Jargon Buster - Definition of Trust (Life Insurance)

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Trust (Life Insurance)

is an arrangement which allows designated trustees to administer the payout from a life insurance policy in the event of the death of the life assured. The process of a trust is that in the event of the death of the grantee (policyholder), the life insurance trust is passed to the trustees, the policy then pays out to the trust and then finally the money is distributed accordingly by the trustees.

The three main advantages of writing a life insurance policy in trust are to:

  1. Avoid estate taxes such as inheritance tax.
  2. Nominate multiple beneficiaries.
  3. Avoid time and costs associated with probate.

Probably the most useful reason for writing life insurance into trust is to avoid IHT (Inheritance Tax).

There are different types of trust available that have different uses dependant upon your requirements for example split, flexible, stakeholder and absolute.

Please note that all definitions are intended for general guidance only. For official and current definitions you should always double check your policy wording.

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