Switch on daytime TV and it probably won’t be too long before you run into an advert for some kind of insurance and if it’s life insurance there’s a good chance it will make the point that life insurance gives you the peace of mind of knowing that your loved ones will be in the best possible position to cope with your death. This is actually a very fair point and the absolute best way to set up a life insurance policy is to place in in a trust.
Trust(s) and protection
In very simple terms, when you die your estate is yours to dispose of as you wish (with a very few niche exceptions), but the transfer of ownership may be subject to legal formalities and tax. This can make it time-consuming and frustrating for your heirs to get access to money they may need to get on with their own lives. Writing a life insurance policy into a trust essentially ring-fences it from the estate as a whole, so it can be paid out much more quickly. As an added bonus, this means the proceeds of the policy will be excluded from the calculation of the value of the estate as a whole. In fact, you could even use life insurance as a means to pay the anticipated IHT bill, although this is an option for which professional advice is particularly recommended.
The importance of keeping your protection up-to-date
Keeping your protection up-to-date doesn’t just mean remembering to pay your premiums. It means making time to think about the nature of your cover, how much it is and who will benefit from it and making sure your cover always reflects your current situation rather than the situation when you took it out, however long ago that was. Similar comments apply to your will. Hopefully by now at least the majority of people understand the importance of making a will and this would be a good moment to emphasise that there are certain requirements to be met if a will is to be legally valid and so even though there are “will-making kits” you can use to draw up your will yourself, this is an area in which professional advice can easily pay for itself.
Planning ahead can make life easier for everyone
The Swedish have a tradition called “death cleaning”, which may sound rather gloomy, but is actually a very positive concept, which we might call “setting your personal business in order”. Instead of leaving this until a time when you begin to feel yourself failing (we hope this will never come but need to be realistic), treat decluttering and organizing your life and assets as part of an ongoing process, ideally in partnership with your intended heirs. This gives you the opportunity to move on assets during your lifetime (remembering that you will almost certainly have to give up the beneficial interest in them) so that, hopefully, they will have ceased to form part of your estate upon your death (or at least qualify for some level of IHT relief). You may have noticed that we used the term “assets” rather than possessions. This is because these days some of your assets may be digital, for example social-media accounts, and you will need to think about what will happen with these. As a minimum, you will want to think about the many online accounts you probably have these days and decide which of them are important enough that your next of kin/executor needs to have their details and how you are going to communicate them securely.