Can You Put a Family Income Benefit Policy in Trust?
Answered on 19 August 2024 by Nicholas Mendes, Mark Francis
I want to take out a family income benefit policy but have heard it’s possible to have it written in a trust. Is this true and how does putting a family income benefit policy in a trust work? Is it better?
Yes, You Can Put a Family Income Benefit Policy in Trust!
When it comes to protecting your family's financial future, putting a Family Income Benefit (FIB) policy in trust can be a highly effective strategy. In this piece, we explain how this process works, its benefits, and why it might be the right choice for your family.
What Is a Family Income Benefit Policy?
A family income benefit policy is a type of life insurance designed to provide a regular income to your family if you pass away during the policy term. Instead of a lump sum payment, it ensures that your loved ones receive consistent financial support, helping them manage everyday expenses and maintain their standard of living.
What Does It Mean to Put Family Income Benefit in Trust?
Putting a policy such as family income benefit in trust means legally transferring ownership of the policy to a trust, which is managed by appointed trustees for the benefit of your chosen beneficiaries. This process ensures that the policy proceeds are handled according to your wishes, providing several financial and practical advantages.
Benefits of Putting a Family Income Benefit Policy in Trust
- Avoiding probate: policies placed in trust are paid out directly to the beneficiaries without going through the probate process, ensuring quicker access to funds when they are most needed
- Inheritance tax efficiency: the proceeds of the policy held in trust are not considered part of your estate, which can help reduce the amount of Inheritance Tax that may be due
- Control over distribution: you can specify how and when the policy benefits are distributed, ensuring they’re used according to your wishes
- Financial security: trusts provide a secure way to manage and distribute funds, protecting them from potential misuse or financial mismanagement
How to Put a Family Income Benefit Policy in Trust
- Choose your trustees: select individuals you trust to manage the policy and distribute the benefits. Trustees can be family members, friends, or professionals such as solicitors
- Complete a trust form: your insurance provider will provide a trust form that needs to be completed, detailing the trustees and beneficiaries, as well as any specific instructions for the distribution of benefits
- Legal advice: consider seeking legal advice to ensure the trust is set up correctly and aligns with your estate planning goals
- Inform the beneficiaries: make sure your beneficiaries are aware of the trust and understand how it will work to support them in the event of your passing
Why Should You Consider Having Your Family Income Benefit Written in Trust?
- Peace of mind: knowing that your family will have immediate access to financial support without legal delays can provide significant peace of mind
- Tax efficiency: reducing the potential Inheritance Tax burden can help maximize the financial benefit for your loved ones
- Flexibility and control: tailoring the trust to fit your specific wishes and circumstances ensures that your family's financial needs are met as you intend
Putting a family income benefit policy in trust is a strategic move that offers numerous advantages, from avoiding probate to optimizing tax efficiency. It provides you with the reassurance that your family's financial future is secure and managed according to your wishes. If you're considering this option, it's advisable to consult with one of our protection advisors who can ensure that the trust is set up correctly and meets your specific needs.
Ask The Mortgage Experts answers are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them. We recommend you seek professional advice with regard to any of these topics where appropriate.