Relevant Life Insurance Trusts
Relevant life cover provides a lump sum benefit on the death of an employee. It’s often used by small business employers to provide death in service benefits to employees when they don’t have enough staff members for a death-in-service group scheme or cannot afford to set one up.
It is also a tax-efficient alternative for company directors paying for their own life protection.
Holding any life insurance policy in trust is a good idea and relevant life cover is no different. Some insurance providers won’t sell relevant life cover without setting it up in a trust from the start.
Read on to discover all the reasons using a discretionary trust for your relevant life insurance policy makes so much sense…
What is a relevant life insurance trust?
Relevant life insurance is a cost-effective method for employers to arrange life cover for an employee. The benefit, should a claim be made on the insurance, is payable to the beneficiaries of the employee, usually their family or dependants. Writing a policy in trust is tax efficient and helps meet legislative conditions.
Using a trust to hold the life insurance policy is a particularly useful way to make sure the benefits are payable directly to your beneficiaries and won’t be liable to inheritance tax or get slowed down through probate.
Why do I need to hold it in trust?
Like any life insurance policy, a relevant life policy is an effective and economic way to ensure funds are available to your family or dependants in the event of your death. By holding your insurance policy in a trust you can protect the money your beneficiaries will receive.
Using a trust to hold your relevant life policy will:
- Provide a speedy payment to your beneficiaries
- Protect the payout from inheritance tax
- Give you peace of mind that any payout will benefit the people you choose
- Allow more control over funds as a trust can decide when money will be paid out, which can be useful if you wish your children to receive financial support, without granting full access to the funds
Some providers will insist that a relevant life insurance policy be written in trust from the outset, and provide everything you need to set one up when you apply for cover.
How do I set one up?
To set up a trust you’ll need people to fill the following three roles:
- The beneficiaries – the people who will receive payment from the trust fund, usually the family of the insured employee.
- The settlor – the person placing their assets into the trust or paying the premiums in the case of a life insurance policy. In the case of relevant life insurance, this is likely to be the employer. Once the trust is set up, the settlor has no rights to any benefits of the policy.
- The trustees – the legal owners of the trust fund. These people look after the fund and following a claim will arrange for payment to be made to the beneficiaries. Trustees have discretion about which named beneficiaries will receive the funds from the trust and when. They are legally obliged to act in the best interests of the beneficiaries at all times.
When you are taking out relevant life cover, the provider of the insurance policy will provide all the documentation required to write the insurance into trust.
If you have questions and would like to speak to an expert about setting up a trust, get in touch and we’ll introduce you to one of the independent financial advisers we work with.
Speak to an expert
Call 0808 189 0463 or make an enquiry for a free, no-obligation chat and we’ll connect you with one of the independent experts we work with.
All the experts we work with are independent financial advisors with access to insurance providers across the UK. They will be able to talk you through how a trust works, find the right policy for the best price and help you ensure you’re doing the right things to protect your beneficiaries and safeguard your assets from inheritance tax.