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Should Joint Life Insurance Be Put in Trust?

We have recently taking out Joint Life Insurance off the back of our first mortgage. Should this be put in trust? I am a little confused.

Question asked by Keith Godwin

How Life Insurance Works and the Benefits of Putting It in Trust

A Life Insurance trust is effectively a wrapper which distributes the benefit paid out from life insurance policy on the event of your death or diagnosis of a terminal illness.

Writing your life insurance policy into trust ensures any benefit payment does not form part of your estate or count towards your inheritance tax allowance.

Joint Life Insurance policies covering spouses on a first event basis may see less benefit from being set up in trust from a tax perspective as there is a spouse/civil partner exemption for inheritance tax.

This exemption often removes the need for a trust as there is usually no inheritance tax liability when assets transfer from one spouse to another.

However, there are two scenarios where a trust may be needed:

  • You both die at the same time
  • You have a joint life insurance policy on a second life basis.

Should you put your Life Insurance into Trust?

As the first scenario cannot be predicted and writing your policy in trust does not cost you a penny, we would recommend writing your plan into trust to avoid any probate delays.

There are also discretionary trusts available that are designed specifically for Joint Life i=Insurance policies that can also pay out to the second partner on request, if they survive at least 30 days after the first death occurs.

Drewberry can help

Trusts can add another level of complexity when setting up your life cover so please do not hesitate to get in touch if you want to discuss this further.

If you need any guidance we can help organise having your life insurance policy written in trust, just give us a call on 02084327333.

Drew was incredibly helpful all the way along and very responsive and patient with any questions I had (which were many). He was able to get me a much better deal on my new health insurance than I had been able to get online. A success all round!

Francesc Sale
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