What is a Relevant Life Insurance Trust?

I’ve been told I need to set up a Relevant Life Insurance trust with my Relevant Life Cover. However, I’m not sure what this means. Could you explain to me what it is and how it works?

Question asked by Justine Weller

A Relevant Life policy is a tax-efficient Life Insurance. It’s primarily aimed at company directors, contractors and those working through their own limited companies.

However, it’s available in most instances where there’s an employee / employer relationship. Read more on the eligibility criteria for Relevant Life Cover here.

What is a Relevant Life Insurance Trust?

A Relevant Life Insurance Trust is at the core of Relevant Life Cover.

You should never set up a Relevant Life policy without a trust in place. Without the trust, Relevant Life Insurance has none of its tax efficiency. It simply isn’t Relevant Life Insurance.

Essentially, the trust structure exists to receive the payout from the policy should the worst happen and you pass away.

This is necessary because your business owns and pays for the policy. You therefore write the policy into trust to prevent the insurer paying the funds back into the business on your death. This would clearly have nasty tax implications for your company.

Furthermore, the trust also acts as a ‘bridge’ between your estate and the payout. If the insurer paid the money directly into your estate, HMRC will charge inheritance tax on the payout.

Given HMRC levies inheritance tax at 40%, this could therefore take a significant chunk out of your family’s benefit.

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