Life Insurance, Trusts & Wills - Can anyone unbaffle me please?

[Tea71]

Since having my DD my DH and I have bought life insurance for the first time in our lives which will pay off the mortgage on the property we live in, and pay out a lump sum which would cover the mortgage of our buy-to-let property.
We've agreed with my SIL that she would take in our DD should anything happen to the both of us.

The life insurance company have now written to us about setting up a trust - I have no idea what this is all about, though I vaguely know we might want to do this and it might be linked to Inheritance Tax. I also know that we will probably need to write a will.

Can anyone enlighten me on this?
Also, am curious to know what other people have done re: making arrangements for their DCs should anything untoward happen to them.

is the Trust to hold your assets for your DD should anything happen to you before she is 18?

we wrote our wills recently and sorted everything out. In that we specified what age DS was to get the assets from our Estate

Until he reaches this age (25 i think) he has two Trustees to look after this for him

we have also nomintaed Guardians

If you die before your dcs reach maturity, any monies left to them should be tied up in a trust, with trustees appointed to administer the trust until your dcs are old enough.

Basically that means that, as your dcs will not be old enough to deal with the monies themselves, you have to find someone (or more) who will do it for them - such as your SIL.

The thing with the Trust for life insurance purposes is to nominate who you want to be the beneficiary if you die. This enables the Insurers to pay out the money quicker otherwise if just per your will it all has to go through probate before anyone gets any actual cash. Quote from my insurance:

"The main aim of the Trust is to enable the benefits payable on your death ... to be paid without the need for grant of probate and free of inheritance tax to chosen beneficiaries".

So normally you would need to tell the insurance co who you want it paid to.

okay, things are beginning to make more sense now.
thanks a lot.

You're right in that the other thing a trust does is avoid inheritance tax on the (for example) life insurance payout that is made into the trust. Because the payout doesn't go into your estate, it is not liable to inheritance tax.

Trusts are hugely complex though - worth getting a solicitor or IFA to go through the options, as there's different options and it's not a one size fits all thing.

Thanks 'hopefully' - I'm guessing IFA means Independent Financial Adviser?

Yup, independend financial adviser.

The whole trust thing is ridiculously confusing, but if you get a trust set up properly, it can avoid inheritance tax/cover inheritance tax on any other aspect of the estate/keep money safe for your children. It's all a question of finding a financial adviser who's happy with the subject and can help you plan the trust in the best way

Actually the trusts for life insuracne are usually fairly straightforward assuming that your life insurance pays out on first spouse's death. It is really just ensuring that this sum doesn't get tied up within the deceased's estate.

In terms of a trust for your dcs, this can be essentially planned out in the drafting of your will.