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Why you might consider placing a life insurance policy in trust

3rd November, 2015

A Life Insurance policy is a good way to protect your loved ones financially if the worst was to happen. But for some, it might also be important to put the policy into trust. Depending on your circumstances, it could protect the money from being reduced through tax and outstanding bills. So what is a trust, and why should you consider it when buying life insurance?

Trusts Explained                                                                                                                          

In simple terms, a trust is a legal arrangement where you hand over your estate, such as property, investments or in this circumstance cash, to someone to look after on behalf of a third person. This person is known as the beneficiary, such as your loved ones. The trustee is the party that it is handed to, and has a legal duty to look after any assets left in the life insurance policy.

Reducing Inheritance Tax

Reducing Inheritance Tax (IHT) on your estate can be done by writing the policy in trust. By writing a policy in trust, the money no longer belongs to you when you die, making it exempt from inheritance tax, which currently is 40% of any funds over your “nil rate band”.

Protecting the Pay-Out

Reducing your IHT isn’t the only benefit for those who write their policy into trust. It can also protect money left behind, by preventing it being used automatically to pay off other fees, such as outstanding care home bills. Placing the policy into trust can also avoid probate, which is a lengthy legal process, a time delay your loved ones could do without during a difficult period.

There are several different types of trust that a policy can be placed into. So if you are considering taking out a Life Insurance policy, contact us or have a look at our quotes page to see how you can help leave your loved ones financially secure. Placing your life insurance in trust is offered free of charge by Compare life quotes!

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