A life insurance policy written in trust pays out to the people you choose, outside your estate. Most guides to doing it are written for England. A few points work differently in Scotland, and one of them can change who gets the money and when.
Why people put a policy in trust
Three reasons come up most often. The payout usually sits outside your estate for inheritance tax. It can go to your trustees without waiting for confirmation, the Scottish equivalent of probate, which can take weeks or months. And you decide who benefits, instead of leaving it to your will or the intestacy rules.
Without a trust, the money goes into your estate. It can add to an inheritance tax bill, and your family may wait for the estate to be confirmed before it is released.
Where Scotland differs
Insurers' standard trust forms are usually written under the law of England and Wales. Aviva's own guide says it covers England and Wales only, and tells people living in Scotland to take legal advice. It adds that its trusts can still be used in Scotland, but that English law will then apply to them.
That leaves a Scottish family with a trust governed by English law, alongside a Scottish will and Scottish property. Two legal systems can pull in different directions. Some insurers offer a Scottish version of their form and some don't, so ask before you sign anything.
The age 16 point
In Scotland a person has legal capacity at 16. In a bare trust, where the beneficiary has an absolute right to the money, that means a Scottish beneficiary can call for it at 16. In England and Wales the age is 18.
Take a policy paying £300,000, with a nine-year-old named as beneficiary in a bare trust. If you die, the trustees look after the money. At 16 the child can ask for all of it. Most 16-year-olds haven't made a decision of that size, and the trust can't stop them.
Bare or discretionary
A bare (or absolute) trust is simple. The named beneficiaries have fixed rights, and nobody can change them later. It suits cases where you know exactly who should get the money and they are adults.
In a discretionary trust, the trustees choose from a group, such as your children and grandchildren, and decide when and how much each receives. That flexibility usually fits better when children are young or circumstances could change. It also means more administration.
The premiums you pay count as gifts to the trust. For most people they fall inside the annual exemption or the exemption for regular gifts out of income, but check this for your own position. Our guide to gifts and the seven-year rule covers both.
Choosing trustees
Name at least two, and pick people likely to be around and able to act when the policy pays out. You can be one of the trustees yourself, and many people are. If you are the only one and you die, nobody is left to claim, so add someone else you trust. Where the policy covers two of you, think through what happens if you both die together.
Common mistakes
The first is using an English form without checking which law governs it. The second is naming your estate as the beneficiary, which sends the money back into the estate and defeats the purpose.
People also forget to update the trust after a divorce, a new child or a change in who depends on them. And some assume the will controls the policy. It doesn't. Once the policy is in trust, the trust deed decides who gets the money.
How we arrange it
Richard looks at the cover you hold and who depends on it. He then arranges the trust through our specialist legal partners, using Scots-law wording, so it fits your will and the rest of your plan. See our pages on Family Protection and Trusts for how the pieces fit, and our guide to the main types of life cover if you are still choosing a policy. If you already have a policy in trust, ask whose law the document is written under.