Got Life Insurance? Great, but do you know who will benefit from this???
In Scotland, if you die without a will, the Laws of Intestacy determines who benefits from your Estate (any wealth you leave behind) following your death. It may surprise you to know that the legal beneficiary isn’t always who you would like it to be. The below table explains how your wealth will be distributed following your death.
As you can see from the table above, if you do not have a valid Will, your partner will not be entitled to your life insurance settlement, unless you are married or in a Civil Partnership. This has importance to all unmarried couples in the UK and is especially prevalent to the LGBTQI society, since despite the introduction of Equal marriage many couples prefer to remain unmarried. At Millerson Mortgages, we believe it is really important to spread this information and we can provide free advice on the best Trust for your needs.
Why put your life insurance in Trust?
This is an easy fix to ensure that your life insurance is paid to the people you love most and it’s totally free of charge!
So how does it work? When your policy is written into Trust, this means that you elect a number of Trustees (usually 2, although this varies between insurance providers) to become the owners of your policy. This means when you pass away the policy will pay out and the funds will be transferred to the Trustees as they are effectively, the owners of the policy. This then gives the Trustees the power to determine who should benefit from these funds and if you want to leave an official guidance you can do this through a simple Letter of Wishes, which means there will be no ambiguity when the Trustees are deciding who the funds should be paid to.
There are other benefits to having your policies written into trust:
Firstly, it’s a timesaver: when funds are paid into an Estate it can take some time for Probate forms to be completed and for the inheritance to actually be paid out. When your policy is in trust, the insurance provider will transfer the funds to the Trustees as soon as a satisfactory claim has been made.
Secondly, avoidance of Inheritance Tax: as the proceeds of this policy belong to the Trustees and not the deceased’s Estate, the Government cannot claim on this. It may surprise you how much this could actually save you. In Scotland, in 2016 the current rate of Inheritance Tax is 40% on any Estate valued above £325,000. This may seem like a large Estate, however if you consider the value of your property, plus the value of any life insurance, plus a possible Death in Service benefit pay from your employer, it can often mount up quicker than you expect. The Trust also avoids the other legal loop-hole of where quite often, the Inheritance Tax is due to be paid prior to the heir actually receiving the inheritance, which can leave many heirs in a bit of a catch 22 situation.
Thirdly, prevention of debtors claiming your estate: In the event of death, whilst a person has some unsecured debt it is often misinterpreted that that debt will die with the person; however this is not the case. If you die, your debtors are able to claim your Estate for the value of any outstanding debt. This could mean if you have left a modest amount of money which you intend for your family to use to cover your funeral or outgoings during the grieving process, they could end up with nothing. Again, with a policy written in Trust this cannot happen as the funds are not in your Estate, they actually belong to your nominated Trustee.
There are a number of Trusts available through each insurance provider so it is important to make sure that you get the one that’s right for you, especially if you decide you would like the ability to make changes to the Trustees in the future.
Here at Millerson Mortgages, we are happy to offer this service free of charge as we know the importance of this for our community. For more information on Trusts, call *0330 159 5292 or contact us here