Creation of trusts—life insurance trusts
Creation of trusts—life insurance trusts

The following Private Client guidance note provides comprehensive and up to date legal information covering:

  • Creation of trusts—life insurance trusts
  • Defining life insurance trusts
  • Reasons to consider using a life insurance trust
  • Structure
  • Policy premiums
  • Beneficiaries
  • Powers
  • Perpetuity period
  • Notification of assignment
  • Letter of wishes

Defining life insurance trusts

A life insurance trust usually involves either:

  1. an assignment of an insurance policy together with a declaration of trust or

  2. the creation of a settlement containing an express assignment of the policy

Reasons to consider using a life insurance trust

The two main reasons are:

  1. so that the policy proceeds do not form part of the deceased's estate

  2. so that the proceeds can be obtained ahead of the grant of representation to the life assured's estate

Structure

Where a settlement is created containing an express assignment of the policy, the usual structure is:

  1. the insurance policy is assigned to a trust

  2. the terms on which the trustees are to hold the trust property are set out

  3. the trustees are given overriding powers

  4. there is an ultimate trust

Assignment

A suitable clause assigning the insurance policy is, for example:

'2 Assignment

The Settlor as beneficial owner now assigns the Policy and all benefits and advantages of and all rights arising under and all money assured by or to become payable under or by virtue of it and any policy or policies substituted for it to the Original Trustees to hold the same unto the Original Trustees upon the trusts and subject to the powers and provisions declared and contained below'

Trust terms

The terms on which the