standard Life discovered that while other polices can take up to six months to pay out in the event of death, life insurance written under trust not only pays out faster but can avoid inheritance tax as well.

But despite this, the insurance provider points to data suggesting that just one life assurance policy in ten is currently set up this way.

"People should ask themselves why they would not put their policies in trust rather than questioning the need to do so. Trusts and life assurance policies should go hand in hand," said Julie Hutchison, estate planning specialist at Standard Life.

The reason using a trust can dramatically speed up payment is because there is no delay in waiting for the grant of probate or confirmation, things which can take up to six months to arrive.

Trusts can also be used to help minimise inheritance tax and avoid potential family disputes.

Inheritance tax is paid when the estate of the deceased is worth more than £275,000.

It is charged at 40 per cent of the value of the estate above this figure, and included gifts made by the deceased in the seven years before their death.

By having the a life insurance policy written under trust, this tax can be mitigated because the policy is not ever owned by the deceased, but by the trust instead.

But holding a life insurance policy written under trust is more than just tax efficient.

"Don't think of trusts as only being for inheritance tax purposes - for many people inheritance tax is still a marginal issue. Trusts are a most useful way of ensuring speedy payment of claims so loved ones can get on with their lives without worrying about meeting ongoing financial commitments," Ms Hutchinson advised.

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