What are the disadvantages of putting a life policy in trust?
One of the disadvantages of putting life insurance in trust is that it can be hard to make changes to a trust once it’s set up. Once you’ve put a policy in trust, it usually can’t be taken out of trust again. However there are times when you can amend a trust, but it can be risky. There have been instances when people have unknowingly invalidated their life insurance, after making changes to the policy in trust. Again, speak to a legal expert if you have any doubts about writing life insurance in trust.
There could also be tax implications if you move a life insurance policy into trust. Inheritance tax could be charged if, within seven years prior to dying, a policyholder changes the person who’s named as a beneficiary on a life policy held in trust. Inheritance tax would typically be due if the new beneficiary isn’t a spouse or civil partner.