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Life insurance v holding assets in trust

When considering estate planning, you may be considering procuring life insurance versus placing assets into trust. Both avenues serve unique purposes, yet the choice between them hinges on individual circumstances, financial goals, and the specific needs of the beneficiaries. 

Here are some of the considerations you should discuss with your Broadbench adviser:

Trust Funds:

  • Trust funds for younger lives can be impacted by the 10 yearly periodic charges and the annual accounting costs.
  • These periodic charges and administrative overheads can accrue over time, potentially impacting the overall value of the assets held within the trust.
  • There are intrinsic obligations to keep meticulous records and reporting which can be an administrative burden.
  • It can be useful to compare this to the costs of maintaining a life insurance policy. 
  • Trustees have the flexibility to not release assets to younger beneficiaries. A primary concern for trustees can be the beneficiaries’ maturity and financial responsibility. Handing over a substantial inheritance too soon could disincentivise them from pursuing their own ambitions and achieving financial independence through their efforts. 

Life Insurance:

  • Term life insurance policies can keep running until age 90.
  • The total cost of purchasing life insurance tends to be significantly cheaper. Even when comparing the cost of purchasing a whole-of-life policy, the premiums would only surpass the cumulative periodic charges when the client reached age 79.
  • Taking out a life insurance policy to cover the IHT liability on the assets can provide a simple and cost-effective solution in comparison to placing assets into trust.
  • Paying a budgeted annual premium of either £458 or £1,958, in this instance, is far more manageable and the planning is less complicated than co-ordinating the cash necessary for payment of a 6% periodic charge. 

In Summary:  

The illiquidity of certain assets can create cash flow issues for trusts, requiring careful financial planning and strategic decision-making by trustees to ensure that the trust remains adequately funded and can fulfil its financial obligations over time. A life insurance policy can provide an easy-to-administrate and low-cost alternative to holding assets in trust.

Speak to your expert Broadbench adviser and see which option is best suited to your unique needs and those of your beneficiaries.

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