Jordan McGregor and Grace Steele reveal how to maximise the benefits and reduce the headaches from life policies in trust.
We often have clients bringing in old trust documents which were completed some years ago and have long since been forgotten. The years go by and the documents remain untouched, maybe hidden in a secret place at home.
Life assurance policies and bonds are often written in trust. What does that actually mean?
Putting your life assurance policies in trust affects the way the proceeds from the policy are dealt with on your death. A financial advisor may have recommended the product and the process often involves filling out a standard trust form provided by the company you are investing with.
Quite often it is a straightforward ticking the relevant boxes in answer to the questions. On these forms, you are asked to decide who your trustees will be. These are the people who will be responsible for distributing the policy proceeds. You are also asked to nominate who receives the proceeds on your demise. This can be specific people or a group of individuals e.g. your children.
This all sounds straightforward in theory, but issues can arise if you don’t review them.
Often the trust documents require a minimum of two trustees to be named from the outset and to distribute the funds out of the trust. It is common for married couples to appoint themselves and their spouse as trustees. The issue here is when one spouse passes away, there are no longer two trustees. If the policy doesn’t pay out until the second death, then there are no trustees. In those cases, the insurance company insists on the surviving spouse’s executor dealing with the matter. Where possible, it may be wise to appoint a third trustee from the outset.
Ticking boxes and using standard clauses seem an easy way to complete the paperwork but it can lead to difficulties. Issues can arise where your form provides ‘descendants’ to potentially receive the policy proceeds. The standard documents do not always specify the proportions that each individual should receive. Once signed, the trust documents are not easy to amend. Writing a letter to your trustees explaining how you would like the proceeds divided can be useful. This letter can be amended should your circumstances change.
Life policies written in trust enable your family to receive the money without a Grant of Probate. Although the insurance company is likely to need proof that the trust is registered with the government before they pay out. This may not have been a requirement when you originally put your policy in trust. The trustees will need to do the registration but if there are no surviving trustees then the family may have to wait until the Grant of Probate has been issued which causes delays.
Our cars require MOTs so why not make sure your paperwork is in order too. If you have set up trusts on insurance policies and investments we can help you make it easier for those left behind.
If you would like any assistance or advice relating to a life policy or similar, please do not hesitate to contact Jordan or Grace for further information.
The Old Registry
6 Derby Road
Belper
Derbyshire
DE56 1UU
This article was featured in Derbyshire Life Magazine.
