A trust is simply a legal arrangement that allows the settlor (me) to bequeath my life insurance to the beneficiaries.

This is looking like the best idea so far.

If I did nothing, my bank accounts and investments would be immediately frozen. Over-50s and term insurance don’t seem all that great now, and the worst are the funeral plans. Life assurance seems like the best deal – you get money out, it can be accessed outside of the estate (not frozen up), and you can then negotiate with everyone to get a package you actually want – and can pay for.

But before we can go whoop-de-do finally, the people I leave my millions to will get hit with tax, so I need to look at having my life assurance made into a trust.

The current rate of Inheritance Tax (IHT) is 40% of the estate above the nil rate band of £325 000.

An example is a life insurance pay-out of £600 000:-
Take the nil rate band of £325 000 off – (£600,000 – £325,000) to get £275 000.
40% tax on this £275 000 equals a tax bill of £110 000, reducing the pay-out to the family of £490 000.

If I  put my life policy in trust, it will not form part of my estate and the beneficiaries will receive ALL of the money quickly without having to wait for a grant of probate.

As the settlor, I decide who will get the pay-out, and even how it is spent. For example, I could insist that any proceeds are used to fund my children’s education.

However, it’s not as simple as it seems; a trust needs THREE trustees minimum, and once a policy is put into trust it is almost impossible to cancel the arrangement.

All three trustees take legal ownership of the trust and look after the deeds which govern it. So I wouldn’t own the trust; it wouldn’t legally be mine.

Okay, I can appoint myself as a trustee (settlors can be trustees too), and it seems reasonable to make my wife a trustee, but now I’m stuck – who the heck can I pick to be the third trustee?

While we are all duty bound to act in the interest of the beneficiaries at all times, I alone have responsibility to pay the premiums for the life policy.

I understand that it is a straightforward process to set a trust up – I just ask the insurance company for the forms. Although a trust option should be offered when taking out a policy, an existing policy can be put into trust later on.

There are various different types of trust, so the matter needs some thought, especially as different types of trust can be treated differently for inheritance tax. The trust itself might even have to pay tax!

  • A “Discretionary Trust” is a flexible arrangement that would allow me to add beneficiaries and give guidance to trustees in a “letter of wishes”.
  • An “Absolute Trust” is more rigid because the beneficiaries cannot be changed.

The bottom line is that I ought to seek out good legal advice on trusts, and I need to decide on who the third trustee could be.

At the moment, though, it is looking pretty good. I wonder what the premiums are?


The Free & Easy Funeral

One way to avoid a lot of fuss and cost is to simply “leave my body to science”.

This seems like a brilliant plan all round because not only is it altruistic, helpful and meaningful – it also relieves the burden of arrangements on family and friends, and is free from costs too!

To do this, I need to get in touch with the Anatomy Department of Glasgow University Medical School (the only others are: Aberdeen, Dundee, Edinburgh, and St Andrews), to get advice on the procedures – such as getting on the Bequest Register. I would also need to keep a written statement of the intention to benefit medical science among my papers or in my will so everyone would know about this decision.

“In normal circumstances, the costs of removing the body, and burying or cremating it are normally borne by the Medical School. A body used for teaching purposes will normally be cremated or buried within 3 years at a special memorial service”.
– Scottish Government Website

However, there is a catch: bodies are normally refused if there has been a post mortem examination, if any major organs have been removed, if the body is in a bad condition, or if the Medical School doesn’t need it (it has enough cadavers).

University of Glasgow, School of life Sciences, Anatomy Facility – telephone 0141 330 5397

It’s difficult to get information on specific details about donating a body under certain circumstances – for example, if I die at home, will the University pay for collecting my body? Also, if I am on the Bequest Register at Glasgow University, but die abroad – say, in England & Wales – would costs of repatriation to Scotland be covered or could the Bequest be transferred to a Medical School nearer to the place of death?  If the body has organs removed, then the Medical School will reject the body, which means I can’t be an organ donor and leave my body to science!

“I was amazed to discover that a man donated his body to medical research – thinking that he had avoided all costs. He told his family he had left his body to science and not to worry – but universities and hospitals are not legally obliged to accept donated cadavers, and they didn’t need that body – so the family were hit with unexpected costs!”
Funeral Poverty is a Thing

What all this boils down to is that while it may be a good thing to leave yourself to science, it cannot be banked on as a way to get a free funeral, so finances still would need to be in place – just in case.