Q: Can I place a menu plan into trust if it is to cover a mortgage?
A: Yes, a plan can be placed into trust providing the mortgage provider does not require it to be assigned to them. If the plan is solely to repay the mortgage then it may not be required, however for menu plans, trusts can be very beneficial as there can be a number of covers on the same plan.
There are key advantages in putting a plan into trust:
• The beneficiaries are defined so the money goes to the right people,
• Payment of the proceeds can be made quickly, and
• The plan proceeds are out with your estate for inheritance tax (IHT) purposes.
If a discretionary trust is used then there is a great deal of flexibility as to who can receive the benefit. The trust provides flexibility to allow the trustees to choose which of the beneficiaries should receive the benefits and additional beneficiaries can usually be added by the plan owner before their death.
They can also provide a letter of wishes to guide the trustees in their decision making.
If a plan is in trust a claim payment can be made quickly. If someone dies without putting their plan in trust, their representatives may have to get a Grant of Representation before they can deal with your plan. This can take several months.
Property that is held in trust, including protection plans, are no longer considered to be part of an individual’s personal estate and would not be liable for inheritance tax on their death.
Using the correct type of trust
By using a split trust, any critical illness benefit can be held by the trust for the benefit of the plan owner provided they survive diagnosis by 30 days. They can also retain additional benefits such as children’s CI cover and income protection.
Overall, a trust applied to a life policy can allow flexibility for future changes, but also certainty that the money will be going into the hands of the correct people when it is needed most.
