Writing a life insurance policy in trust is a simple procedure involving no more than filling in a form at the time when the life policy is being set up.
There are several advantages to setting your life insurance up in trust, which could save both time and money - possibly many thousands of pounds - for your dependents, when you are gone.
What is the meaning of 'in trust'? By setting up your life insurance policy in trust, you remove the life cover from your 'estate'.
Your estate is your entire wealth, including insurances and savings, and less your debts and liabilities.
Inheritance Tax of 40% would normally be due on any part of the value of your estate which exceeds your Inheritance Tax allowance.
Today (2010) the Inheritance Tax allowance is £325,000 for an individual, and £650,000 for a couple.
This means that if, for example, a widow's estate was valued at £425,000, taking away her allowance of £325,000 would leave £100,000, so that Inheritance Tax at 40% would give the taxman £40,000.
A large payout from a life insurance policy would clearly boost the value of your estate considerably, and could result in a large Inheritance Tax liability.
Probate and 'red tape' Another advantage to placing your life insurance outside of your estate is that the policy payout avoids becoming 'bogged down' in the whole process by which solicitors establish probate, and which can take from three months to three years.
The payout can therefore be made immediately, avoiding long delays for your family and ensuring their financial wellbeing at a difficult time.