Making a Will is an important step in protecting your loved ones, but effective estate planning involves much more than deciding who should inherit your estate. It is also important to consider how your assets are structured, including the way your life insurance policy has been arranged, whether it has been written into trust, or whether it will form part of your estate. Understanding how these different elements work together can help ensure your wishes are carried out efficiently while minimising unnecessary complications for your loved ones.
Shirin Hussain, an Assistant Solicitor in the NBB Waldrons Wills & Probate Team, advises clients on Wills, estate administration, Lasting Powers of Attorney and wider estate planning. Working with individuals and families across the firm’s offices in Merry Hill, Kingswinford, Dudley, Worcester, Walsall, Birmingham, Cheltenham and London, Shirin helps clients take a joined-up approach to protecting their assets and planning for the future.
In Shirin’s previous article, Who Will Inherit Your Pension? Why Reviewing Your Expression of Wishes Matters, she explained why keeping your pension beneficiary nominations up to date is so important. Another area that is frequently overlooked is how life insurance policies and trusts fit into your wider estate plan and how forthcoming changes to pension taxation may influence future planning.
Why the way your life Insurance is arranged matters
Many people assume that the proceeds of a life insurance policy will automatically be paid to their loved ones without delay. However, how and when the proceeds are paid depends on how the policy has been arranged.
Unlike a pension, where the scheme trustees will often consider the member’s expression of wish (or nomination) when deciding who should receive the death benefits, most life insurance policies do not operate by way of a beneficiary nomination alone. Instead, if you wish the policy proceeds to pass outside of your estate, the policy is commonly written into trust.
Where a life insurance policy has been written into trust, the policy proceeds are generally paid directly to the trustees of the trust rather than to the deceased’s estate. The trustees are then responsible for distributing the funds to the beneficiaries in accordance with the terms of the trust. As the proceeds do not usually form part of the deceased’s estate, they can often be paid more quickly, as there is no need to wait for a Grant of Probate or Letters of Administration. In addition, the proceeds will not usually be included when calculating the value of the estate for Inheritance Tax purposes, although this will depend on the particular circumstances.
If a life insurance policy has not been written into trust, the insurer will usually pay the policy proceeds to the deceased’s personal representatives. The proceeds will then form part of the deceased’s estate and will be distributed in accordance with the terms of their Will or, if there is no valid Will, under the rules of intestacy. This can result in delays, as the personal representatives will normally need to obtain the appropriate authority to administer the estate, such as a Grant of Probate or Letters of Administration, before the funds can be released.
Whether a life insurance policy should be written into trust will depend on your individual circumstances, your estate planning objectives, and the needs of your intended beneficiaries. Before making any changes to an existing policy or taking out a new policy, you should seek both legal advice and independent financial advice to ensure the arrangements are appropriate for your personal and financial circumstances.
Looking at the bigger picture
One of the most common misconceptions Shirin encounters is that estate planning begins and ends with making a Will.
Although your Will remains central to your wishes, it is only one part of the overall picture. Pension beneficiary nominations and life insurance arrangements, all have an important role to play. When these documents have been prepared at different times or are not reviewed following major life events, they can unintentionally point in different directions.
A joined-up approach allows each document to complement the others. It also helps ensure your family is not left dealing with uncertainty or avoidable delays during what is already likely to be a difficult time.
Whether you have recently married, divorced, welcomed children or grandchildren, purchased a property or updated your Will, it is worth considering whether your wider estate planning should also be reviewed.
Why regular reviews matter
Estate planning should not be viewed as a task that is completed once and then forgotten. Family circumstances, financial arrangements and tax legislation all change over time.
Reviewing your Will, life insurance arrangements and pension nominations together allows you to identify any inconsistencies before they become a problem. It can also help ensure your plans continue to reflect your wishes and remain appropriate as legislation evolves.
This is particularly relevant in light of the planned pension Inheritance Tax changes, which may prompt many people to review their financial arrangements for the first time in several years.
Shirin’s says: “Making a Will is an excellent starting point, but effective estate planning is about ensuring every part of your affairs works together. Reviewing your life insurance arrangements and pension nominations alongside your Will can provide reassurance that your wishes remain up to date and may help avoid unnecessary complications for your loved ones.”
How NBB Waldrons Can Help
Every family’s circumstances are different, which is why estate planning should never be approached as a one-size-fits-all exercise.
Whether you are making your first Will, reviewing existing arrangements or would like to understand how your life insurance, pensions and other assets fit into your wider estate plan, the experienced Wills & Probate team at NBB Waldrons can provide clear, practical advice tailored to your circumstances.
With offices across the West Midlands, Worcestershire, Birmingham, Cheltenham and London, our team supports individuals and families at every stage of life, helping them plan confidently for the future.
To arrange an appointment with Shirin Hussain or another member of the Wills & Probate team, please contact NBB Waldrons today.
Frequently Asked Questions
Does writing life insurance into trust avoid Inheritance Tax?
Writing a life insurance policy into trust will often mean that the policy proceeds do not form part of your estate for Inheritance Tax purposes. However, every policy and trust arrangement is different, so professional advice should always be sought before making decisions.
What happens if my life insurance policy is not written into trust?
If your policy has not been written into trust, the proceeds will usually be paid into your estate. Depending on the size of your estate and your personal circumstances, this could affect the Inheritance Tax position and may delay payment while the estate is administered.
How often should I review my estate planning?
It is good practice to review your Will, pension beneficiary nominations and life insurance arrangements every few years and whenever there is a significant life event, such as marriage, divorce, the birth of children or grandchildren, retirement or purchasing a property.
