Life insurance!

[JulyDreams]

Hi all,

Can anyone confirm a clear difference between a discretionary and absolute trust? Myself and my partner have taken our life insurance recently as we are due our first child soon. This is an amount to cover the mortgage if one of us were to pass away.

If both of us were to pass away same time or within a close distance to each other we have the option to place our paid amount towards our life insurance into trust and also the overall amount I think that likely would be paid out to us- a bit confusing but getting my head around it!

We are unsure which option to go with at the moment ?

In a discretionary trust the trustees have discretion who to pay out to (within a defined class). So for example a married couple with children each take out a policy and place it in a discretionary trust for dependents. They then separate and get new partners. When one dies the trustees could pay out to the new partner or the ex-spouse or the children depending on who was considered to be dependent. This is usually the case with pension funds.

An absolute trust is also known as a bare trust. The beneficiaries are specifically named and the trustees have no discretion in that case and must pay to the specific individuals.

there may be inheritance tax implications so consider whether that is relevant.

Thank you @Fleur405 !!