WHEN a life policy is taken out, the beneficiary of that policy is not always named.

Usually the proceeds of the policy, upon the death of the policyholder, are added to the deceased person's estate and the benefits are then paid out under the will, if one has been prepared, once probate is completed.

Writing a life assurance policy under trust overcomes some of the administration and tax issues that arise when the policyholder dies, and Guardian Life have issued a explanatory guide about the use of trust forms in the setting up of such policies. Designed for intermediaries, the guide is user friendly enough to be utilised by non experts to investigate the issues which arise upon setting up a trust and includes five different specimen trust forms.

The advantages of setting up such trusts when buying life covers are five fold, says Guardian Life

. It allows for speedy payment since the claim is paid directly to the valid trustee(s) and grant of probate or letters of administration (required where there is no will) are not necessary

. No probate tax is payable when the proceeds are paid directly to a trust, rather than to the estate, saving up to 2 per cent of the benefit in certain cases.

. Depending on the trust form, the proposer can choose the beneficiary and can change the beneficiaries and their share of the proceeds during the life of the policy. Without a trust, the benefits would be subject to either the provisions of the will or where there was no will, the terms of the Successions Act.

. Benefits under a trust are protected from creditors since they do not form part of the proposer's estate. (This is presuming that the proposer did not set up the trust to defraud creditors.)

. Because the benefits are not part of the proposer's estate, they cannot be the subject of any claims by dependents or other relatives under the Succession Act.

The disadvantage of setting up a trust for the life policy, says Guardian, is that the policy cannot be used as collateral or security for a loan or mortgage. There may also be a problem if you set, up a trust with one class of person (such as a dependent or relative) as the potential beneficiary and then decide to switch it in favour of a different class of beneficiary.

For example, under the Married Women's Status Act trust form, only your legal spouse and child can be named as beneficiaries you cannot name a favourite niece or nephew instead.

Similarly, the Partnership Insurance/Company Director trust form restricts the beneficiaries to business partners, share holders or the company itself. A flexible trust form allows the proposer to name a far wider group of beneficiaries.

The cost of arranging a life policy under a trust is just £10 stamp "duty, a bill that Guardian Life will pay if the policy is taken out with them.

The guide is available to financial intermediaries only, but readers who require more information should contact their broker or Guardian Life at (01) 662 0100.